The Return Period for An LA Wildfire-Scale Event May Be Shorter Than You Think
There has been no shortage of analyses and reporting released for the one-year anniversary of the January 2025 Los Angeles wildfires, which destroyed more than 16,000 properties and have generated more than $22 billion in claims so far.
A one-year report on the L.A. wildfires from Morningstar DBS Research called the fires “a significant stress event” for California’s property/casualty insurance sector. An Associated Press investigation showed that fewer than a dozen homes have been rebuilt in L.A. County. The California Department of Insurance reported the number of claims at 42,000-plus and counting from the fires.
Alarmingly, a report out this week asserts that the return period for wildfires of such scale and severity could be shorter than may be commonly believed due to a changing climate and building practices that have put increasingly more homes in and around the wildland-urban interface.
The impact of the L.A. fires helped kickstart a series of reforms from the state’s insurance regulator and lawmakers, including changes to California insurance law to enable carriers to use more sophisticated catastrophe models and get rate hike requests reviewed more quickly while requiring those that get rates to write homeowners insurance in riskier areas of the state.
Related: California Bill Would Require Insurer Claims Handling Plans, and Double Penalties
The latest proposed change is the Disaster Recovery Reform Act, Senate Bill 876, which would also require a disaster recovery plan from insurers for handling claims effective in emergency situations and it would double penalties during declared emergencies for violations of insurance fair claims practices and settlement law.
However, for all the changes designed to help homeowners find affordable insurance, one reality won’t be easy to fix.
Climate change has redefined wildfire risk in California, where rising temperatures, prolonged drought and “weather whiplash” with rapid swings between wet and dry conditions, has led to extended fire seasons that are no longer rare tail events but are increasingly probable, a new report from Gallagher Re shows.
The Gallagher Re report estimates that the total insured value exposed in the L.A. fires represents a one-in-35-year return period, establishing a new baseline for modern wildfire risk under current climate and exposure conditions.
“The environment in California is changing, right?” said Toby Hardman, executive vice president and co-lead of sales for Gallagher Re North America, who was one of authors of report. “It’s not constant. So, where maybe someone might have thought that event would have been a much higher return some time ago, because of the world that we’re in…because of all the different dynamics that go into loss potential, you can see bigger numbers come out at lower return periods,”
Related: JPMorgan, Citi Extending Mortgage Relief for LA Wildfire Victims
The report also shows a shift in fire risk in the state by region. While Southern California remains highly vulnerable to insured losses from wildfires due to high-value property concentrations and the annual Santa Ana winds, Northern California experienced a sharp rise in fire frequency and severity. Eighteen of Northern California’s 20 costliest wildfire events have occurred since 2015, shifting statewide average annual losses to a nearly 50/50 split between Northern and Southern California, the report shows.
It also points to changes such as insurance market disruption in the state and unwanted FAIR Plan growth, as admitted insurers retreated from insuring homes in risky areas, forcing homeowners to increasingly rely on excess & surplus markets and the FAIR Plan. Fair Plan exposure ballooned from $167 billion in 2021 to nearly $700 billion in 2025. The FAIR Plan now insures a large share of high-risk properties, creating systemic risk for carriers through assessments following major losses, according to the report.
These shifts have also changed the dynamics of reinsurance for the state’s homeowners insurers, Hardman said.
“There’s been, we think, kind of a stair-step change in terms of what’s happened in California for multiple reasons, not just the loss but other reasons in terms of the availability to different amounts of reinsurance and their requirements and they made the admitted market write more hazardous areas,” Hardman said. “And, really, wildfire is different than any other peril in that you could have really large loss numbers from a very few number of homes or buildings that go down. And as a result, you can have radically outsized overperformance or underperformance for individual insurance companies.”
Top photo: The Palisades, Los Angeles, January 2025. Source: CalFire.