The Los Angeles wildfires could threaten California’s already unstable insurance market, which carriers have been fleeing as disasters multiply.

Wildfires continued to rage in Los Angeles late Thursday, decimating neighborhoods and raising questions about the future of California’s already troubled property insurance market.

The state’s insurance industry was reformed in late 2024 to promote coverage in disaster-prone areas. Tens of billions in fire damage will stress-test the new regime.

The wildfires that destroyed homes in multiple sections of the Los Angeles area will test California’s efforts to stabilize the state’s insurance marketplace after many insurers stopped issuing residential policies due to the high fire risk.

Industry officials warn of widespread economic damage on par with some of the biggest fire disasters in recent memory.

The massive fires that have destroyed much of Pacific Palisades and demolished thousands of homes and structures in Los Angeles County threaten an effort to fix California's troubled home insurance market.

California had just set new rules for insurance companies, aimed at enticing insurers who had left the state, to return to the California market and resume writing policies for people in high-risk areas.

The insurance company canceled thousands of California homeowners' insurance policies last year in an attempt to avoid "financial failure."

We need to make it incredibly expensive to build in these kinds of environments,’ one expert told The Independent. ‘If the insurance industry refuses to sell policies, maybe people won’t risk it’

A California law passed in 1988 and its regulations play a significant role in why insurance companies are fleeing the state, experts say.