Howden Calls for Urgent Insurance Reforms Amid California Crisis

Howden Re has released a new report, 2025 Los Angeles Wildfires: A Path Forward, highlighting the growing insurance protection gap in California. According to the report, regulatory reforms, risk-based pricing, and public-private collaboration are necessary to stabilize the state's insurance market and ensure homeowners and businesses remain financially protected. 

The California insurance market has reached a critical juncture. Per the report, a combination of escalating wildfire risks, underwriting losses, and a restrictive regulatory environment has led several major insurers to withdraw from the market. As a result, many homeowners and businesses now face limited or no coverage options, increasing their financial vulnerability. 

Projected insured losses from the 2025 Los Angeles wildfires range from $20 billion to $45 billion, yet a significant portion of economic damages remains uncovered. The report said California's regulatory framework has historically restricted insurers' ability to price wildfire risk accurately, making it unprofitable for admitted-market insurers to operate in high-risk areas. This has led to widespread policy cancellations, reduced underwriting capacity, and an increased reliance on the state's insurer of last resort, the FAIR Plan. 

Over the past decade, California's homeowners' insurance market has sustained a $10 billion underwriting loss, largely due to regulatory pricing constraints. Howden said the FAIR Plan, which provides coverage up to $3 million for residential properties and $20 million for commercial entities, has struggled to meet the needs of high-value homes and businesses. Its resources remain insufficient to handle the growing number of wildfire-related claims. 

The insurance crisis has also impacted real estate transactions. According to the report, nearly 7 percent of home sales in 2023 fell through due to unaffordable insurance costs. The admitted market lost approximately 200,000 residential policyholders that same year despite regulatory moratoriums on policy cancellations and nonrenewals. 

"The tragedy in California is a wake-up call," Howden Re CEO Tim Ronda said. "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." 

Per the report, recent regulatory changes in California allowing insurers to incorporate catastrophe modeling and reinsurance costs into pricing represent an initial step toward market stabilization. However, Howden's report outlines a broader roadmap for reform, including risk mitigation investments and new insurance models. The report finds that a $6 billion investment in wildfire risk mitigation could have reduced economic losses from the Los Angeles wildfires by nearly 50 percent. 

The report also identifies several key actions to attract capital and restore confidence in California's insurance market.

• Expanding public-private partnerships to distribute risk more effectively and ensure adequate insurance availability. 
• Incentivizing risk mitigation by offering premium reductions for homeowners who invest in fire-resistant upgrades. 
• Innovating insurance solutions, including parametric insurance and models backed by managing general agents, to provide additional protection in high-risk areas. 

"As climate risks continue to evolve, insurers must be more agile and innovative in how they approach risk," Julian Alovisi, head of research at Howden, said. "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."