California Wildfires Push Insured Losses Past $30 Billion in Costliest Disaster Yet

The January 2025 wildfires that swept through Southern California have officially become the most expensive wildfire disaster in U.S. history. With more than 16,000 structures destroyed, the California Department of Forestry and Fire Protection has marked this event as unprecedented. Morningstar DBRS now estimates insured losses will exceed $30 billion, and the California Department of Insurance reports that over 38,000 claims have been filed to date, with insurers having paid out more than $12 billion.

The financial impact varies widely among insurers depending on their exposure in California and reinsurance arrangements. Mercury General, heavily concentrated in the state, has been among the hardest hit. The California FAIR Plan, designed to insure high-risk properties, reported $4 billion in losses and is imposing a $1 billion assessment on private insurers to help cover the shortfall after its surplus dropped drastically.

State Farm General, California’s largest homeowners insurer, reported $7.6 billion in gross losses, though reinsurance coverage limited its net losses to $612 million. It filed for a 22% emergency rate hike in February, which received provisional approval pending an April 8 public hearing. As insurers face rising reinsurance costs and increased wildfire risk, many are calling for more flexible rate-setting policies to reflect the state’s evolving risk landscape.

Reinsurers are absorbing around $5 billion of the losses, according to Morningstar DBRS. This has led to increased retention levels and reinstatement premiums for carriers like Farmers and Mercury General. California regulators have responded by approving new rules in December 2024 allowing insurers to pass reinsurance costs to policyholders, though further reforms may be needed. With continued pressure on the FAIR Plan and regulatory delays in rate adjustments, concerns about the long-term sustainability of California’s insurance market persist.