Historically, strong federal environmental regulations drove government action to manage water resources -- that’s changing as more communities experience flooding and see the benefits of nature-based solutions to mitigate those impacts.
Insurers play a key role in sending risk signals, sometimes in a form other than price. These risk experts need to lead by reframing the “insurance crisis” as the “insurability crisis,” and leveraging a time-tested safety standard approach to align a complex ecosystem of competing interests.
Homeowners who built their homes to IBHS certified FORTIFIED standards saved thousands after Hurricane Sally hit in 2020. The FORTIFIED building standard is saving homes from Category 3 storm damage, and also saving homeowners and insurance companies costs on annual insurance premiums and claims.
California has high standards for wildfire, but even with policy changes, adoption is slow. The LA Fires will likely drive up rent prices, fueling displacement in the region. The fires are straining an already imbalanced CA insurance market.
The impacts of the Los Angeles wildfires have been devastating, with damage estimated at $250B (as of January 21st). The intensity of these wildfires—physical, emotional, and economic—reveals the convergence of systemic issues that have culminated in a 'perfect storm.’ Here are some early considerations:
1. Building above code and with fire-resilient design practices can mitigate and prevent wildfire damage.
Amidst widespread wildfire destruction, why do some homes remain standing? One widely cited example from architect Greg Chasen was built in 2024 and featured critical design choices that protected the home, including: 1) a metal roof, 2) a vegetation-free yard, and 3) cast-in-place concrete walls; all measures that help minimize combustible materials and prevent embers from catching fire. The Los Angeles Times highlights many other examples of homes that survived the fire, and Reuters interviewed homeowners Karina Maher and Michael Kovacs whose property withstood the fires due to thoughtful design to protect against fire and wind.
2. California has high standards for wildfire, but even with policy and code changes, adoption is slow.
California has some of the strictest building codes in the country for development in the wildland urban interface, such as requirements for fire resistant roofs and siding. More than four years ago, California passed a fire-safety law to implement the “five-foot” rule which is intended to keep the five-feet of perimeter around a structure free of potentially combustible material. However, the rule's implementation has been sluggish and entangled in politics, hindering its full enforcement. The LA fires raise questions about how development practices and building codes–where and how homes are built–will need to shift in order to ensure a more resilient future.
3. The concept of the “wildfire season” is changing.
The “typical” fire season has historically been thought to be from May to October. As of mid-January 2025, the fires in Los Angles have already collectively burned more than 63 square miles. In this year’s LA fires, the catalyst for the destruction has been the Santa Ana winds, which moved embers and flames at 100 mph. In general, the Santa Ana winds have been moving to later in the year, shifting from the wetter fall to the drier winter. In combination with extreme heat in summer of 2024 and then 96% less rainfall than usual in fall of 2024, the extreme winds positioned Los Angeles to experience ideal fire conditions for high intensity destruction.
4. The Los Angeles Fires will likely drive up rent prices, fueling displacement in the region.
Los Angeles has long struggled with affordable housing with the number of apartment units approved for development by the city hitting a 10-year low in 2024. With short supply and high demand from displaced residents, rentals are likely to face sharp increases in prices. In an analysis of the effects of severe disasters on rental housing markets, The Brookings Institution found that rent prices increase 4% following a disaster in a community. Rental prices of units on the market have already gone up 15-20%, since the fires. Higher-income residents will likely have means for rental housing, adding competition to the rental market. As has been true in prior disasters, these rental spikes are likely to disproportionately impact BIPOC households. In Altadena in particular, where the Black homeownership rate is nearly double the national rate at 81.5%, residents are concerned about being priced out of their community due to high rebuilding costs.
5. The LA fires are straining an already imbalanced CA insurance market.
Insurance claims from the recent Los Angeles fires are expected to be between $20-$45B, but the California Insurance market has suffered declining insurance coverage since before the current wildfires. Two key factors have contributed to the continued challenges: 1) growing risk from a combination of severe weather and more exposed assets; and 2) prior CA insurance regulation that prevented insurers from fully pricing in the risk. In 2024, State Farm declined to renew 72,000 home insurance policies. This put further strain on California’s state insurance plan, FAIR, which is the “insurer of last resort” for homeowners rejected by private insurance. Between September 2020 - 2024, the number of policies in the FAIR plan ballooned by 123%. In total, the FAIR plan policies represented $458 billion in exposure as of Fall 2024, with reported exposure of $5.9 billion in the Palisades. Meanwhile, the plan’s surplus was only $200 million as of March 2024. The strain on the state system has prompted California insurance regulators to make changes in an attempt to persuade insurers to come back to California, including instituting new pricing regimes and rate increases.
At the recent Milken Global Conference, rebuilding LA was top of mind. Partnership, system-level engagement, and local leadership were key themes. And the insurance sector has a critical opportunity to reframe its role in disaster preparedness and society at large.
Unexpected disasters are causing damage in unlikely places, forcing decision-makers in the public and private sectors to prepare for the most common disasters in their region as well as the rare, once-in-a-hundred-year ones. But strategies exist to help decision-makers prepare for the unexpected.
Part II of our Wildfires Briefing explores four categories of opportunity for the private sector: 1) Implementing modern building materials and codes; 2) Technologies for better fire management; 3) New insurance models; and 4) Private financing for forest management.
Climate change and federal policies are making wildfires more frequent and intense. Migration patterns are increasing the exposure of assets to wildfire threats. And assets that are more vulnerable to wildfires translate into higher costs.
