The Economic Toll of the California Wildfires

January 22, 2025 | Madelyn Waumans, Research Associate

Earlier this month, wildfires broke out across Los Angeles County, California, destroying more than 12,000 homes, businesses, schools, and other structures. Officials recently reported a total of 40,700 acres have burned across the area, with some of the blazes still only partially contained. According to Goldman Sachs estimates, the fires have resulted in roughly $40 billion in losses ($10–30 billion of which are insured) and could lead to a 0.2% drag on first quarter U.S. GDP growth. This potential impact, while significant, would be smaller than those of other natural disasters in U.S. history, including Hurricanes Katrina (2005) and Harvey (2017). These types of events typically result in short-term economic disruptions, but lost economic output is often gradually recovered as federal aid and insurance payouts allow communities to rebuild. As such, the cumulative economic impact of the wildfires may ultimately be lower than current estimates as eventual reconstruction efforts will likely provide a boost to GDP.

The wildfires in California are drawing attention to the availability and price of homeowners insurance, as the state faces frequent disasters, high real estate prices, and an uncertain insurance landscape. To that point, seven of the 12 largest insurance companies have either paused or restricted new policies in California due to the frequency and severity of natural disasters over the last decade. On January 10, the California Department of Insurance announced a one-year moratorium on the cancelation or non-renewal of homeowners insurance policies by carriers in specific areas affected by the wildfires. In coming years, California homeowners may see a shift in property insurance away from standard policies to provide higher risk coverage at higher rates.

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