By Allen Laman

When the calendar flipped to 2025, Lacey Garrison Strom was optimistic.

As the executive vice president of private client services at California-based Heffernan Insurance Brokers, Garrison Strom secures insurance coverage for affluent clients across the Golden State. Her renewals were flat–some even went down.

“I was so excited,” she reflected in a February interview. “This is going to be our year, rates are finally normalizing, we have some good news for our California clients.”

Not even a week into January, however, a devastating series of wildfires ravaged Southern California, burning tens of thousands of acres of land and destroying thousands of homes and structures.

Claims Journal reported in late January that insured loss estimates range from $8 billion for the two largest fires to $40 billion for all five. AccuWeather estimated damages and economic losses will total between $250 billion and $275 billion.

As the flames were extinguished in Southern California, insurance brokers who specialize in securing coverage for high-value and luxury homes helped their clients pick up the pieces of their lives. In interviews with Insurance Journal, they also looked ahead to how the fires could impact insurance for this segment in the area moving forward.

“The scale of this fire is so vast,” Garrison Strom said. “We’ve experienced nothing like it.”

Fires Impact on Home Insurance

Jim Tolliver, private client group practice leader at Woodruff Sawyer, explained that the catalyst for change in the overall California home insurance market can be traced back to 2017. During that year, the California Department of Forestry and Fire Protection (Cal Fire) reported that 9,270 fires burned nearly 1.6 million acres and destroyed approximately 11,000 structures across the state.

Total acreage burned by wildfires in California surpassed 1 million acres in four of the following seven years, with 2018 being “the deadliest and most destructive wildfire season on record in California,” per Cal Fire.

A record-breaking 4.3 million acres burned in 2020 alone.

In the last five years, major insurers have pulled back from the California home insurance market. This goes for both the standard market and the high-value home market.

“So, the consumer today has been left with an option that looks like, ‘Hey, I have to pay a lot more for less coverage if I can find it,’” Woodruff Sawyer’s Tolliver explained. “‘And if I can’t find it, I’m forced to go to a state-funded insurer of last resort.’”

High-Value Home Insurance

In Woodruff Sawyer’s affluent market–homes with more than a $3 million replacement cost value–state-funded coverage from the California FAIR Plan is inadequate because it tops out at a $3 million replacement cost value. Woodruff Sawyer has a niche focus in the affluent and ultra-affluent markets, and its insureds are accustomed to paying hundreds of thousands, if not millions, in premiums for personal insurance.

For those in the high-value arena, properly valuing and adjusting losses is key, Tolliver said.

When it comes to upgraded fixtures and custom home alterations, “a middle-market carrier is not meant to respond to that type of thing,” Tolliver said. High-value carriers make sure homes are rebuilt with all the same bells and whistles, he explained, and handholding throughout the claims process is a bigger priority.

Tolliver estimated that Woodruff Sawyer has more than 500 clients in California. He explained that one resident may be able to get coverage for their property, but a neighbor across the street may not. This could be due to the quality of a home, the type of building, where it sits on a street in relation to surrounding vegetation, or the home’s replacement cost valuation.

If, for example, it would cost $25 million to repair a home, carrier options dwindle significantly, and of those who can insure high-value homes, an insurer may have too much aggregation on a specific street to take on a neighboring property.

“The other part is that they may not have the capacity,” Tolliver said. “Some of the homes that we insure can be well over $50 million, sometimes double that. And the underwriting capacity might not be in the marketplace to do that at the very given time they need insurance.”

Niche brokers like Woodruff Sawyer find ways to leverage coverage through non-standard markets that exclude certain types of perils alongside options like the FAIR Plan.

In a July 2024 story published by Insurance Journal, both Tolliver and Garrison Strom reported encountering potential home buyers who can’t get insurance or people who want to sell their home but cannot because buyers are unable to get insurance to secure a loan. The carriers that independent brokers work with have largely shifted to non-admitted products in the California high-value home insurance market, Tolliver said.

David Clausen, CEO of Coastal Insurance Solutions, explained that even before the recent Southern California fires began to burn, it was virtually impossible to get a carrier to write an admitted market policy for homeowners who have a $25 million home in a very high-risk area.

“I think that as the underwriting guidelines got stricter, it often meant higher deductibles and additional documentation, mitigation measures, and certainly [for] the more expensive homes, the more closely they’re going to get looked at on an individual risk basis,” Clausen said.

Garrison Strom shared that luxury homeowner clients still had carriers that were offering some coverage in California– typically through non-admitted products –including PURE, Cincinnati Insurance, AIG, and other options.

“They weren’t cheap,” she said, “but they’re clients that could afford to pay. Some clients chose not to. We did have luxury homeowners that chose to go with the California FAIR Plan or a direct writer and underinsure their homes, if that’s what they wanted to do. Or, even with a non-admitted carrier, [they] chose to buy less coverage because it was less money.”

She said the insurance appetite specifically for luxury homes can be attributed to insurers working with clients who are remodeling homes, buying newly built homes, or undergoing ground-up construction where the insurer can require building elements such as ember-resistant vents, gutter guards, and other forms of fire-resistant hardening.

“Their homes are built differently,” Strom added. “They can wrap their arms around that risk, and also, often, that type of client comes with a portfolio. So, it’s not just one home and maybe a car and maybe an umbrella policy. Usually, there’s more coming with it, so the economics of it make sense for the carrier to take on that exposure.”

Creativity is infused in the process of securing coverage, but brokers are “very limited in the options we can provide for a home that’s … in the highest red zone you can find. In some cases, we just can’t solve that situation,” Tolliver said.

He added that some insureds pay a 50% wildfire deductible on their dwelling coverage. Tolliver often gets calls from folks in California being dropped by their carriers or being subjected to significant rate increases, exclusions, or endorsements that “reduce coverage incredibly.”

“Everybody’s cherry-picking,” Tolliver said of carriers. “And they’re going to be careful about sticking their neck out on anything they think that’s going to have a total loss.”

Fire Impacts on Luxury Carriers

It would be naïve to think the recent wildfires won’t have impacts on the high-value home insurance market in the area, Tolliver said. He believes the degree of impact will vary by carrier. Chubb, AIG, PURE, and Cincinnati Insurance have positioned themselves well over the last three to four years, he said.

“They’ve gotten their underwriting where, I think, [they] may not have the rate they want, but I think they have the risks that they want,” he said. “So, they’ve been ahead of that curve.” Tolliver said he thinks these companies are in as strong of positions as they can be, “and time will tell, really, what that means.”

Chubb has said the wildfires will cost the insurer $1.5 billion pre-tax in the first quarter. AIG estimated in February that, though it was still too early to determine the full impact of the fires, its net loss would be approximately $500 million, before reinstatement premiums.

In an earnings call, Steve Spray, president and CEO of Cincinnati Financial, shared that estimated first-quarter 2025 pre-tax catastrophe losses totaled approximately $450 million to $525 million net of reinsurance recoveries. He added that, had the wildfire effect occurred in 2024, “we believe we would still have earned a modest underwriting profit.”

Garrison Strom said that most of the luxury markets saw this coming. While direct writers with lots of volume got hit the hardest, the luxury home insurers have healthy portfolios, she said. They have healthy reinsurance treaties and are doing the best they can for their clients.

Fire Impacts on Policyholders

On Jan. 27, Tolliver said that Woodruff Sawyer did have insureds in the area of the recent wildfires. He was certain that some of the policyholders had claims, but to his knowledge, none were total losses at the time.

Clausen said on Jan. 28 that Coastal Insurance Solutions did have a few policyholders hit by the fires.

Garrison Strom said her affected clients felt powerless. Those who still had homes standing were desperate to know when they’d be back in them, she explained, but brokers couldn’t tell them because the timeline remains largely unknown.

The road to rebuilding in the Palisades and Pasadena areas will likely be a long one. Massive debris cleanup must be completed before remediation can even begin, Garrison Strom said. Some luxury homeowners have other properties they can live in during this process, but for

others, cost-of-living expenses in temporary housing for an extended period will add up.

“There’s not a lot we can compare it to,” Garrison Strom said. “You’re looking into these clients’ eyes, and they’re just so desperate for information. All we can do is just keep answering their calls and trying to find as much information as we can and do the best that we can.”

Clausen also pointed to the difficulties with finding comparable homes to live in as the rebuilding process begins. Additional living expenses coverage presents a challenge, he said, noting that it could take at least a year or even two to rebuild homes destroyed by the recent fires.

“There’s less luxury homes available than there are, we’ll call [them] everyday homes,” Clausen said. “As the supply of those homes goes down, the price to rent them goes up and certainly becomes a game of what’s fair for additional living expenses.”

Most people are planning to rebuild, Clausen said. “I just hope that the market can become competitive again,” he said, adding that regulators and insurers need to find a way to work together so that companies remain willing to do business in California while collecting premiums that accurately reflect the level of risk.

“Right now, insurers are pulling out, capacity is shrinking, premiums are rising, and the market is facing significant challenges,” he continued. “No matter where you live, there’s risk. It would be a shame to see some of the most beautiful landscapes in the U.S. become uninhabitable or unaffordable simply because insurers can’t find a sustainable, long-term path to profitability.”

Clausen explained that he hopes those in a position to make a difference recognize “the urgent need for systemic reforms–ones that create a more resilient and equitable insurance landscape for California’s residents, business owners and insurers alike.”

What They’re Watching

Tolliver is interested to see what the disaster means for the California FAIR Plan. Based on his experience in submitting new locations for FAIR Plan coverage, Tolliver said, “they seem ill-equipped to administratively handle the volume of requests. I am concerned based on the number [of] recent wildfire claims in California that they will also struggle to process the volume [and] adjust claims in an accurate and timely fashion.”

As of press time, the FAIR Plan reported it had paid more than $914 million to policyholders, including advance payments, to cover claims related to the Palisades and Eaton fires. In February, California Insurance Commissioner Ricardo Lara approved a California FAIR Plan request for a $1 billion assessment on admitted market insurers to cover claims from the Los Angeles wildfires.

Tolliver sees the need for more insurance resources with greater limits for Californians with high-value homes because “there’s going to be people that did not have enough coverage,” he said. He also sees a need for more codes and protections to help make housing more fire-resistant, and he believes that consumers need to take more responsibility in the places they choose to live.

When asked how she thinks the fires will affect insurance for luxury homes in the region, Garrison Strom said it depends on what the state department of insurance does. She believes the department needs to give carriers rate–and not a low number–or more flexibility in forms and contracts.

“So that they’re not so stuck in giving these broad coverages,” Garrison Strom explained. “Because until that happens, there’s no reason for these carriers to do business here.”

Clausen echoed these comments in his interview. “I would keep an eye on how this market is going to shake out,” Clausen said. “I think it’s unclear on the direction of capacity. I just think the market is unstable at this moment. And I’m not sure that capacity is going to come back roaring in for quite a while, from an admitted standpoint, anyway.”

Topics
Catastrophe
Natural Disasters
California
Trends
Wildfire
Homeowners
Market