Insurance Nightmare: Why Thousands Had Policies Canceled Before LA Wildfires
Despite dropping thousands of policies in the months before the wildfires broke out, insurance companies are facing steep losses, with estimated damages from the fires already exceeding $250 billion.

When the Los Angeles wildfires erupted, reducing thousands of homes to ash and leaving countless families displaced, a secondary crisis was already smoldering. Thousands of homeowners in areas like Pacific Palisades faced the flames uninsured after major insurers canceled their policies in the months leading up to the disaster. The fallout highlights a growing crisis in the insurance industry, driven by the escalating risks of climate change and exacerbated by regulatory challenges.
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Policies Dropped, Homes Uninsured
In July 2024, State Farm dropped around 1,600 policies in Pacific Palisades alone. California Department of Insurance spokesperson Michael Soller said this trend wasn’t isolated. Over 2,000 policies were also canceled in nearby zip codes, including affluent neighborhoods such as Brentwood and Calabasas. Homeowners were left scrambling for alternatives, often turning to the California FAIR Plan—the state’s insurer of last resort.
In a statement to Euronews, a State Farm spokesperson said the insurance company is currently processing over 5,700 wildfire-related home and auto claims while commenting:
“California’s insurance market is uniquely complex, but we remain engaged with state officials to improve the availability of insurance for residents.”
Yet, for many, the damage was already done.
Though a lifeline, the FAIR Plan offers limited coverage at steep costs. By 2024, approximately 1,400 homes in Pacific Palisades were insured through the FAIR Plan, a fourfold increase from 2020. With premiums averaging $3,200 annually, more than double the typical homeowner’s insurance cost, some opted to forgo coverage altogether. Tragically, many of these uninsured homes were among the thousands lost in the fires.
Mounting Costs and Unprecedented Losses
The economic toll of the wildfires is staggering. AccuWeather estimates total damages could reach $275 billion, potentially making these fires the costliest natural disaster in US history.
Jonathan Porter, AccuWeather’s Chief Meteorologist, described the devastation, stating:
“These fast-moving, wind-driven infernos have created one of the costliest wildfire disasters in modern US history. Hurricane-force winds sent flames ripping through neighborhoods filled with multi-million-dollar homes. The devastation left behind is heartbreaking, and the economic toll is staggering.”
The fire’s impact is expected to weigh heavily on the insurance sector. Analysts at Wells Fargo and Goldman Sachs project losses for insurers, including Allstate (NYSE: ALL), Chubb (NYSE: CB), Travelers (NYSE: TRV), and American International Group (NYSE: AIG), could exceed $30 billion. Homeowners are also bracing for higher premiums nationwide as insurers spread the cost of losses across the country.
The Climate Change Calculus
Insurers’ withdrawal from California underscores the growing difficulty of assessing risk in the age of climate change. In recent years, more than 100,000 Californians have seen their insurance policies canceled.
Dave Jones, director of the Climate Risk Initiative at UC Berkeley’s School of Law and former California insurance commissioner, warned:
“We’re marching toward a future where insurance is not going to be available or affordable.”
For insurers like Progressive (NYSE: PGR) and Allstate, unpredictable wildfire patterns have made covering high-risk areas untenable. Regulatory constraints in California, which long restricted insurers from raising premiums based on forward-looking risk models, compounded the problem. In January, new regulations allowed insurers to use catastrophe modeling to price policies, a move aimed at stabilizing the market. However, these reforms came too late for many.
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A Broken System or a Harbinger?
The implications of California’s insurance crisis extend far beyond the state.
Cathy Seifert, senior VP and equity analyst at CFRA Research, commented:
“Homeowners outside California should not get a false sense of security about their situation vis-à-vis homeowners insurance.”
Cross-subsidizing—where insurers offset losses in one region by raising premiums in another—means homeowners in less disaster-prone states may soon feel the ripple effects.
Financial institutions, including JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC), are closely monitoring the crisis. Both banks have warned that the growing number of uninsured properties could destabilize the housing market, as mortgage availability depends heavily on adequate insurance coverage.
Seeking Solutions Amid the Ashes
In response to the crisis, California Insurance Commissioner Ricardo Lara introduced regulations mandating insurers to expand coverage in high-risk areas. Over the next decade, companies must increase their coverage in wildfire-prone regions by 5% every two years until they reach 85% of their statewide market share.
Commissioner Lara stated:
“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change.”
However, critics argue the plan’s reliance on reinsurance costs could hike premiums by as much as 40% without guaranteeing immediate relief.
Consumer advocacy groups, including Consumer Watchdog, remain skeptical, with the group’s executive director, Carmen Balber, stating:
“This new policy is guaranteeing higher rates but not necessarily access to coverage. The commissioner has granted the insurance industry what it wants. There are so many loopholes and lack of teeth in the rule that homeowners won’t see expanded coverage for a very long time, if at all.”
The Road Ahead
As the embers cool in Los Angeles, the question remains: How can homeowners, insurers, and policymakers adapt to a world where climate risks are no longer exceptions but the rule? For now, thousands are left to rebuild—some with insurance checks, others without—as the state grapples with preventing future disasters and the systemic challenges they bring.
With insurers like Goldman Sachs (NYSE: GS) and American International Group facing mounting losses, the future of home insurance hangs in the balance. Whether California’s reforms will stabilize the market or spark further upheaval remains to be seen. Still, one thing is certain: the destruction of the wildfires has ignited a reckoning in the insurance industry.
Insurance Stocks Rebound After Selloff
After plunging on Friday, shares of insurance stocks rebounded this week, closing the past two trading sessions in the green.
After falling 5.6% on Friday, shares of Allstate (NYSE: ALL) rebounded over the past two trading sessions, closing up 2.34% at $186.81 on Tuesday.
Chubb (NYSE: CB) stock dropped 3.4% on Friday but has since battled back, closing Tuesday’s trading session up 1.43% at $265.51.
Travelers (NYSE: TRV), which fell 4.3% on Friday, has rallied this week. TRV stock closed Tuesday at $236.93, up 1.54% on the day.
Progressive (NYSE: PGR) and American International Group (NYSE: AIG), which each slid around 1% on Friday, have also seen their stocks rebound this week. PGR closed Tuesday up 1.69% at $239.76, and AIG finished the day at $72.59, up 2.47%.
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