California wildfire protection gap requires regulatory reform: Howden Re

The only viable path to restoring much-needed insurance market stability for California following the Los Angeles wildfires includes accelerated adoption of regulatory reforms, risk-based pricing, risk mitigation improvements and public-private collaboration, according to Howden Re. In a new report, 2025 Los Angeles Wildfires: A Path Forward, the broker reveals how a sub-optimal regulatory framework, escalating wildfire risks, and underwriting losses culminated in a protection gap crisis in California’s insurance market. Howden Re said the report presents an objective case for the urgent adoption of regulatory reforms and strategic investments in risk mitigation to stabilise the state’s insurance sector and ensure homeowners and businesses remain financially protected. “The California insurance market has reached a tipping point,” states the report. “A series of catastrophic wildfires and a regulatory environment that has stifled supply and competition by restricting risk-based pricing have seen several major insurers withdraw from the market. This has left homeowners and businesses with limited or no options for coverage, presenting a substantial yet avoidable financial risk to the state. Following recent carrier withdrawals, the number of uninsured or underinsured households and businesses increased in the years leading up to 2025.” It notes that California’s regulatory environment has limited insurers’ ability to accurately price wildfire risk. “For years, restrictions on risk-based pricing have made it unprofitable for admitted-market insurers to provide coverage in fire-prone areas, leading to mass policy cancellations, reduced underwriting capacity, and an over-reliance on the state’s insurer of last resort, the FAIR Plan,” says the report. The level of protection offered by the FAIR Plan – $20m for commercial entities – has proved to be insufficient for businesses impacted by this year’s fires, says Howden Re, adding that California’s FAIR Plan is now covering more policyholders than ever, yet its exposure exceeds its claims-paying ability, and its resources are insufficient to absorb growing wildfire losses. Tim Ronda, CEO of Howden Re, said: “The tragedy in California is a wake-up call. 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.” He added: “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. Howden has solutions and is ready to lead.” Howden Re says that new regulations implemented late last year in California to allow more pricing flexibility for private insurers by permitting the use of catastrophe modelling and incorporating reinsurance costs are important (initial) steps forward in addressing structural issues and attracting capacity back into the market. According to the broker, wildfire exposures can be mitigated by relatively simple and cost-effective measures that fall under the responsibility of local governments and communities, and include disaster planning, forest management, maintenance of key/vulnerable infrastructure, building codes and ‘building back better’. Howden analysis has found that a $6bn investment in wildfire risk mitigation could have reduced the economic losses of the Los Angeles wildfires by nearly 50%. The report says the return of (re)insurance capital into the California market is contingent on improved resilience. The report calls for an expansion of public-private partnerships, noting that collaboration between insurers, regulators, and policymakers can help distribute risk more effectively and ensure adequate insurance availability. It also highlights the need to incentivise risk mitigation, and calls for innovating insurance solutions, adding that new models, including parametric insurance and MGA-backed solutions, can provide additional protection in high-risk areas. Julian Alovisi, head of research at Howden, said: “As climate risks continue to evolve, insurers must be more agile and innovative in how they approach risk. 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.”

California wildfire protection gap requires regulatory reform: Howden Re

Howden Re says market stability also needs risk-based pricing, risk mitigation and public-private collaboration

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