2025 Los Angeles wildfires: A path forward
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Howden Re has released a new report, 2025 Los Angeles Wildfires: A Path Forward, examining the widening insurance protection gap in California.
Following the devastating human tragedy in the State, the report presents an objective case for the urgent adoption of regulatory reforms and strategic investments in risk mitigation to stabilise the state’s insurance sector and ensure homeowners and businesses remain financially protected.
The tragedy in California is a wake-up call. Wildfire insurance in the state can and should work long-term but to do so requires significant reform. At its core, insurance is a force for good. What we saw in California was an avoidable capacity crisis brought on by slow-moving regulation, insufficient risk mitigation measures, and a lack of competition and innovation. It is also a canary in the coal mine. Without urgent adoption of recent regulatory reforms, the situation will worsen. Not only in California, but in other high-risk markets that must study what happened and adapt accordingly before history repeats itself elsewhere. The industry must step up and partner with policymakers to create a sustainable insurance market that benefits both insureds and the broader economy. Howden has solutions and is ready to lead.
Key findings
Causes and Impact
Loss projections
Loss creep
Protection gap
Underinsurance
Risk management
Solutions
The Path Forward: A Call to Action
New regulations implemented late last year in California to allow more pricing flexibility for private insurers by permitting the use of catastrophe modelling and incorporating reinsurance costs are important (initial) steps forward in addressing structural issues and attracting capacity back into the market.
Alongside these changes, the report presents a roadmap for stabilising California’s insurance market through a combination of regulatory modernisation, market-driven solutions, and investment in resilience. The potential impact is clear. Wildfire exposures can be mitigated by relatively simple and cost-effective measures that fall under the responsibility of local governments and communities and include disaster planning, forest management, maintenance of key / vulnerable infrastructure, building codes and ‘building back better’.
Our analysis finds that a $6 billion investment in wildfire risk mitigation could have reduced the economic losses of the Los Angeles wildfires by nearly 50%. The return of (re)insurance capital into the California market is contingent on improved resilience.
Insurance industry, regulators, and policymakers must work together to bridge the insurance protection gap, safeguard financial stability, and ensure a long-term, resilient insurance market.
Julian Alovisi, Head of Research at Howden, said: “As climate risks continue to evolve, insurers must be more agile and innovative in how they approach risk. However, this change cannot happen in a vacuum and collaboration is needed to restore balance and ensure long-term insurability. This is not just an insurance issue – it’s an economic and social imperative.”
Howden Re is monitoring developments in California and stands ready to support clients through this highly fluid and challenging period. Please get in touch to discuss how we can help.