The Palisades and Eaton fires in Los Angeles in early January collectively burned over 37,000 acres and destroyed over 16,000 structures. As insurers and reinsurers in the state begin to assess their exposure to the catastrophe, it’s important to understand at a high level what those losses may look like and the various components that contribute to industry losses from a catastrophic fire event.
We estimate the insurance industry losses for the Palisades and Eaton fires at $25.2 billion to $39.4 billion using California Department of Forestry and Fire Protection (CAL FIRE) damage data on individual structure and Federal Emergency Management Agency (FEMA) replacement cost data.
These estimates do not include the following
- Losses from fires other than Palisades and Eaton
- Losses from the ordinance or law coverage (building code upgrade coverage) discussed below
- Losses from hazardous waste cleanup, vandalism, or civil commotion
- Loss adjustment expenses, which averaged 12% for the homeowners line in 2024
- Losses exacerbated by litigation, fraudulent assignment of benefits, or social inflation
- Salvage and subrogation1
This article describes the analysis, its methodology, important insurance coverage and regulatory considerations, and how extreme weather events and climate change are impacting the insurance industry.
Increasing frequency of catastrophic events
The frequency and severity of extreme weather events have been increasing globally.2 As reported by the National Ocean and Atmospheric Administration (NOAA), and summarized in the table in Figure 1, the frequency of weather/climate disaster events impacting the United States, with losses exceeding $1 billion, has steadily increased each decade from three per year in the 1980s, to 27 in 2024. The cost per year has also increased, from $22.0 billion per year on average in the 1980s, to $182.7 billion in 2024.3
Figure 1: Frequency and intensity of weather/climate disaster events, 1980-2024
| Time Period | Events/Year | Cost/Year (CPI Adjusted Billions) |
Deaths/Year |
|---|---|---|---|
| 1980-1989 | 3 | 22.0 | 299 |
| 1990-1999 | 6 | 33.5 | 308 |
| 2000-2009 | 7 | 62.1 | 310 |
| 2010-2019 | 13 | 99.5 | 523 |
| 2020-2023 | 22 | 141.0 | 488 |
| 2024 | 27 | 182.7 | 568 |
Source: NOAA https://www.ncei.noaa.gov/access/billions/summary-stats#temporal-comparison-stats
In 2024, there were 27 confirmed weather/climate disaster events with losses exceeding $1 billion. These events included one drought event, one flooding event, 17 severe storm events, five tropical cyclone events, one wildfire event, and two winter storm events. These events had significant economic effects on the areas impacted, including 568 deaths.4 Figure 2 is a depiction of these events across the United States.
Figure 2: U.S. 2024 billion-dollar weather and climate disasters
Source: NOAA
In Southern California, what were historically rare extreme weather events are increasing in frequency and becoming regular events. During February 2024, Los Angeles recorded the heaviest rainfall since 1988, followed by the second-driest season since at least 1877, when records were first kept.5 The heavy rainfall spurred growth of vegetation, followed by 10 months of the lowest rainfall in a century, drying out the vegetation. This dry vegetation fueled the wildfires as the 100 mph Santa Ana winds spread the flames across densely populated areas.
As of February 5, 2025, the Palisades and Eaton fires were 100% contained. They collectively burned over 37,000 acres, destroyed over 16,000 structures (residential and commercial), damaged over 2,000 more, and took 29 lives.6 Figures 3 and 4 illustrate the distribution of damage for each fire as reported by the CAL FIRE Damage Inspection (DINS) database.7
Estimated cost to rebuild
The estimated cost to repair or rebuild structures was determined using the following:
- Combine structure-level damage reports from CAL FIRE’s DINS for the Palisades and Eaton fire with U.S. Census Bureau (USCB) and FEMA databases to arrive at location-specific loss estimates.
- The loss estimates vary by type of structure (Habitational vs. Other), amount of damage (not affected through fully destroyed), and location as reported in CAL FIRE’s DINS.
- “Habitational” includes single-family homes, multifamily houses, mobile homes, and mixed residential/commercial structures.
- “Other” includes churches, hospitals, schools, and other commercial structures.
- Estimates were brought to 2025 cost levels to account for inflation and the rising cost of labor.
- Additionally, costs were increased to account for the demand surge that usually follows a catastrophe, which occurs due to increase in usage of services like demolition and construction.
The estimated 2025 replacement cost estimate varied depending on the structure type within each of the Habitational and Other categories and by wildfire. Figure 5 illustrates the estimated replacement cost by structure type, split out by each of the Palisades and Eaton fires.
Figure 5: Average replacement cost by structure type ($ thousands)
For Habitational, the average estimated replacement cost was $955,000 for the Palisades fire, which is 66% higher than the $574,000 for the Eaton fire. For Other structures, the average estimated replacement cost was $1.2 million for the Palisades fire and $827,000 for Eaton fire. Due to the unique characteristics of structures within the Other category, the estimates are subject to considerably more variation and uncertainty.
It is important to understand that these estimates are only for the cost to rebuild a structure, and not the cost to purchase a property. The cost to purchase a property includes the land as well as the structure. The median price of a single-family home sold in the month preceding the fire in Pacific Palisades was $4.0 million,8 compared to the average estimated structure replacement cost of $955,000. The median price of a single-family home sold in the month preceding the fire in Altadena was $1.3 million, compared to the average estimated structure replacement cost of $574,000.9
Although the cost to rebuild a property does not include the cost of the land, the cost to rebuild immediately following a catastrophe can be higher due to the higher cost of labor and materials when demand exceeds supply. To account for this temporary increase, a 15% demand surge was included, which is customary in catastrophe damage models. The time to remove debris and receive approval of building permits before rebuilding can start also increases the cost to rebuild the property.10 Governor Gavin Newsom’s Executive Order N-5-25 aims to expedite the removal of debris, including toxic debris.11 Insurance Commissioner Ricardo Lara issued a notice on January 30, 2025, that admitted and non-admitted insurers pay for this cost of debris removal, up to the limits on the policy.12 To address the large volume of building permit requests expected following the wildfires, Los Angeles Mayor Karen Bass issued Emergency Executive Order No. 1 directing city agencies and departments to streamline permitting and allow homeowners to rebuild their property without upgrading to current building codes, as long as the property is rebuilt to what had been previously approved and within 110% of the current footprint and height.13 Accordingly, our estimates do not include a surcharge for the cost to upgrade the property to current building codes or the cost to rebuild using more fire-resistant designs and landscaping to harden the home against future wildfires.
Figure 6 summarizes the results of applying the damage ratio for each property to its estimated replacement costs, split out by structure type for each of the Palisades and Eaton fires.
Figure 6: Average structure damage by structure type ($ thousands)
For the Palisades fire, the average estimated cost to repair the damage or replace the destroyed habitational structure is $758,000, compared to $468,000 for the Eaton fire. This does not include the cost to upgrade to current building codes or to harden the home against future wildfires. If a rebuild takes three to five years, then the ultimate cost will be higher as building materials and labor costs tend to increase each year, which also has not been accounted for in these estimates.
In total across both fires, the estimated cost to repair and rebuild affected structures ranged from $6.9 billion to $9.3 billion for Habitational and $2.4 billion to $5.0 billion for Other structures, totaling $9.3 to $14.3 billion as summarized in the table in Figure 7.
Figure 7: Estimated aggregate repair and replacement costs ($ billions)
| Estimated aggregate cost to repair damaged and replace destroyed by structure category ($ billions) |
||
|---|---|---|
| Habitational | Other | Total |
| 6.9 to 9.3 | 2.4 to 5.0 | 9.3 to 14.3 |
Estimated insurable loss
The damage to a structure is not all that an insurance policy covers. An open perils single-family homeowners insurance policy generally covers up to 100% of the building plus another 100% of the building for contents, additional living expenses,14 outbuildings, and landscaping for a total of 200% of the building replacement cost, called the total insured value (TIV). For example, if a house with a replacement cost value of $1 million is adequately insured, and is destroyed, the insurance may cover up to $2 million across all coverages. In the event the structure is completely destroyed, there are instances when the claim payment for the structure may exceed the structure limit on the policy, resulting in a claim exceeding 200% of the damage to the structure. For example, if the homeowner purchased building upgrade coverage or guaranteed replacement cost coverage, which covers the cost to replace the dwelling even if it exceeds the limit on the policy, the claim could exceed 200% of the structure limit.
Even in the event of partial damage to the structure, after sub-limits within the policy are applied, the claim can exceed 200% of the damage to the structure. For example, if this same house is only 25% damaged, then the insurer may pay $250,000 to repair the structure, an additional $100,000 to replace the landscaping and fence destroyed in the fire, and $200,000 for additional living expenses while the house is uninhabitable for over a year as the building is repaired, for $550,000 in total. This cost is more than double the damage to the structure.
Figure 8 shows that the average estimated TIV for Habitational structures was $1.8 million for the Palisades fire and $1.2 million for the Eaton fire while Other structures was $2.5 million for the Palisades fire and $1.6 million for the Eaton fire.
Figure 8: Average TIV by structure type ($ thousands)
The above estimates only consider those properties that were included in the CAL FIRE database of impacted structures for the Palisades and Eaton fires. When fair rental value, additional living expenses, destroyed vehicles, and loss of income and business interruption expenses are considered—none of which are included in DINS—then the estimated insurance loss increases. When these additional insured amounts are incorporated, the estimated TIV is $17.9 billion to $24.2 billion for Habitational and $7.3 billion to $15.2 billion for Other structures, totaling $25.2 billion to $39.4 billion, as illustrated in the table in Figure 9.
Figure 9: Estimated aggregate insurable loss ($ billions)
| Estimated aggregate insurable loss by structure category ($ billions) |
||
|---|---|---|
| Habitational | Other | Total |
| 17.9 to 24.2 | 7.3 to 15.2 | 25.2 to 39.4 |
The table in Figure 9 includes a range of uncertainty of +/-15% for the Habitational structures and +/- 35% for the Other structures to account for the uncertainty due to data limitations.
To put these values into perspective, Figure 10 compares them to the costliest fires in the United States.15
Figure 10: Top 12 costliest wildfires in the United States
Using the comparison above, the estimated insurance loss from the Palisades and Eaton fires is more than double the insurance losses from the next-largest wildfire, which was the 2018 Camp Fire.
The above estimates do not include the costs for ensuing events such as mudslides after a wildfire event, made worse because of the lack of strong trees and vegetation in burned areas, which are considered a covered loss in California,16 or for insurers to open and manage the claims, called loss adjustment expenses. For the homeowners line of business, loss adjustment expenses averaged 12% of loss in calendar year 2023.17 In addition, these estimates assume that all properties damaged or destroyed in the wildfire were insured to full value. The estimated cost to insurers is reduced by the amount by which properties were uninsured or underinsured. LendingTree estimates that nearly 10% of properties are uninsured in Los Angeles.18
Next steps
The process of rebuilding a community, including schools, pharmacies, grocery stores, and other local services, generally takes several years following a catastrophic wildfire19 and can further increase the cost to both property owners and insurers when adjusted for inflation.
While the impact of these fires will likely be felt for a long time to come, there is hope they could prompt further activity to build more resilient infrastructure to protect against future loss of life and property. The insurance industry can take up the challenge to develop innovative insurance products and help shape regulation to handle the evolving risk of wildfire, as we discuss in a recent white paper published by Milliman, “California Homeowners Insurance: Current State of the Market and Implications of the Los Angeles Wildfires.”20
1 The cause of the Palisades and Eaton fires is still under investigation as of February 12, 2025, and it is still very early with regard to evaluating subrogation. Subrogation (where a power company is deemed responsible for a wildfire) can materially reduce the impact to insurers. For example, on September 23, 2019, PG&E announced that they executed an agreement to resolve 85% of insurance subrogation claims, representing $11 billion in insurance claims arising from the 2017 Northern California wildfires and 2018 Camp Fire. Retrieved February 5, 2025, from https://investor.pgecorp.com/news-events/press-releases/press-release-details/2019/PGE-Executes-Definitive-Agreement-Resolving-Insurance-Subrogation-Claims-Relating-to-2017-and-2018-Wildfires/default.aspx.
2 Vernick, D. (January 14, 2025). Is Climate Change Increasing the Risk of Disasters? World Wildlife Fund. Retrieved February 5, 2025, from https://www.worldwildlife.org/stories/is-climate-change-increasing-the-risk-of-disasters.
3 National Centers for Environmental Information. Billion-Dollar Weather and Climate Disasters: Summary Stats. Retrieved February 5, 2025, from https://www.ncei.noaa.gov/access/billions/summary-stats#temporal-comparison-stats.
4 National Centers for Environmental Information. Billion-Dollar Weather and Climate Disasters: Overview. Retrieved February 5, 2025, from https://www.ncei.noaa.gov/access/billions/. DOI: 10.25921/stkw-7w73
5 Los Angeles Almanac. Historical Monthly Rainfall by Season: Downtown Los Angeles, 1877-Present. Retrieved February 5, 2025, from https://www.laalmanac.com/weather/we08aa.php.
6 CAL FIRE. 2025 Incident Archive. Retrieved February 5, 2025, from https://www.fire.ca.gov/incidents/2025.
7 California Open Data Portal. CAL FIRE Damage Inspection (DINS) Data. Retrieved February 5, 2025, from https://data.ca.gov/dataset/cal-fire-damage-inspection-dins-data.
8 Realtor.com. Home values in Pacific Palisades, Los Angeles, CA. Retrieved February 5, 2025, from https://www.realtor.com/realestateandhomes-search/Pacific-Palisades_Los-Angeles_CA/overview?msockid=308e1298fdfe604e279b0666fc21617e.
9 Realtor.com. Home values in Altadena, CA. Retrieved February 5, 2025, from https://www.realtor.com/realestateandhomes-search/Altadena_CA/overview.
10 Element Homes (January 13, 2025). Average Cost to Rebuild a Home After Los Angeles Wildfire. Retrieved February 5, 2025, from https://www.constructelements.com/post/average-cost-to-rebuild-a-home-after-los-angeles-wildfire.
11 State of California. Executive Order N-5-25. Retrieved February 5, 2025, from https://www.gov.ca.gov/wp-content/uploads/2025/01/LA-Fires-EO-N-5-25_1325.pdf.
12 California Insurance Commissioner (January 30, 2025). 2025 Los Angeles Wildfires Consolidated Debris Removal Program Interaction With Insurance Policies. Retrieved February 5, 2025, from https://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commiss-opinion/loader.cfm?csModule=security/getfile&PageID=352436.
13 Starrels, A.J. et al. (January 27, 2025). Orders Addressing Rebuilding After Southern California Fires. Holland & Knight. Retrieved February 5, 2025, from https://www.hklaw.com/en/insights/publications/2025/01/orders-addressing-rebuilding-after-southern-california-fires.
14 Some policies provide coverage for additional living expenses, whereas some policies provide coverage for fair rental value.
15 See https://www.iii.org/fact-statistic/facts-statistics-wildfires for a list of the top 10 wildfires by cost in 2022 dollars, of which nine were in California. We inflated to 2025 and added the Maui wildfire insured loss amount, from https://cca.hawaii.gov/wp-content/uploads/2024/07/INS-Maui-June-2024.png, and our estimated Los Angeles wildfire TIV. The Marshal fire was in Colorado and the Maui fire was in Hawaii.
16 California Insurance Commissioners (February 4, 2025). Bulletin 2025-3: Coverage of Flood, Mudslide, and Earth Movement Claims Relating to Recent Wildfires. Retrieved February 5, 2025, from https://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commiss-opinion/upload/Bulletin-2025-3-Coverage-of-Flood-Mudslide-and-Earth-Movement-Claims-Relating-to-Recent-Wildfires.pdf.
17 Insurance Information Institute. Facts + Statistics: Homeowners and Renters Insurance. Retrieved February 5, 2025, from https://www.iii.org/fact-statistic/facts-statistics-homeowners-and-renters-insurance. The 2023 National Association of Insurance Commissioners (NAIC) Annual Statement industry defense and cost containment ratio, plus adjusting and other expense ratio, all divided by the loss ratio, minus 1.
18 Davis, M. & Shepard, D. (January 9, 2025). Wildfire Risk Highest in California, Florida, Texas. LendingTree. Retrieved February 5, 2025, from https://www.lendingtree.com/insurance/wildfire-risks-study/#california.
19 Five years after the Camp Fire in 2018, Paradise Valley is still rebuilding, as per https://www.moodys.com/web/en/us/insights/insurance/five-years-on-since-californias-camp-fire-the-fate-of-paradise.html.
20 Law, Z.W. & Alvarado, N.A. (January 2025). California Homeowners Insurance: Current State of the Market and Implications of the Los Angeles Wildfires. Milliman White Paper. Retrieved February 5, 2025, from https://www.milliman.com/en/insight/california-homeowners-insurance-los-angeles-wildfires.