Last week, a series of fast-moving wildfires — fueled by a combination of increasingly wet winters and dry summers coupled with unusually strong winds — devastated communities throughout Los Angeles. So far, the disaster has temporarily or permanently displaced more than 82,000 people, claimed at least 25 lives, and caused economic losses of more than $250 billion, according to one estimate. But while experts say that private insurers will bear much of that cost, they also worry that the situation could lead to another, longer-term problem: the collapse of the property insurance market in California.

In fact, many homeowners in the state — like those in Florida, Louisiana, and others — were already facing rising rates and coverage gaps before the blazes, due to higher risks amplified by climate change. And while California’s FAIR Plan, the state’s insurer of last resort, was created to help cover those who aren’t able to obtain a policy elsewhere, the scheme also risks insolvency — and raises difficult questions about whether it inadvertently encourages development in fire-prone areas.

Today, as communities, including those in L.A., consider how to move forward after a disaster, they need accurate information about their disaster risk and insurance costs, says Hannah Perls, a senior staff attorney with the Environmental & Energy Law Program at Harvard Law School.

In an interview with Harvard Law Today, Perls, who teaches a course on environmental disasters and displacement in the U.S. this spring, explains how California’s insurance market works, why the wildfires could exacerbate the state’s insurance woes, and what better disaster planning could look like.

Harvard Law Today: You are an expert in equitable disaster preparedness and response. Before we talk about insurance, is there anything else on your mind about the situation in Los Angeles?

Hannah Perls: I think it’s important to remember that even if someone has adequate insurance coverage, those payouts will rarely make a disaster survivor “whole.” After a catastrophic event like the L.A. fires, insurance and other financial tools can be essential to helping people get back on their feet. But people have experienced extraordinary, incalculable loss that goes well beyond physical property damage. Disasters on this scale disrupt virtually every aspect of a person’s life and result in an irreversible disintegration of communities, lifelines, and social structures. In practical terms, we need to pay equal attention to financing the rebuilding of communities’ infrastructure and supporting those who are rebuilding critical social infrastructure — mutual aid organizations, legal aid, social workers and other mental health professionals, faith and community groups and individual volunteers.

HLT: In general, how does property insurance work in California?

Perls: The insurance industry is generally regulated at the state level. How these programs are structured, what’s covered and not covered, will vary from state to state. The one exception is the National Flood Insurance Program (NFIP), which was created by federal law and is managed by the Federal Emergency Management Agency (FEMA) to provide insurance for flood-related losses in high-risk areas nationwide.

Like many states, California has an insurer-of-last resort program mandated by the state, called the FAIR (Fair Access to Insurance Requirements) Plan. Thirty-four states and Washington D.C. have some version of a FAIR Plan, including Citizens Insurance in Florida. These FAIR Plans are designed to fill insurance gaps where it isn’t economical for the private market to provide coverage. Each state’s FAIR Plan varies in the types of losses insured and the scope of coverage offered. California’s FAIR Plan provides basic property damage coverage for residential and commercial properties for certain hazards, including smoke and fire.

It’s important to note that while California’s FAIR Plan is mandated by the state, it is not administered by the state. It’s managed by insurance companies who are licensed to issue policies in California, and they share a portion of the costs and profits of the program proportional to their market share.

Dependence on the FAIR Plan has increased astronomically just over the last four or five years in California, in part due to the decreasing availability of affordable private insurance policies. This trend reflects how private insurers are responding to what they see as uninsurable risk as climate change drives more frequent and severe disasters across the state. It also reflects the delicate balance regulators are trying to strike between accessibility and affordability. Until very recently, California was the only state that barred insurers from passing along the cost of reinsurance (insurance for insurance companies) to policyholders to keep premiums affordable. However, many large insurers stopped writing new policies in California. In response, the state finalized regulations in December 2024 designed to bring those private insurers back to the state, even if it means premiums increase to reflect the rising costs of reinsurance.

HLT: We’ve heard some stories of people who were dropped by their insurance companies in the months before the fires. What’s going on there?

Perls: Most homeowners policies, like auto or health insurance, are written for a one-year term.  This means the company can exercise their right to decline to reissue a policy if it’s no longer economical to insure that risk. According to the California Department of Insurance, 2.8 million private residential policies were not renewed in the state between 2020 and 2022, including 531,000 policies in L.A. County. It’s unclear what’s driving these non-renewals, but according to the California Department of Insurance, historically 20 to 25% of these non-renewals are initiated by companies in part due to wildfire and other risks. There’s also a clear trend in areas with high fire risk over the last four years; non-renewals or cancelations have consistently outpaced new policies, driving a wave of uninsured households to the FAIR Plan. There is an important debate about whether this is fair or equitable, but it’s legal.

HLT: What impact could the wildfires have on the broader property insurance market in California?

Perls: With the caveat that I’m not an economist, I think we’re going to see reinsurance costs continue to increase dramatically, and those costs will get passed along to policyholders. California Insurance Commissioner Ricardo Lara just issued a mandatory one-year moratorium on non-renewals in areas affected by the L.A. fires, barring insurance companies from cancelling or refusing to renew residential policies. However, that moratorium doesn’t prevent companies from increasing their prices. Commissioner Lara also just instituted a new requirement that private insurers must provide more coverage in high fire risk areas, in return for allowing those companies to pass along the costs of reinsurance to policyholders through increased premiums. The goal is to reduce reliance on the state’s FAIR Plan, but we’ll have to wait and see how companies and policyholders respond.

I also think we will continue to see smaller insurance companies disappear from these high-risk areas, and that makes sense, because insurance does not reduce risk — it moves risk around. It moves risk from the homeowner, renter, or business owner to the insurance company. But if the company is geographically constrained, and a majority of policyholders get hit by a disaster at the same time, that company will also face significant financial risks.

I also think we’re going to continue to see both regulators and insurance companies experimenting with ways to reward policyholders who voluntarily reduce their risk through home hardening and other measures. That said, this is easier than it sounds. It takes a lot of information and capacity to verify whether someone has created sufficient defensible space around their home, if they’ve used fireproof materials or installed fireproof vents, or if they’re using fire-smart landscaping. This also poses an equity challenge because risk mitigation is expensive, meaning wealthier policyholders will be in the best position to take advantage of these premium discounts.

HLT: Last year, you spoke to us about what was happening to Florida’s insurance market after Hurricane Ian. Are there any lessons in the aftermath of that disaster that might apply to California?

Perls: Yes. As I mentioned, Florida also has a FAIR plan, called Citizens Insurance. Citizens has now committed to do something called “depopulation.” They are essentially going to offload 300,000 of their policies in 2025 to reduce dependence on the plan overall. Specifically, Citizens will require its policyholders to switch to a private insurer if that insurer is offering to renew their policy at no more than 20% more than their current Citizens policy. It’s unclear how this will be enforced, but the goal is to reduce the amount of financial strain on the FAIR program statewide. In part, that’s a gift to private insurers, because you’re forcing people back into the private market, even if it’s at a higher rate than what someone could get through the state FAIR Plan. The question is whether those private premiums are adequately priced to fully capture the risk to the insurer. In California, I think we will also see officials thinking through how to pursue a similar depopulation strategy, in addition to the latest rules requiring insurers to issue policies in high-risk fire areas.

HLT: Are there any downsides to having the state or federal governments step in and offer policies in areas private insurers refuse to cover?

Perls: I think one important question is to what extent to these programs cross-subsidize risk. This is a frequent criticism of Citizens Insurance in Florida, where some research suggests that inland policyholders are subsidizing insurance for wealthier coastal regions. This issue isn’t unique to state-mandated plans, of course, but it’s important to assess if and when these programs create a moral hazard for new development by effectively subsidizing the risk of moving into disaster-prone areas. The design of each plan also matters in terms of who is left footing the bill if claims exceed what the plan can pay out. In California, insurers can recoup some of these costs via assessments on non-FAIR plan policyholders, which can result in less affordable insurance across the board. At the same time, that cross-subsidy may be necessary to tackle other urgent social problems. In California, for example, it might be necessary to subsidize risk for housing development in low- to medium-risk areas to address the state’s housing crisis.

There are also unique downsides to government-managed programs like the NFIP, where elected officials are responsible for deciding if and when to increase premiums to account for modern risk. While this might make good financial sense, it often creates political challenges. We saw this when FEMA finalized new rates under the NFIP designed to capture modern flood risk, resulting in increased premiums for about two-thirds of NFIP policyholders in high-risk flood zones. Even though those rate increases are capped under federal law, ten states sued FEMA over these changes, hoping to keep premiums low for their constituents.

HLT: What should the county and state consider as they begin to rebuild communities in the weeks and months ahead?

Perls: I think what struck me about these fires is how truly catastrophic they are. It’s January! So, on the one hand, obviously we want to look for places where the impact could have been mitigated. But I think we also need to acknowledge that with climate change, there’s no fire season anymore. We used to see preparedness, relief, and recovery as distinct phases in disaster planning and response; now they often happen simultaneously.

As far as moving forward, a few considerations come to mind. Do they have access to accurate information about their risk to the extent that we can quantify it? Do they have access to information about whether they can insure their home and how much that will cost over the long term? A lot of this information is privately held with insurance companies. That’s how they make profit, by being the best at calculating risk and pricing that in a way that will ensure profits over the long term. But in this critical moment when people are deciding if and how to rebuild, homeowners, business owners, and communities need access to this information to make the best decisions for their long-term financial and physical well-being.

HLT: What does equitable disaster planning and response mean to you?

Perls: In general, equitable disaster preparedness and response is about providing accessible resources and services to disaster survivors in a way that accounts for vulnerable populations’ particularized needs. It’s also about ensuring that the way we respond to disasters doesn’t make people worse off than they were before.

There are quick, smart policies governments can adopt immediately prior to or after a disaster that can help protect survivors from predatory practices. For example, Governor Newsom signed a series of executive orders to prohibit price gouging in rental and temporary housing, and prevent landlords from evicting tenants in order to charge higher rents. Similar orders waived restrictions on the use of temporary trailers, helping keep people in their communities while they rebuild.

With the L.A. fires in particular, I’m also reminded of the importance of proactive, inclusive emergency planning. We saw, for example, the tragic deaths of a father and son, Anthony and Justin Mitchell, who were unable to evacuate their home in Altadena due to their disabilities. Their home burned to the ground while they were waiting for help to arrive. We saw similar failures when Winter Storm Uri devastated the Texas power grid in 2021, and lawyers at Disability Rights Texas sued the City of San Antonio for violating the Americans with Disabilities Act by failing to adequately plan for disability-related needs during emergencies. This is one critical area where lawyers have an important role to play to ensure that people with disabilities are able to evacuate, seek appropriate shelter, and access the services or medication they need during and post-disaster.

Relatedly, we need adequate funding year-round for legal aid attorneys fluent in disaster relief and recovery. Legal aid plays an essential role in assisting low-income survivors with a host of legal needs:  estate planning, FEMA and SBA appeals, insurance matters, landlord-tenant disputes… you name it. We need to ensure these organizations are adequately funded so they can train and maintain staff before the disaster hits. We also need more programs like Equal Justice Works that fund law school graduates to work with disaster survivors.

The last thing I want to flag is the importance of labor protections for emergency and recovery workers, including incarcerated firefighters. It’s a common practice in 14 states, including California, to rely on people who are incarcerated to support the firefighting labor force. This process is ostensibly voluntary in California, and inmates make up about 30% of California’s firefighting force. We’ve also seen numerous reports of labor violations, including exposure to toxics and pervasive wage theft, in disaster recovery efforts that rely heavily on low-wage immigrant labor. Given disasters are going to become more frequent and severe, there’s a real need to think critically about the design of these programs and our reliance on prison and migrant labor to recover from disasters.

HLT: Do you have any thoughts on the nation’s response to the fires so far?

Perls: One last thing I want to emphasize is our federal disaster framework was created to ensure disaster aid isn’t used as a political bargaining chip. Congress passed the 1950 Disaster Relief Act to ensure consistency in federal disaster response, regardless of who is in the White House or the politics of the impacted area. That law has been amended numerous times, including the 1988 Stafford Act amendments, but the impetus for the law has remained the same: to ensure disaster survivors have equal access to federal assistance when the state, tribal, or local government’s capacities are overwhelmed. Specifically, the Stafford Act requires that federal assistance be distributed in an “equitable and impartial manner” whether that aid is distributed by FEMA, the state, or nonprofits like the Red Cross. That commitment to nonpartisanship isn’t just “the right thing to do”; it’s ingrained in federal law and essential to the design of our disaster response system.

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