Understanding the rising bushfire threat in our cities
The wildfires that engulfed huge swathes of Southern California in January 2025 resulted in widespread tragedy and devastation. At least 29 people lost their lives as wildfires burned across 40,000 acres of densely populated Los Angeles County. More than 12,000 structures were destroyed, and entire neighbourhoods were reduced to ash.
At one point, five fires raged simultaneously around the LA area, but two blazes were the most destructive. The Palisades Fire, which began in the Pacific Palisades on 7 January, destroyed or damaged almost 8,000 structures across more than 23,000 acres. The Eaton Fire north of Pasadena also began on 7 January and destroyed or damaged more than 10,000 structures across 14,000 acres.
The wildfires were one of the costliest natural disasters in US history. Damages and economic losses of between US$250 billion and US$275 billion (approx. A$400-450 billion) were incurred, according to an early estimate from AccuWeather. Preliminary estimates from Moody’s RMS for insured property losses from the fires was pegged at around US$30 billion (approx. A$50 billion). CoreLogic set the bill for insured losses at between US$35 billion and US$45 billion (approx. A$55-75 billion).
“This firestorm is the most destructive and multifaceted wildfire event in US history, with unprecedented levels of urban conflagration,” Moody’s director of North America wildfire models Firas Saleh said.
Urban areas burn due to ‘house-to-house ignition’.
Wildfires are better known as bushfires in Australia, but the name is a bit of a misnomer as it isn’t only bushland that is susceptible to bushfires. The threat to urban centres and cities is growing.
While LA County has always been prone to wildfires, the recent blazes encroached well into the city enclaves.
A series of conditions converged to spark the blazes, according to University of Tasmania pyro-geography and fire science researcher David Bowman.
Dry Santa Ana winds swept over mountain ranges in California and down towards the coast at cyclonic speeds, driving fires across drought-affected land.
“Shockingly, it crossed from the intermix housing on the border of bushland and city, and moved into suburban environments. It was an incredibly fast escalation,” wrote Dr Bowman.
Once the flames encroached into urban areas, house-to-house ignition became a contributing factor in the fires spreading.
House-to-house ignition is where the houses become the fuel. As a result, significant structure-to-structure burning spread and moved deep into urban areas.
Dr Bowman noted: “The houses are burning and putting out enough radiant energy to connect, particularly if you’ve got densely stocked houses, or overgrown gardens, or both. Then you get the ability for the contagion to happen.”
LA-style bushfire in Australia is ‘inevitable’.
Australia is no stranger to bushfires, but the frequency and severity of events has been rising. The Black Summer Bushfires (2019-20) was one of the worst fire seasons on record. Fires raged across multiple states, killing at least 34 people, razing 3,000 buildings and killing and displacing about three billion animals. The insured losses for the catastrophe are estimated at A$1.9 billion by PERILS.
The fires did not invade urban areas like they did in LA. But future blazes might.
“Could this happen in a major city in Australia? The short answer: yes,” wrote Dr Bowman.
“We don’t have Santa Ana winds, of course, but we do have downslope winds (a wind that comes over a topographic barrier like a mountain range). They are often very dry and warm and can move quickly. There is the possibility for fires to burn into Australian suburbs. We have all the ingredients.”
The Black Summer fires threatened most Australian state capitals on their urban fringes, which can burn even if fires do not reach them directly, due to winds carrying waves of flying embers over long distances, reported The Daily Advertiser.
UNSW bushfire behaviour specialist Jason Sharples said some parts of Australia – such as Victoria’s Dandenong Ranges, the Perth and Adelaide hills, and some parts of Tasmania – were prone to downslope gusts similar to LA’s Santa Ana winds.
According to Natural Hazards Research Australia, an LA-style bushfire is ‘inevitable’. A greater number of people living in areas of high bushfire risk, coupled with worsening fire conditions due to climate change, is seeing the risk of a bushfire impacting a major Australian city increasing.
A bushfire encroaching into an Australian city is not unprecedented. A fire in Tasmania back in 1967 came within two kilometres of Hobart’s CBD, the fires that ringed Sydney in 1994 reached into suburbs as smoke covered the city, while a 2003 fire spread into the heart of Canberra.
A lightning strike in the Brindabella Ranges on 8 January 2003 sparked the bushfire which burned around the edges of Canberra for a week. Then, on 18 January, catastrophic fire conditions whipped up the blaze and sent it into the suburbs. Over 10 hours, four people died, over 490 were injured, and 470 homes were destroyed or severely damaged.
“It could happen again in a major city such as Sydney or Melbourne,” according to Dr Bowman.
“If you have the wrong wind and the wrong fire and the wrong time, a fire can be driven very quickly into an urban area.”
In recent years, a timely southerly wind was the saving grace that stopped the 2019 Gospers Mountain blaze advancing into Sydney. Two years later, the Wooroloo fire, on Perth’s north-eastern fringe, destroyed 86 homes.
With more people living and working in areas of high bushfire exposure, there is a growing risk of fires in urban areas.
The increasing risk of bushfires entering urban areas will impact insurance.
The increasing frequency and severity of natural catastrophes including bushfires is having an impact on the availability and cost of insurance.
Swiss Re notes that global insured losses from natural catastrophes exceeded US$100 billion for the fourth consecutive year in 2023. The reinsurance giant has said climate change is making extreme weather events such as storms, flooding and wildfire more frequent and intense, pushing up the costs for the insurance and reinsurance industry.
Since 1990, there have been US$24 billion in insured losses due to wildfire events worldwide, according to Gallagher Re. The only three not in the US were the Australian Black Saturday bushfires in 2009, the Black Summer catastrophe in 2019-20, and Canada’s Fort McMurray fires in in 2016.
According to the Insurance Council of Australia (ICA), the global reinsurance industry has “failed to earn their cost of capital” for five of the past six years. As a result, global reinsurance costs rose to 20-year highs in 2023, with Australian insurers facing cost increases of up to 30%. This, in turn, led to significant premium increases across property lines, particularly for policyholders with assets located in disaster-prone areas.
The Climate Council notes that the increased risk of natural disaster is making properties uninsurable. Across Australia, approximately 520,940 properties, or one in every 25, will be ‘high risk’, having annual damage costs from extreme weather and climate change that make them effectively uninsurable by 2030. In addition, 9% of properties (one in 11) will reach the ‘medium risk’ classification by 2030, with annual damage costs that equate to 0.2-1% of the property replacement cost. These properties are at risk of becoming underinsured.
Every year, thousands of bushfires break out and leave devastation and damage in their wake.
There are 5.6 million Australian homes at risk of bushfire – 47.4% of all properties – with an estimated value of A$4.66 trillion.
Natural disasters have caused more than A$34 billion in insurance claims in Australia since 2010 – with 10% of that loss attributed to bushfires. The ICA also found that annual building related costs are estimated to be around A$486 million per year for bushfires.
Only a small percentage of the losses from the LA fires will be covered by insurance.
Howden Re said California wildfire claims before this year averaged US$200,000-$300,000 for residential or US$400,000-$500,000 when commercial is factored in. However, the recent fires will see far higher claims given the blazes entered urban areas.
Some estimates have put the cost of the damage and economic loss from the LA fires at between A$400 billion and A$450 billion – of which only a small percentage is insured. This highlights the significant insurance protection gap that exists – and is worsening – in the wildfire-prone state.
In response to growing risk, escalating insurance claims, and rising reinsurance and construction costs, at least a dozen of the largest property insurers, making up 80% of the Californian market, have withdrawn from offering wildfire coverage or have restricted new policies, reported ABC7News.com.
In March 2024, State Farm (the largest property insurer in the US), announced it would not be renewing about 72,000 policies in selected California postcodes deemed too risky to insure for wildfire – including more than 1,600 homes in Pacific Palisades.
Underinsurance and non-insurance are expected to be major issues as the city rebuilds.
The insurance fallout from the LA fires is expected to impact cover in Australia.
It is simply becoming too expensive to do business in California for many insurers. This may increasingly become the case in Australia too.
In the meantime, insurance premiums may rise.
Natural disasters have fuelled Australians’ insurance costs beyond inflation, analysis from The Australia Institute has shown.
“The increasing number, scale and intensity of natural disasters like bushfires, cyclones and floods – due to our changing climate – is a global phenomenon which will impact insurance premiums around the world, including here in Australia,” according to David Richardson, Senior Research Fellow at The Australia Institute.
“It is the same global factors which increase the frequency and scale of events like the LA wildfires and also increase the frequency and severity of climate-related disasters in Australia. It’s difficult to put a dollar figure on it for Australian consumers but, as the world’s big reinsurers push up premiums to cover their losses from natural disasters, local insurance companies will be forced to do the same.”
The ICA has said it is too early to predict if there will be cost implications for the Australian market, “but the fires came in the context of a global reinsurance industry already stressed by increasing extreme weather and inflation”.
Higher premiums are taking a toll on insurance cover. According to the Actuaries Institute, 15% of Australian households already face extreme insurance stress – whereby it costs four weeks or more of pre-tax income to buy an insurance policy.
More expensive policies are making cover unattractive, notes the ICA. This has meant that one-third of the A$60 billion in damage from natural disasters in Australia between 2013 and 2023 was left uninsured.
A multi-pronged approach to resilience and preparedness is needed.
“The LA fires show when it comes to climate change, there’s nowhere to hide. Around the world, authorities and communities must overhaul their assumptions about bushfire risk and preparedness. That includes people living in cities,” wrote Dr Bowman.
To ensure that insurance remains available and affordable for owners with assets at risk of bushfire – including those in urban areas and big cities – governments, agencies, communities and industry need to build greater resilience. Investment in mitigation and supporting infrastructure is needed, along with reforming land-use planning, enhancing building stocks, undertaking research into issues and risk factors, addressing climate change drivers, improving fire-fighting measures, and exploring alternative insurance protection options.
Talk to your EBM Account Manager about bushfire protection for your assets. Your broker can help you:
- Ascertain the risk of bushfire in your location.
- Assess fire resilience at the property.
- Obtain a Risk Survey Report to present to insurers.
- Develop accurate and detailed underwriting information to present.
- Secure appropriate insurance policies.
- Understand the cover, its limits and exclusions.
- Review the terms and conditions.
- Advise your insurer(s) about your proactive bushfire exposure management measures.
- Examine sums insured and business interruption timeframes to reduce the risk of underinsurance.
