Howden Re examines the widening insurance protection gap in California in new report

Following the devastating Californian wildfires, Howden Re the global reinsurance, capital markets, and strategic advisory arm of Howden, has released a new report, 2025 Los Angeles Wildfires: A Path Forward. 

The report presents an objective case for the urgent adoption of regulatory reforms and strategic investments in risk mitigation to stabilise the state’s insurance sector and ensure homeowners and businesses remain financially protected. 

At a time when people need protection more than ever, the protection gap is widening. The report shows that we have the power to narrow the protection gap through collaboration. Reinforcing the bond between regulators, insurance carriers and homeowners means better risk mitigation, and better risk transfer.

The Path Forward: A Call to Action

New regulations implemented late last year in California to allow more pricing flexibility for private insurers by permitting the use of catastrophe modelling and incorporating reinsurance costs are important (initial) steps forward in addressing structural issues and attracting capacity back into the market.

Alongside these changes, the report presents a roadmap for stabilising California’s insurance market through a combination of regulatory modernisation, market-driven solutions, and investment in resilience. The potential impact is clear. Wildfire exposures can be mitigated by relatively simple and cost-effective measures that fall under the responsibility of local governments and communities and include disaster planning, forest management, maintenance of key / vulnerable infrastructure, building codes and ‘building back better’.

Howden analysis finds that a $6 billion investment in wildfire risk mitigation could have reduced the economic losses of the Los Angeles wildfires by nearly 50%. 

The report identifies several other key actions needed to attract capital and restore confidence in California’s insurance market:

• Expanding Public-Private Partnerships: Collaboration between insurers, regulators, and policymakers can help distribute risk more effectively and ensure adequate insurance availability.
• Incentivising Risk Mitigation: Homeowners who invest in fire-resistant upgrades should receive premium reductions to encourage better resilience.
• Innovating Insurance Solutions: New models, including parametric insurance and MGA-backed solutions, can provide additional protection in high-risk areas.

The insurance industry, regulators, and policymakers must work together to bridge the insurance protection gap, safeguard financial stability, and ensure a long-term, resilient insurance market. 

Julian Alovisi, Head of Research at Howden, said: “As climate risks continue to evolve, insurers must be more agile and innovative in how they approach risk. However, this change cannot happen in a vacuum and collaboration is needed to restore balance and ensure long-term insurability. This is not just an insurance issue – it’s an economic and social imperative.”