California Bans Insurance Policy Cancellations in L.A. Until 2026 as Wildfire Disaster Costs Pile Up

California’s insurance authority rushed to impose a yearlong ban on policy cancellations in parts of Los Angeles hardest hit by the apocalyptic wildfires that continued to sow destruction as of Friday.

Insurance Commissioner Ricardo Lara on Thursday issued a mandatory moratorium that prohibits insurance companies from pulling the plug on coverage in the Pacific Palisades neighborhood and the area outside Pasadena affected by the Eaton fire through Jan. 7, 2026.

“Losing your insurance should be the last thing on someone’s mind after surviving a devastating fire,” Lara said in a statement. “This law gives millions of Californians breathing room and hits the pause button on insurance non-renewals while people recover.”

The commissioner added that the ban applies to all homeowners within the perimeters or adjoining ZIP codes of the Palisades and Eaton fires, regardless of whether they suffered a loss.

The announcement comes just weeks after the commission unveiled a new rule requiring private insurance firms to start writing new policies in high-risk areas if they wanted to keep doing business in California, but with the concession that they would be allowed to pass the costs on to their customers.

As of Friday, the wildfires have killed at least 10 people and incinerated more than 36,000 acres of land in and around L.A., in some cases annihilating entire residential blocks.

Upwards of 10,000 structures, including private homes and businesses, have been razed—more than half of them in the upscale, star-studded community of Pacific Palisades, where the unprecedented wildfire bearing its name continued spreading largely uncontained, according to the latest figures from Cal Fire.

Homeowners left without coverage

The natural disaster comes just months after some 1,600 policies in the tony community of 23,000 people—which, until this week, was home to such A-listers as Tom Hanks and Rita Wilson, Ben Affleck, and Reese Witherspoon—were canceled by private insurers over high fire risks.

It was not the only location in California to experience insurance woes.

During the same time period, which coincided with massive wildfires in the Golden State, nearly a dozen major insurance providers like State Farm, Nationwide, Farmers Insurance, Allstate, USAA, and The Hartford one by one either stopped writing new policies in high-risk areas or limited their coverage.

Unable to find a private insurer willing to provide a policy due to the risk of huge payouts, close t0 500,000 Californians were forced to enroll in the Fair Access to Insurance Requirements (FAIR) Plan, the state-sponsored insurer of last resort. For example, in the Palisades neighborhood alone, more than 1,400 homes were covered by the FAIR Plan last year, up 85% from last year, according to Reuters.

This ongoing insurance crisis was in full swing in California when the wildfires overwhelmed the L.A. area this week.

Colossal estimated losses

Late Thursday, AccuWeather estimated the total economic loss to Southern California from the wildfires to be between $135 billion to $150 billion. And the true figure could be even higher, depending on how much more damage the infernos will inflict before they are finally extinguished.

“These fast-moving, wind-driven infernos have created one of the costliest wildfire disasters in modern U.S. history,” stated AccuWeather Chief Meteorologist Jonathan Porter. “Hurricane-force winds sent flames ripping through neighborhoods filled with multi-million-dollar homes. The devastation left behind is heartbreaking and the economic toll is staggering. To put this into perspective, the total damage and economic loss from this wildfire disaster could reach nearly 4 percent of the annual GDP of the state of California.”

J.P. Morgan analysts have projected that fire-related insured losses could climb as high as $20 billion, up from their initial estimate of $13 billion. In the Palisades community alone, where the median list price was $4.72 million as of December 2024, according to data from Realtor.com®, there were $6 billion in potential claims.

Cash-strapped insurer of last resort

But the trouble is, the FAIR Plan has only about $700 million in cash, according to testimony given to the California State Assembly last year, raising concerns that the state-backed insurer could become insolvent.

FAIR Plan spokesperson Hilary McLean warned that it could take years to accurately calculate total losses from the Los Angeles fires, but she stressed that the insurer anticipates being able to pay out claims related to the disaster.

“We are aware of misinformation being posted online regarding the FAIR Plan’s ability to pay claims,” she said in a statement. “The FAIR Plan has payment mechanisms in place, including reinsurance, to ensure all covered claims are paid.”

If the plan does run out of funds, it could turn to private insurers operating in California for a bailout, but they could then ask the state for permission to hike premiums for their customers.

And the FAIR Plan is not the only insurance entity that would be on the hook for billions of dollars once the claims from Los Angeles start rolling in.

Three major private companies—Allstate, Chubb, and Travelers—are expected to bear the brunt of the estimated $20 billion in insured losses because of their outsized presence on the California insurance market, according to MarketWatch quoting J.P. Morgan.

“This would make this event significantly more severe than the 2018 Butte County Camp Fire, the highest insured-loss wildfires in California’s history previously,” with insured losses of about $10 billion, the analysts said.

Realtor.com is partnering with the REALTORS® Relief Foundation (RRF) to raise funds to support victims of the January 2025 Southern California wildfires. The REALTORS® Relief Foundation provides urgent housing-related assistance to homeowners impacted by disasters.