Wildfires, Insurance, and Climate Change: A Crisis Unfolding in California
The fast-moving wildfires currently raging in Southern California, including the Palisades, Eaton, and Hurst fires, are not just leaving physical devastation in their wake but are also exposing the fragility of California’s insurance market in the face of climate change. With thousands of residents displaced and homes destroyed, the intersection of wildfire risk, climate change, and insurance policies has come into sharp focus.
Southern California’s wildfire season is becoming increasingly destructive, driven by climate change. Rising temperatures, prolonged droughts, and unpredictable wind conditions exacerbate the frequency and intensity of fires. According to the U.S. Environmental Protection Agency (EPA), the total area burned by wildfires has increased dramatically in recent decades, with longer fire seasons now the norm. Researchers at the National Interagency Fire Center report that 2023 saw over 70,000 wildfires nationwide, burning 10 million acres, underscoring the mounting threat.
As of January 8, the Palisades fire alone has scorched 2,900 acres, forcing over 30,000 people to evacuate. Fueled by strong winds and dry conditions, the warming climate makes containment efforts challenging.
Homeowners rely heavily on insurance to rebuild their lives after disasters, but many find themselves without coverage. Over the past few years, private insurers have reduced exposure in high-risk areas like Southern California. For instance, State Farm canceled 72,000 policies in the state in 2024, citing the financial toll of wildfires. As reported by ABC7 Los Angeles, this move left 1,600 homes in Pacific Palisades uninsured, making recovery for these homeowners even more difficult.
This trend has pushed many residents toward California’s FAIR Plan, a last-resort insurance option for high-risk areas. However, FAIR Plan policies are often more expensive and provide limited coverage than traditional insurance. The California Department of Insurance has noted that while FAIR Plan participation doubled between 2020 and 2024, it still falls short of meeting the growing demand for affordable, comprehensive wildfire insurance.
The financial strain of wildfire recovery is immense, especially for those underinsured or entirely uninsured. In one tragic case highlighted by CNN, a family displaced by the 2018 Camp Fire relocated to a new home in Northern California, only to lose it to the 2024 Park Fire. Without insurance—due to skyrocketing premiums—they faced financial ruin.
This isn’t an isolated issue. Data from the Insurance Information Institute (III) reveals that insurers paid $13 billion in wildfire-related claims in 2021 alone. With the increasing severity of wildfires, this figure is expected to climb, potentially destabilizing the insurance market further.
California lawmakers are trying to address this crisis. In December 2024, new regulations were introduced requiring insurers to provide coverage in wildfire-prone areas. While this move aims to curb the exodus of insurers from the state, the long-term success of such measures remains uncertain. Critics argue that the insurance market will remain vulnerable unless these regulations are paired with climate adaptation strategies—such as community fireproofing and improved land management.
The California Climate Insurance Working Group has recommended innovative solutions, including regional risk pools and public-private partnerships, to ensure equitable access to insurance. The growing insurance crisis may expose thousands to financial catastrophe without swift action.
As wildfires raged across Los Angeles on Tuesday, the Palisades fire revealed critical infrastructure weaknesses in one of the city’s most affluent neighborhoods. Firefighters responding to the blaze reported dry hydrants in Pacific Palisades, severely hampering their ability to combat the flames.
“The hydrants are down,” one firefighter reported on internal radio systems, while another confirmed, “Water supply just dropped.” The lack of water left firefighters struggling to save homes, businesses and lives in an area under siege by strong winds and unrelenting fire.
Rick Caruso, a prominent L.A. developer and former commissioner of the city’s Board of Water and Power, echoed these concerns. Speaking to The Los Angeles Times, Caruso confirmed that his staff at Palisades Village, a shopping center he owns in the heart of the neighborhood, had also reported dry hydrants. "We’ve got neighborhoods burning, homes burning, and businesses burning," Caruso said. "It should never happen."
The Los Angeles Department of Water and Power (DWP) acknowledged the issue, stating that water crews were working in the neighborhood to ensure water supplies. The affected area relies on water tanks, which are closely monitored during emergencies. However, the DWP did not provide details on how many hydrants were impacted or the extent of the disruption.
Caruso criticized the city’s aging infrastructure, suggesting that problems with the reservoirs feeding the neighborhood’s hydrants were at the root of the crisis. “This is a window into a systemic problem of the city—not only of mismanagement, but our infrastructure is old,” he said.
This isn’t the first time water shortages have hindered firefighting efforts. In November 2024, similar issues during the Mountain fire in Ventura County slowed efforts to deliver water to hillsides, contributing to the fire’s destruction.
The wildfires in Southern California are a stark reminder of the challenges climate change poses.
As homes burn and communities are displaced, the insurance industry faces an existential question: how can it balance profitability with providing a safety net for at-risk people?
How can Los Angeles address its aging infrastructure and systemic water supply issues to ensure firefighters have the resources to protect lives and property during future wildfires?
For up-to-date information, visit the Malibu City Information Page.
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