Americans watched in horror as wildfires raged through the picturesque landscape of Los Angeles’ coastline in January. In response to this disaster and other similar fires, President Trump signed an Executive Order in June aimed at instituting “commonsense” solutions to prevent, mitigate, and control fires. If fully enacted, this executive order will have a substantial impact on the insurance industry by reducing claims costs and providing consumers with more affordable access to insurance.
Wildfire costs have skyrocketed in recent years. In California, they have resulted in roughly $10 billion in property losses from 2017 to 2021. The L.A. Wildfires in January alone resulted in 37,749 insurance claims and $12.1 billion paid out by the insurance industry. Top insurers like State Farm, Travelers, and Allstate all estimated around $1 billion losses while reinsurers like Lloyd’s estimated a $2.3 billion loss.
The L.A. Wildfires have not been the only destructive fires in recent years. Hawaii’s Lahaina Wildfire in 2023 resulted in 2,207 structures damaged or destroyed with 86 percent of those structures residential and up to $6 billion in property damage. In 2024, the Smokehouse Creek Fire in Texas, the state’s largest fire on record, covered 1.2 million acres of land and affected over 1,500 residential properties.
These statistics have caused growing concerns about wildfire loss among insurers. In response, the industry has been trying to mitigate their losses by limiting the amount of new business they write and instituting catastrophe modeling to price accurately for the risk. But the underlying issues had to be addressed.
The catastrophic destruction of these fires prompted the president’s executive order to update and change ineffective fire prevention. This executive order institutes sound risk management measures. The order empowers state and local governments to pass measures particular to their regional needs. This will address the insurance industry’s concerns specifically to the region, encouraging more insurance coverage and increasing availability for the consumer.
A critical and timely area of concern for wildfire catastrophe reduction is the targeted effort to reduce overgrown areas of dry brush, wood, and anything else that could be considered a wildfire propellant. This measure is in line with Swiss RE’s recommendations: “As downed power lines are a significant source of wildfire ignition, utilities operating in hazard locations must manage the changing risk landscape to minimize wildfire occurrence.” Additionally, causation reports from the Lahaina Wildfire noted that “unmaintained vegetation” was ignited by “broken utility lines.” Managing these underlying causes of fires helps reduce the risk.
The L.A. Wildfires further exposed the insurance industry’s response to high wildfire risk landscapes. Companies had slowed and stopped writing business because the risk was too great. With reinsurers taking hits from catastrophic events, it was evident the industry could not write business in areas where little-to-no risk mitigation was being performed. Insurers needed protective measures in place to reduce risk and increase the availability of insurance in states where insurers had limited or stopped offering protection. The measures outlined in the executive order are a great first step to empower and provide support for states. Wildfire prevention and mitigation, as was the case with the Lahaina and L.A. Wildfires, failed in many respects due to the lack of policies in place at the time. These measures directly reduce many of the causes of these and other fires. If clearly followed, the executive order will increase availability and affordability of insurance by mitigating the devastating effects of wildfires. This will be a true breath of fresh air for insurers and consumers.
Leah Locke is a policy analyst at the American Consumer Institute, focusing on finance and insurance policy. Prior to joining ACI, she worked in various operations roles in property and casualty insurance. She holds a Master of Education degree in history from Liberty University. She is pursuing a Ph.D. in history at Liberty University. The American Consumer Institute is a nonprofit education and research organization. For more information about the Institute, follow us on X @ConsumerPal.