Considerations to address current challenges associated with wildfire from an Insurance perspective

Devastating Palisades Fire and Eaton Fire has burnt 37,469 acres of land and 28,222 structures in Los Angeles (source- https://www.fire.ca.gov/). These fires have been described as the most destructive in state’s history. This has a significant impact on both the local community and insurance sector. According to Global analytics firm Verisk, insured property losses from the Palisades and Eaton fires is in the range of $28 billion to $35 billion, one of the highest loss estimates from the industry.(Reuters,2025)

Many homeowners get non-renewals or policy cancellations in the wildfire affected areas. Here are some ways how insurers, insureds and power companies can address current challenges associated with wildfire.

Mitigating wildfire risk by Insureds (Homeowners/Business owners):

• Improve Home Fire Resilience by fire resistant infrastructure
• Installation of fire-resistant roofing and ember resistant vents
• Installation of wildfire sensors and automated sprinklers

How California’s power companies can help prevent wildfires:

• Upgrade power grids to prevent utility sparked fire
• Auto shut off power using AI and sensors during high-risk conditions
• Insulated overhead wires and increase clearance around power lines
• Undergrounding powerlines- while this is the most proposed solution for preventing wildfire, high cost and maintenance challenges associated with it makes it not a feasible solution

Considerations to make fire insurance more sustainable:

1. Parametric insurance, in which insurers pay a predetermined payout triggered by catastrophic natural events like earthquakes above certain magnitude or hurricane’s wind speed.  Insureds can get a parametric insurance along with traditional insurance as  supplement coverage for the fire loss. Parametric insurance helps to cover difficult-to-model losses like wildfire losses. In the case of wildfire, the predefined conditions are met when burning within a certain radius. Parametric insurance comes with higher premiums and may not cover the entire damage but only the value as agreed by the insurer and the policy holder. Homeowners/Business owners benefit by the quicker payouts without long claim process.
2. Public-Private insurance programs such as California FAIR plan for high-risk properties. They serve as insurance providers for homeowners in high-risk areas who are not able to secure traditional insurance. It also comes with high cost and limited coverage just like the Parametric insurance
3. State backed reinsurance- Creating a wildfire insurance fund to help insurance manage catastrophic fires. The California Earthquake Authority provides earthquake coverage through reinsurance. State can consider such programs for wildfire, which will reduce the risk on private insurers and reduces the non-renewals or policy cancellations
4. Catastrophe bonds where the insurance company issues bonds that are sold to investors. The California Earthquake Authority (CEA) started issuing CAT bonds after the 1994 Northridge earthquake in Los Angeles. California could issue more CAT bonds to reduce the burden on insurers transferring risk to capital markets.

How technology can help:

1. Insurers can use AI and satellite imagery to create a robust wildfire risk model. Aerial or satellite imagery along with weather data integration can be used for deriving risk score. Deep learning techniques can be leveraged for accurate fire risk modelling by using historical fire data.
2. AI- powered robot to assist firefighters aiding as autonomous fire suppression.
3. Usage of drones for thermal imaging.

While we cannot eliminate wildfires, we can enhance our preparedness, prevention and response to wildfires. This will reduce the impact on both the local community and insurance sector.