California’s 2025 Wildfires.👩🏼‍🚒 / 🔥 /🏘️. Real Estate and Insurance impacts are just the beginning

As we grieve the colossal loss and trauma suffered by Los Angeles residents, and the many other communities devastated by this year’s California wildfire outbreak, there will also be many unfortunate impacts to real estate and insurance markets.

Surreal in many ways. Firefighters clearing debris in a Los Angeles county firebreak, covered in pink fire retardant (Ringo Chiu/Reuters)

To give just a small sense of the scale of these natural disasters, the Eaton and Palisades fires, alone, are among the deadliest in California history, and most destructive. As of the date of this post (1-24-25), those two wildfires have yet to be fully contained, and are among dozens of fires reported in California this month alone. The uptick in wildfire devastation goes well beyond California – see chart below from the OECD, showing nation-wide wildfire losses since 2000. This is the result of many factors, including rapid development of wildfire-prone woodlands, depleted groundwater reserves, and increasing droughts.

As wildfire containment presses on, this advisory notice provides a brief overview of some of the legal fallout to the insurance and real estate markets.

Insurance Markets and Placements:

• Rising Premiums: With estimates of the Palisade and Eaton fires ranging from $20 billion to $45 billion, California’s latest wildfires are certain cause homeowner premiums to increase, even for those outside of high-risk areas.
• Coverage Restrictions: Insurers may also reduce policy coverage limits, increase deductibles, or impose stricter requirements for wildfire mitigation measures.
• Non-Renewals: Some homeowners in high-risk areas may face non-renewal of their policies or difficulty finding coverage in the standard market.  
• FAIR Plan Reliance: The FAIR Plan (Fair Access to Insurance Requirements), California’s insurer of last resort for wildfire coverage, will likely see a surge in applications as homeowners struggle to find coverage in the private market. This could strain the FAIR Plan’s resources and lead to higher premiums or limited coverage options.  
• Reinsurance Costs: Reinsurance companies, which provide insurance to insurance companies, are also likely to increase rates, further impacting the cost of insurance for homeowners.  

Real Estate Market Impacts:

• Reduced Housing Stock: The destruction of homes in the wildfires will further constrict the already tight housing market in Los Angeles and surrounding areas. This could lead to increased competition for available homes and drive up prices.  
• Shifting Market Demands: Buyers and renters are likely to prioritize areas with lower fire risk, potentially leading to increased demand and higher prices in more protected areas. Conversely, property values in fire-affected areas may decline due to rebuilding challenges and insurance concerns.
• Rebuilding Challenges: Rebuilding in fire-prone areas will become more costly and complex due to stricter building codes, increased material costs, and potential delays in obtaining permits and insurance.
• Disclosure Requirements: Sellers and real estate agents have a legal obligation to disclose wildfire risk and any known fire-related damage to potential buyers.
• Impact on Development: Wildfire risk may influence future development patterns, with a greater emphasis on fire-resistant construction, defensible spaces, and community-level mitigation efforts.

Legal and Regulatory Considerations:

• Insurance Regulations: The California Department of Insurance (CDI) has regulations in place to protect consumers, such as mandatory one-year renewal after a state of emergency and requirements for mitigation discounts.
• Building Codes: California already has stringent building codes for fire-resistant construction in high-risk areas. These codes may be further strengthened in response to the recent wildfires, but must be balanced against the rising costs of construction that is likely to worsen as a result of this catastrophe.
• Land-Use Planning: Local governments may re-evaluate land-use policies and zoning regulations to promote fire safety and community resilience.

Other Resources:

• List of resources to help CA’s wildfire victims: https://metropolismag.com/viewpoints/how-to-help-the-communities-affected-by-the-los-angeles-wildfires/
• Primer on the role of insurance in managing wildfire risks, by the OECD: https://www.oecd.org/en/blogs/2025/01/the-crucial-role-of-insurance-in-managing-wildfire-risks.html
• California’s Department of Insurance website, with many other resources for CA homeowners: https://www.insurance.ca.gov/