Lessons learned from California’s wildfires

Facing increased wildfire risk, Canada’s property and casualty insurers are calling for urgent measures to avoid the type of home insurance availability and affordability crisis now seen in California.

“Canada’s property and casualty (P&C) insurance industry has been raising the issue of wildfire risk in the country for years, and it is imperative that policymakers acknowledge the factors that led to the insurance crisis in California and not repeat the same mistakes,” Insurance Bureau of Canada says in a report released in April.

“In Canada, insurance for most perils – wildfire, wind and hail – is widely available, but the increasing severity and frequency of extreme weather events and the ensuing insured losses are placing greater pressure on the home insurance market.”

The report cites three lessons to be learned from California’s home insurance market. One, the risk of wildfires is rising. Second, governments need to invest in and undertake more proactive measures to improve wildfire resilience. And third, governments need to resist market intervention when it comes to pricing and affordability of insurance.

Rising risk of wildfire

In its report, Lessons for Canadian policymakers from the California insurance crisis, IBC notes the number of hectares in Canada destroyed by wildfire has risen from 3.1 million in 2004 to a record 17.2 million in 2024.

“Wildfires are a major contributor to Canada’s growing severe weather-related losses,” the report states. “The average annual insured catastrophic losses from wildfire in Canada have gone up significantly from an annual average of $84 million between 2003 and 2014 to an annual average of $706 million in the past decade.”

Related: Severe weather pushes up claims, personal premiums

Improving wildfire resilience

And yet, despite the escalating risk, Canadian policymakers have not undertaken comprehensive efforts to protect Canadian homeowners from damage wrought by natural catastrophes, IBC says.

“Like in California, Canadian governments have not done enough to protect communities from severe weather,” the report says, noting that California has the highest number of housing units (1.258 million) at risk for extreme wildfire in the United States, according to the U.S. Insurance Information Institute.

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Between 1990 and 2020, nearly 45% of California homes were built within the wildland-urban interface (WUI), IBC says. And as of 2020, one in three California residents lived in the WUI.

In Canada, as in California, “current building codes do little to ensure that homes are built to withstand increasingly severe weather, and thousands of new homes continue to be built in high-risk hazard areas,” IBC’s report states. “Canadian governments’ collective investments in measures that make Canada more resilient are woefully inadequate and disproportionate to the growing impacts of severe weather events.”

Resisting market interference

Market interference is one reason why more than 1 in 10 California homes (807,000 homes) are now uninsured, IBC says.

California’s home insurance crisis came to a head in January 2025, when the Eaton and Palisades wildfires in California caused an estimated $35 billion and $50 billion in insured losses, respectively. As of Feb. 5, 2025, California’s insurers had paid out more than US$6.9 billion across 33,000 policyholder claims resulting from the wildfires.

But the state’s home insurance market was in a crisis long before the 2025 fires, IBC notes. For example, in 1998, Proposition 103 led to insurance rates being rolled back by 20% or frozen. Other measures prevented insurers from accurately pricing risk and relying on reinsurance.

As a result, between 2013 and 2022, citing large wildfire losses, California’s home insurers reported a loss ratio of 108%, meaning they were paying out $1.08 in claims for every premium dollar they collected. And so, in the context of an unprofitable market, about 3.6 million home insurance policies in California were not renewed between 2020 and 2023.

“Meanwhile, between 2018 to 2024, the state’s insurer of last resort (the FAIR Plan) experienced a 276% surge in the number of policies it underwrote,” IBC’s report says. “This oversubscription has challenged the plan’s solvency and its ability to manage claims, and it has since levied US$1 billion on insurers.

“Given the difficult operating environment in California, it is expected that insurers will pass a portion of assessment costs on to policyholders.”

To prevent the Californian home insurance market crisis from spreading into Canada, governments north of the border must resist using rate suppression techniques to address affordability issues, IBC says.

“To ensure the continued vibrancy of Canada’s home insurance market, and all insurance markets, Canadian policymakers must avoid enacting pricing restrictions,” the report says. “Market interference of this nature, as the California experience has demonstrated, serves only to artificially and temporarily halt premium increases before the market implodes.”

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.