The Los Angeles area wildfires that broke out in the early days of 2025 were not particularly large wildfires, but the location in highly populated residential neighborhoods made them particularly destructive. According to USGS, the January fires burned more than 40,000 acres, destroyed more than 12,300 structures and force approximately 200,000 residents to evacuate. The insurance industry will play a pivotal role in assessing the damage and supporting the recovery.
While the causes are still being investigated, it’s clear that the strong Santa Ana winds helped spread the fires and hinder containment efforts. Some people suspect that utility providers may have played a role in the fires, and FOX 11 says that surveillance video suggests that the Eaton Fire may have been caused by a Southern California Edison power line.
If this proves to be true, the company could be on the hook for some of the costs. CNN says PG&E agreed to pay $45 million to settle penalties for its role in the Dixie Fire in 2021, and the Los Angeles Times says formed PG&E executives also agreed to a $117 million settlement over its role in the Camp Fire in 2018 and the North Bay Fire in 2017.
Insurance Coverage for Losses
AccuWeather estimates that damages and economic loss from the Los Angeles are wildfires will exceed $250 billion. Some of these losses will be covered by insurance, and CoreLogic says the insured losses could be from $35 billion to $45 billion.
The difference between insured losses and total losses is significant. According to CBS News, an independent insurance adjuster has said that many houses in the area were underinsured. Some property owners went without any insurance at all due to rising premiums.
San Franscisco Chronicle says the two insurers – State Farm General and the California FAIR Plan – insure the largest number of homes impacted by the fires. The FAIR Plan is the state’s insurer of last resort, and its market share has grown as other insurers pull out of the state. Insurance Journal reports that there has been some uncertainty as to whether the FAIR Plan has enough cash to cover the wildfire claims. Although the insurer has reinsurance, the deductible may exceed the cash reserves, resulting in a protection gap.
This could result in an assessment that requires other insurers and their policyholders to pay the difference. Under California law, if the assessment is $1 billion or less, insurers can pass up to 50% to their policyholders. For any amount over $1 billion, insurers can pass 100% of the costs on to their policyholders.
The Clean Up and Rebuilding Process
As of January 28, both the Palisades and the Eaton Fires are still burning, although they are mostly contained. For many property owners, the long recovery process has begun. AP News says that residents have started to return to the neighborhoods that were ravaged by wildfires to see what remains. However, access to the area has been restricted, and people have to wait in traffic and then show ID to be allowed into the burn zone.
As more and more residents and business owners take stock of the damage, insurers can expect to receive more claims. Claim handlers will have their hands full dealing with the property damage losses to buildings and vehicles, as well as business disruption claims.
How Can Claims Handlers Help?
The wildfires have resulted in devastating losses. Although claims professionals will be busy trying to keep up with the surge in claims volume, it’s also important to maintain empathy in the wake of this disaster.
Claimant frustration is likely. Some claimants may be distressed to discover they were underinsured, while others will just be confused by the claims process and upset that it will take a while. Strong claims communication and transparency will be key to fostering trust.
VCA’s claims management software can help claims professionals efficiently serve customers who have been impacted by disasters like the Los Angeles area wildfires. Highly scalable and packed with automations to speed up claims processes, VCA Software can improve the claimant experience while increasing efficiency and controlling costs. Learn more.
