Howden Re Releases California Wildfire Protection Gap Analysis, Urging Market Reforms to Restore Insurance Capacity

London, 10 February 2025 – Howden Re, the global reinsurance, capital markets, and strategic advisory arm of Howden, has released a new report, 2025 Los Angeles Wildfires: A Path Forward, examining the widening insurance protection gap in California. 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. 

A Crisis of Underinsurance and Market Withdrawal

The California insurance market has reached a tipping point. A series of catastrophic wildfires and a regulatory environment that has stifled supply and competition by restricting risk-based pricing have seen several major insurers withdraw from the market. This has left homeowners and businesses with limited or no options for coverage, presenting a substantial yet avoidable financial risk to the state. Following recent carrier withdrawals, the number of uninsured or underinsured households and businesses increased in the years leading up to 2025. 

Modelled insured loss projections for the wildfires range from $20 billion to $45 billion. However, a growing share and dollar value of economic damages remains uncovered, exposing property owners and state resources to extreme financial strain. 

California’s regulatory environment has limited insurers’ ability to accurately price wildfire risk. For years, restrictions on risk-based pricing have made it unprofitable for admitted-market insurers to provide coverage in fire-prone areas, leading to mass policy cancellations, reduced underwriting capacity, and an over-reliance on the state’s insurer of last resort, the FAIR Plan.

• The California homeowners’ market slumped to a US$10 billion underwriting loss over the past decade, driven by low prices. 
• The level of protection offered by the FAIR Plan – $3 million for residential properties and $20 million for commercial entities – has proved to be insufficient for high-value homes and businesses impacted by this year’s fires.
• California’s FAIR Plan is now covering more policyholders than ever, yet its exposure exceeds its claims-paying ability. The plan’s resources are insufficient to absorb growing wildfire losses.
• According to the California Association of Realtors, purchases are being impacted, with nearly 7% of California home sales failing in 2023 due to unaffordable insurance costs.
• The admitted market lost approximately 200,000 residential policyholders in 2023, even as regulators applied moratoriums on non-renewals and policy cancellations.

Tim Ronda, CEO of Howden Re, commented: “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.”

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, Howden’s 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’. 

Howden 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.
The report identifies several other key actions needed to attract capital and restore confidence in California’s insurance market:

• Expanding Public-Private Partnerships: Collaboration between insurers, regulators, and policymakers can help distribute risk more effectively and ensure adequate insurance availability.
• Incentivising Risk Mitigation: Homeowners who invest in fire-resistant upgrades should receive premium reductions to encourage better resilience.
• Innovating Insurance Solutions: New models, including parametric insurance and MGA-backed solutions, can provide additional protection in high-risk areas.

The 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.”