Wildfires ravaging the Los Angeles metro area are bringing yet more pain to an already challenging environment for households, businesses and insurance carriers in California.

Natural disaster-related losses in California have been mounting since 2017 – about $10 billion to $15 billion incurred losses annually – creating a complicated environment for insureds and carriers. Homeowners are looking for coverage, yet carriers believe that the future might look even worse than the present and are keen to avoid another round of approximately 200% loss ratios, like what they faced in 2017 and 2018.

Where does this situation leave homeowners? The 1.4 million households in Los Angeles in 2024 forked over on average $3,200 in premiums for Homeowners insurance. This is 65% more expensive than what they paid in 2020 – or about $1,900. By comparison, Homeowners insurance rates increased +50% in Florida, +70% in Texas and +30% in Massachusetts for the same period.

And yet rate hikes are most likely far from over, an analysis of carriers’ public disclosures by Pythia Insurance finds. California homeowners could see their insurance rates surge up to 30% by 2028, if the pace of natural disasters similar to the catastrophic wildfires ravaging Los Angeles this week persists over the next couple of years. These rate hikes would mean that the average Los Angeles household could end up paying close to $4,300 annually for home insurance.

These increases still may not be enough as even during a relatively good year like 2023, carriers struggled to breakeven, with California Homeowners combined ratio of about 97%.

Despite the challenging environment, not all carriers are rushing to the door. When looking at “clean” growth – i.e., growth excluding changes in rates, limits and exposures – State Farm, Travelers, and AmFam are consistently picking up market share in the state. Meanwhile, Allstate, Chubb, Nationwide, and The Hartford are taking steps to reduce or eliminate their Admitted Homeowners book – or rather to move it to the Excess Homeowners market, which reached $500 million in 2023.

The opposing trajectories likely reflect differing views as to whether California insurance commissioners will allow steeper rates hikes in coming years. With many LA homeowners realizing their policies don’t cover wildfires, industry practitioners believe that regulators and politicians will come under significant pressure to intervene – with the potential side-effect of explosive growth in the E&S market.

Los Angeles and its suburbs are the second largest metropolitan area in the US, and the lifeblood of California. A market almost too big to fail. Yet its clear carriers are not willing to continue taking that exposure (at least to its full extent), without drastic changes in rates. Compared to the current levels of property taxes, higher insurance costs may be painful but not necessarily prohibitive for homeowners. That’s an unpleasant reality but one that residents area might be called to adjust to.