What We Learned in the Fire

It would be a missed opportunity for the insurance industry not to learn from events as devastating as the January 2025 Palisades and Eaton wildfires in Los Angeles County: over 16,000 structures destroyed, more than 400 deaths in the fires and afterward from associated health issues, and upward of $270 billion in economic losses for the area.

But, one year after these tragedies, some important insurance lessons have emerged. Here are five lessons that brokers can share to help their insureds mitigate their exposure to wildfires and recover after a blaze.

Reevaluate Coverage Terms Regularly

The largest issue that surfaced with claims from the 2025 wildfires was the inadequacy of insured limits; far too few claimants were properly covered. For instance, about 80% of the claims I managed after the fires came from underinsured policies. With the frequency and severity of wildfires rising sharply, brokers should urge their clients to thoroughly review their policies to ensure they are properly protected by their coverage.

As a rule, the vast majority of property losses are not total; a broken pipe, for example, won’t destroy a whole building. However, wildfires are the exception. Many affected California businesses did not account for wildfire magnitude in their policies. Because they were not planning for total loss, they opted for lower limits. While some may continue choosing lower limits because of rate sensitivities, many others may upgrade limits proactively. Brokers who know the market, understand coverages, and can speak to how the coverage applies directly to the loss will be necessary partners to their clients.

Know Your Coverage Limits

California is a valued policy state for buildings, which means that with a total-loss fire, the carrier is required to pay the policy limits on the building. In theory, this is a positive: if the structure burns down and the claimant is properly insured, the limits are fully paid. But if the building’s valuation is outdated and the limits are too low, the loss will not be adequately covered.

Property insurance generally features three main buckets of coverage: building, business personal property, and business income and extra expense. Some policies have blanket limits for all damage, while others are specifically scheduled. The policy defines how loss is calculated and covered, so a yearly review of sales and updated financials is important for ensuring all limits are adequate for current business needs; e.g., companies achieving significant sales growth will need to make sure they are protected against a larger income loss in the event of a fire.

Know Your Code Upgrade Coverage

The largest impact on property coverage is ordinance and law, also known as code upgrade. When a property is repaired or replaced after a loss, the building must be brought up to current code standards, which can increase construction costs. A decades-old building might need numerous expensive code-related upgrades if it is damaged in a wildfire. The standard ISO form policy offers $10,000 in code upgrade coverage— this is the largest shortfall in the claims process for commercial buildings. While that coverage might be sufficient for smaller losses, it’s far from adequate for the level of expense incurred on a significant wildfire claim, as seen with countless claimants after the 2025 fires. To cite just a single case, one restaurant’s claim could run from $500,000 to $750,000 due to various code upgrades connected to its repairs.

For those who did not experience a loss in 2025, this is a chance to understand the intricacies of building codes that have been updated and comprehensively review their policy to help ensure the risk is accurately measured and transferred. New technology can also be leveraged here to conduct an assessment; just as carriers are using AI to conduct predictive modeling and mapping on these risks, brokers and insureds can apply the technology to assess and value their own business. Insureds can then upgrade coverage accordingly.

Investigate a Policy’s Intricacies

When working with carriers in Southern California to secure proper reserving for wildfire losses, we looked at all available coverages that insureds could theoretically claim. It was staggering how many small coverages are packed into policies.

For example, most people know about debris removal coverage, but they might not know about components like fire device protection recharge in a standard policy. This will pay $1,000 above limits to recharge a fire extinguisher. If you have 50 fire extinguishers in an apartment building, the costs could add up; for an insured that has already exhausted their limits, this additional coverage should not be overlooked. The standard ISO form allows for $2,500 in additional coverage for property of others, which is calculated separately from business personal property. While this may not seem like a substantial amount, everything helps after a total loss. Brokers can be instrumental in helping their clients understand the full extent of coverage that is available under the terms of their policy.

Know Your Risk Profile, Then Improve It

California has seen major wildfires each year for the last half-decade; they’re no longer a once-in-a-generation event.

Location is one of those risks highlighted by the L.A. wildfires that many insureds simply are not considering sufficiently. How prevalent are wildfires in the area in which the insured structure is located? Have clients considered how the elements around a building increase or decrease the chances of it burning? Many restaurants and public buildings in California are removing landscaping that abuts the structure to mitigate fire spread.

In addition to educating clients about their coverage options, many brokers are assessing and prioritizing risk management strategies. That encompasses prevention, including clearing debris, conducting regular inspections, and replacing outdated building materials with more fire-resistant materials.

Preparing for the Next Fire

While price sensitivity remains a factor in insurance, in the wake of significant events like the 2025 Southern California wildfires, organizations may be less inclined to gamble on their coverage to save money.

Fire risk and insurance have always been intertwined; in fact, the modern insurance industry was developed in the aftermath of the 1666 Great Fire of London. Coverages may have changed since then, but the fundamental risks—and the industry’s ability to mitigate them—remain. Learning from these losses and helping clients understand their protection options are important aspects of every broker’s role; they deserve thoughtful attention.