When Models Meet Reality: The LA Wildfires and Shifting Global Risk

January 8, 2026 / 6 min read

The Los Angeles wildfires in January 2025 resulted in profound loss: homes destroyed, lives upended, and communities forever changed. As a modeling organization, we strive to be impartial and data-focused, but we recognize that behind every data point is a family, a neighborhood, and a story of resilience in the face of unimaginable devastation.

In this article, we step beyond the model to analyze the real-world factors that contributed to the devastation caused by the Eaton and Palisades fires. Our purpose is not to reduce tragedy to numbers, but to learn from these events to help better protect communities in the future. Improving this understanding and advancing the science and data surrounding catastrophic events are essential steps toward honoring the past to build more resilient communities.

wildfire-at-night

^{Wildfire spreads into Arcadia, California, during the Eaton fire in January 2025.}

Understanding the impacts of catastrophe losses on the global insurance industry demands a firm grasp of the factors that drive those losses. Verisk’s global modeled average annual property loss (AAL) from natural catastrophes, calculated at $152 billion in the 2025 Global Modeled Catastrophe Losses Report, incorporates robust engineering and science that informs Verisk’s view of risk. But how do real-world scenarios illustrate those key loss drivers? The Los Angeles wildfires of January 2025 provide a window into the forces at work.

Among the numerous elements that make up catastrophe models, Verisk identifies four significant loss drivers in the 2025 report:

Exposure growth, which averaged 7% in Verisk-modeled countries from 2020 to 2024, driven by both new construction and construction price increases
Rapid urban expansion, a phenomenon that can cause a country’s exposure values to far outpace typical growth rates of 2% to 10% per year
Event frequency, marked by the rapidly growing share of total modeled losses generated by frequency perils such as severe thunderstorms, winter storms, wildfires, and inland floods
Climate change, which is slowly shifting the long-term distribution of these atmospheric hazards

Consider how these loss drivers played out in the Los Angeles wildfires.

Exposure growth: When high-value real estate burns

The hills west of Los Angeles represent some of the world’s most expensive real estate, which has attracted buyers with the means to build premium and custom homes. Initial estimates for insured industry losses to property from the January 2025 Palisades and Eaton fires together fell between $28 billion and $35 billion. The Palisades fire area, which contained many of the most valuable properties, saw costly losses for both structures and contents, as well as mounting additional living expenses that have been paid while property owners are displaced.

Insured values in the region reflected high reconstruction costs, which quickly increased further with the demand surge in the aftermath of the fires. Data from Verisk’s Xactimate estimating solution showed that while California reconstruction costs were up 1.7% on average in the first quarter of 2025, the Los Angeles region saw a 4.2% increase.

Urban expansion: Encroaching on fire country

Along the Southern California coast, spectacular views come with natural perils. Still, those risks haven’t deterred the spread of development along steep mountainsides covered in seasonally dry vegetation, a recipe for explosive fire spread. Significant portions of the Los Angeles wildfire areas fell within the wildland-urban interface (WUI) as denoted by Special Hazard Zones (SHZs) in Verisk’s FireLine® wildfire risk management tool.

In California, the number of homes in the WUI, where human settlement encroaches on fire-prone areas, increased by nearly 240,000 from 2010 to 2020. In SHZs, high structure density combines with proximity to wildlands, defined as half a mile or less, to create direct exposure to wildfires and long-distance, wind-driven ember exposure. This makes the structures susceptible to an urban conflagration such as occurred in January. The Verisk Wildfire Risk Report 2025, which will be released in January, provides additional insights into the WUI exposure at both a state and county level.

As development continues in the WUI, one key factor affecting risk is the strength and enforcement of building codes. Critical code provisions in wildfire-prone areas include ignition-resistant building materials such as Class A fire-rated roofing materials, fire-resistant windows and doors, and ember-resistant vents. These building attributes, in conjunction with property characteristics such as defensible space around structures, can be explicitly modeled in the Verisk Wildfire Model for the United States.

Event frequency: The interaction with growing exposure

Exposure growth and urban expansion can amplify frequency effects—even if frequency trends in isolation don’t display a consistent upward trajectory. Such may be the case with wildfires in California, which are always a high-frequency peril but show peaks and valleys from year to year. It takes a longer-term retrospective view to see the dynamics of exposure and frequency in action.

Estimated Insured Losses and Estimated Wildfire Events - chart

^{Figure 1^[1]: Estimated insured losses from wildfire events and the estimated number of wildfire events occurring in California, by decade.}

In the 1980s, California wildfires caused $2.1 billion in insured losses, adjusted to 2024 dollars. About halfway through the 2020s, wildfires in the state had caused $28.4 billion in insured losses, as illustrated in Figure 1. These statistics point to two realities affecting California and other wildfire-prone states:

While the overall number of wildfires has increased at a stable rate, the frequency and scale of large, loss-causing wildfires have increased significantly.
As a result, total area burned averaged 14% higher across the western 13 contiguous states in 2020–2024 compared with the previous five-year period.

Climate change: Toward an end to the wildfire season

Seasonality tends to be a hallmark of weather and climate-related perils, including wildfires. But that’s changing for wildfires in some regions, including the western United States. Data from the California Department of Forestry and Fire Protection (CAL FIRE) shows that January historically is among the quietest months of the year for wildfire activity. The outbreak of fires around Los Angeles in January 2025, which included other incidents besides the Palisades and Eaton fires, exemplifies how the risk is spreading across the calendar.

Worsening heat, droughts, and changing precipitation patterns are making wildfire “seasons” longer—virtually year-round in some cases. For example, as spring arrives progressively earlier in the Northern Hemisphere, premature snowmelt can trigger a potentially disastrous sequence: Reservoirs fill and are released sooner, which means vegetation consumes that moisture and then dries out earlier in the season, providing fires with more ready fuel even before the summer heat arrives.

Distinguishing the effects of climate change from normal, shorter-term climate variability is one of the many challenges facing catastrophe modelers. A near-present view of climate is key to developing effective models that meet insurers’ and reinsurers’ needs to support the analysis of existing portfolios and forward-looking strategies.

A first for California

Verisk’s wildfire model is the first to successfully complete an evaluation under the Department of Insurance’s new Pre-Application Required Information Determination (PRID) process. This first-ever acceptance of approved models for ratemaking in California is part of Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy aimed at stabilizing and bringing insurers back into the market for the state.

The California regulation establishing the use of catastrophe models requires the models to consider mitigation measures by homeowners and businesses—a demand Verisk’s model meets by applying the latest data, physical science, and engineering. The model can also account for fire breaks such as roads or substantially built-up areas. The result: dependable, insurance-ready insights for underwriting and pricing, capital optimization, and risk transfer through reinsurance and insurance-linked securities.

Verisk’s 2025 Global Modeled Catastrophe Losses Report explores these loss drivers and more with extensive data and insights for all stakeholders preparing to meet these growing risks.

Download the report today.

[1] Insurance Information Institute, Archived Tables: Top 10 Costliest Wildfires in the United States, accessed December 2025, https://www.iii.org/table-archive/21424; Insurance Information Institute, Triple‑I: California’s Insurers Still Feel Impact of 2017–2018 Wildfires, published September 21, 2023, accessed December 2025, https://www.iii.org/press-release/triple-i-californias-insurers-still-feel-impact-of-2017-2018-wildfires-092123; California Department of Insurance, Climate Risk & Resilience Analysis: Analysis of Insurance Company Investments, published April 2022, accessed December 2025, https://interactive.web.insurance.ca.gov/apex_extprd/cdi_apps/r/260/files/static/v58/Analysis%20of%20Insurance%20Company%20Investments%20-CDI-Final-Reportv2.pdf; National Association of Insurance Commissioners, Wildfire: An Issue Paper – Lessons Learned from the 2017–2018 California Events, published June 2019, accessed December 2025, https://content.naic.org/sites/default/files/inline-files/Wildfire.IssuePaper_0.pdf; National Association of Insurance