California Wildfires and Homeowners Insurance: What to Expect and How to Navigate the Aftermath

Introduction

The widespread wildfires affecting Los Angeles have left homeowners and real estate professionals facing unprecedented challenges. These disasters not only destroy property but also reshape the landscape of insurance availability, rebuilding costs, and real estate market trends. Understanding how to navigate insurance claims, access critical resources, and anticipate changes in the real estate market is essential.

This guide aims to provide actionable information to help homeowners, real estate agents, and brokers address these challenges effectively. While it offers valuable insights, it may not cover every possible scenario or consideration. Whether you are filing a claim, helping clients buy or sell property, or planning for long-term resilience, this article will equip you with the knowledge you need.

What to Expect After Wildfires

Insurance Claims Surge

• The overwhelming volume of claims after major wildfires causes delays in processing.
• Shortages of insurance adjusters mean longer wait times for inspections and settlements. Insurers may prioritize claims based on severity, leaving some homeowners waiting longer.

Rebuilding Costs

• Demand Surge: Following a disaster, the demand for contractors, building materials, and skilled labor increases exponentially. Prices for lumber, roofing, and other materials can spike dramatically, adding unexpected costs for homeowners.
• Extended Timelines: Limited availability of contractors often means longer wait times to begin and complete rebuilding projects.

Policy Renewals and Premium Increases

• Homes in wildfire-prone areas face higher renewal premiums and stricter underwriting requirements.
• A one-year moratorium on non-renewals, mandated by the California Insurance Commissioner, protects affected homeowners in specific ZIP codes, including those impacted by the Palisades and Eaton Fires (Bulletin 2025-1).

Availability of New Coverage

• Insurers are increasingly cautious about issuing new policies in high-risk zones, often redirecting homeowners to the California FAIR Plan, which offers limited coverage options.

Navigating the Insurance Claims Process

Filing an insurance claim after a wildfire can be complex and emotionally overwhelming. Taking these steps can help streamline the process:

Document the Damage

• Take clear, high-resolution photos and videos of all damaged areas, including the exterior and interior of your home.
• Prepare a detailed inventory of damaged or lost items. Include receipts, if available, to substantiate your claim.

File Claims Promptly

• Contact your insurer as soon as possible to initiate the claims process. Delays in filing may complicate your ability to recover damages.
• Retain receipts for temporary repairs and additional living expenses (ALE) such as hotel stays, meals, and transportation.

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Work with the Insurance Adjuster

• Be prepared for potential delays in inspections due to high claim volumes.
• Maintain regular communication with your adjuster and document all interactions.

Public Adjusters: What You Should Know
Public adjusters are licensed professionals who can assist policyholders in navigating complex insurance claims. If you are considering hiring one, it is important to understand the terms of their contracts and the associated costs. Public adjusters typically charge a fee based on a percentage of the settlement amount, which can impact the final payout you receive.

In California, public adjuster contracts include a limited cancellation period by law, allowing policyholders time to review and reconsider before committing. Always read the terms carefully and ensure you understand your obligations before signing.

Stay Organized

• Keep a dedicated file with all claim-related documents, including photos, receipts, correspondence, and your insurance policy.

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Verify Contractors

• Only work with licensed contractors to avoid scams and subpar work. Verify credentials through the California Contractors State License Board.

Key Coverage Types: ALE vs. Fair Rental Value

Understanding the differences between key coverage types can help homeowners assess their insurance needs:

Additional Living Expenses (ALE)

• Covers temporary housing, meals, and other necessary expenses incurred when your home becomes uninhabitable due to a covered loss.
• Essential for maintaining a normal standard of living during displacement.

Fair Rental Value (FRV)

• Compensates homeowners for the fair market rental value of their home if it becomes uninhabitable, even if it’s owner-occupied.
• Provides financial relief based on what the property could reasonably earn as rental income.

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Note that while the California FAIR Plan includes FRV coverage, it does not provide ALE. Homeowners relying on this plan should familiarize themselves with the differences and set their expectations accordingly.

Resources for Recovery

Accessing the right resources can make a significant difference in recovery:

Federal Assistance

• How to Start a FEMA Claim: To initiate a claim with FEMA:
  • Visit www.disasterassistance.gov to register online.
  • Call FEMA’s Helpline at 1-800-621-3362.
  • Use the FEMA mobile app for quick and accessible registration.
  • Provide necessary documentation, such as proof of identity, proof of ownership or occupancy, and details of damage sustained.
• FEMA Assistance Services:
  • Financial Assistance: Covers temporary housing, rental assistance, home repairs, and personal property losses.
  • Crisis Counseling: Emotional support and referrals to mental health services.
  • Disaster Unemployment Assistance (DUA): Offers temporary unemployment benefits for individuals who lost work due to the disaster.
  • Hazard Mitigation Grants: Helps fund projects to reduce future disaster risks, such as upgrading homes with fire-resistant materials.

State Assistance

• California Department of Insurance: Assistance with claims disputes and guidance on policyholder rights.
• California Disaster Assistance Act: Provides financial assistance to those who do not qualify for federal aid but need help rebuilding or repairing homes.

Local Organizations

• Red Cross: Offers a wide range of support services for wildfire victims, including:
  • Emergency Housing: Immediate shelter and housing assistance for displaced families.
  • Meals and Supplies: Food, water, hygiene kits, and other essential supplies to help families recover.
  • Mental Health Services: Emotional support and counseling to help individuals cope with the trauma of wildfires.
  • Case Management: Assistance with navigating available resources and creating recovery plans.
  • Visit www.redcross.org to find resources near you.
• 211 California: Connects residents with local charities and services offering financial and material assistance. Call 211 or visit www.211.org.

Insurance Advocacy

• United Policyholders: A nonprofit organization that provides educational resources and advocacy for policyholders navigating the claims process.

Rebuilding Resources

• California Office of Emergency Services (Cal OES): Offers information on rebuilding grants and community programs.
• Contractors State License Board: Helps homeowners verify contractor licenses and avoid fraudulent activity (www.cslb.ca.gov).
• Rebuilding Together: A nonprofit providing free home repairs for low-income families affected by disasters. Visit www.rebuildingtogether.org for more information.

Other Programs

• Temporary Sheltering Assistance (TSA): FEMA provides short-term housing solutions, including hotel stays, for those displaced by wildfires.
• Disaster Supplemental Nutrition Assistance Program (D-SNAP): Offers food assistance for families impacted by wildfires and other disasters.

Impact on Real Estate Transactions

Wildfires have a profound impact on real estate transactions in affected areas:

Delayed Transactions

• Inspections, appraisals, and escrow processes are often delayed due to property damage and insurance moratoriums.

Increased Insurance Costs

• Higher premiums in wildfire-prone areas may deter potential buyers and complicate financing.

Market Trends

• Demand for properties in high-risk areas may decrease, leading to lower property values and longer listing periods.
• In the Los Angeles area, limited housing availability for both renters and buyers could contribute to heightened competition for replacement homes, potentially driving prices up in certain areas. The dual effects of reduced housing supply and increased demand from displaced homeowners and renters may reshape the market dynamics.

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State-Mandated Moratoriums

• The one-year moratorium for properties in ZIP codes affected by the Palisades and Eaton Fires ensures homeowners retain insurance coverage temporarily, helping stabilize the market.

Planning for Long-Term Recovery

To build resilience and prepare for future risks, consider these steps:

Mitigation Measures

• Create defensible space around your home by clearing vegetation and using fire-resistant materials. For more information and guidance on certification requirements for high-risk areas, visit Wildfire Prepared.
• Follow local fire codes and consider professional wildfire risk assessments.

Policy Reviews

• Regularly review your homeowners insurance to ensure it reflects current rebuilding costs and risk factors.

Emergency Preparedness

• Develop and rehearse evacuation plans.
• Store copies of your insurance policy and other critical documents in a fireproof safe or cloud storage.

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Post-Wildfire Rain and Flood Risk

• Burn areas are highly susceptible to flooding and mudslides after heavy rains. Homeowners should:
  • Install erosion control measures like sandbags, wattles, and retaining walls to prevent soil runoff.
  • Inspect drainage systems to ensure they are clear and functioning properly.
  • Consider purchasing flood insurance. Standard homeowners insurance does not cover flood-related damages, but coverage is available through the National Flood Insurance Program (NFIP) or private insurers.

The Future of Insurance Availability

Rising Premiums and Stricter Standards

• As wildfires increase in frequency and severity, premiums will continue to rise, especially in high-risk areas.
• Insurers may require homeowners to implement specific mitigation measures to qualify for coverage.

Reduced Availability

• Some insurance carriers may withdraw from high-risk markets entirely, leaving homeowners reliant on the California FAIR Plan or other limited options.

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Legislative Responses

• State-level initiatives may include incentives for insurers to remain in wildfire-prone areas or expanded public insurance options to ensure availability.

Conclusion

Recovering from wildfires requires navigating a complex landscape of insurance, rebuilding, and real estate challenges. By staying informed, proactively managing risks, and leveraging available resources, homeowners and real estate professionals can play a pivotal role in supporting recovery and building more resilient communities. For personalized advice or assistance, contact our agency today.