The wildfires burning across Southern California are on their way to being the most costly natural disaster in the history of the state, with estimates that insurers are facing losses exceeding $20 billion.

The estimate could grow as the fires continue to rip through Los Angeles, CNBC reports, citing JP Morgan analysts. The projection led to the publicly traded stocks of some of the nation’s largest insurance providers sliding this week, including Allstate.

Estimates placed the total economic damage reaching up to $57 billion, according to a report from the Guardian. Consumer advocates tell the news outlet that the increase in volatile natural disasters in recent years has hurled the insurance industry into “significant disarray,” which has led to policy owners getting a slew of “sad surprises” when they file their claims and that the aftermath of the wildfires in Los Angeles will be no different.

“We’re going to see some funky policies out there,” Amy Bach, of the consumer advocacy group United Policyholders, said, “some language we’re not used to seeing.”

Homeowners in Southern California may even face the grim prospect of already high premiums soaring upwards from insurers looking to recoup their losses.

A grim warning was released just last month by the U.S. Senate Budget Committee in a report on the crisis faced by the insurance industry over climate-related catastrophes.

“Climate-related extreme weather events will become both more frequent and more violent, resulting in ever-scarcer insurance and ever-higher premiums,” the committee says in their report. 

“Climate change is no longer just an environmental problem. It is a looming economic threat.”

The deadly wildfires that have engulfed Los Angeles and decimated entire neighborhoods comes after insurance companies rolled back their offers of coverage in recent years due to the increasing risks of natural disasters and the state’s challenging regulations.

The SoCal Inferno has leveled nearly 30,000 acres of the City of Angels, fueled by fierce Santa Ana winds, with over 1,000 buildings destroyed, and the efforts to rebuild and get life back to normal will prove problematic in the coming days and months as many leading insurance companies have reduced their acceptance of new policy applications in California.

The state’s largest home insurance provider, State Farm, announced in March of last year that it was discontinuing coverage of 72,000 home and apartment policies across the state, citing inflation, regulatory costs, and the rising risk of catastrophes, according to a report from Fox Business. The action was on top of slowing down the approval of new policies.

Other leading insurers like Allstate, Farmers, and USAA have curbed new policy applications in California to limit their exposure to “undue risk,” according to the report.

Even those in the tony enclave of Pacific Palisades, where many homes were decimated, have reportedly been denied coverage recently.

“Actually one of the major [insurance] companies canceled all the policies in our neighborhood about four months ago,” actor James Woods, whose newly renovated home in the Pacific Palisades was destroyed by fires, said in a post on X.

The Pacific Palisades is home to a bevy of celebrities, and the average home price is around $4.5 million, according to data from Realtor.com.

Among those who also lost their homes were Paris Hilton and actor and comedian Billy Crystal.

A preliminary estimate from JP Morgan anticipated that the damage from the Palisades fire alone could cost the state over $10 billion, according to a report from Vox, which also points out that a spate of historic wildfires in 2017 and 2018 made the insurance companies skittish. 

They dropped tens of thousands of customers living in parts of the state considered highly flammable and significantly raised prices for others.

The unfolding disaster also has the potential to cause a ripple effect across the country.

A 2022 study from Harvard Business School, “Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies,” highlights how expensive natural disasters – like the one currently unfolding in Southern California – could lead to insurers pushing up the premiums of homeowners living hundreds or thousands of miles away to mitigate profit losses.

“It’s spread all over the country, and it spreads in a disproportionate way, where some people are bearing an overwhelmingly higher cost,” Harvard finance professor Ishita Sen, who co-authored the study, told The Wall Street Journal.

In December, California’s insurance commissioner announced efforts to address the coverage crisis with new reforms that could help bring coverage back to residents, mandating that insurance companies increase coverage in “wildfire-prone regions,” and writing policies for at least 85 percent.

“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change,” Commissioner Ricardo Lara said in a statement released on December 30. “This is a historic moment for California. My Sustainable Insurance Strategy is focused on addressing the challenges we face today and building a resilient insurance market for the future.”

While the new initiative has yet to take effect, Commissioner Lara announced on Thursday a new mandatory one-year moratorium that would prevent cancellations and non-renewals in parts of Southern California affected by the wildfires, including those hit by the Palisades and Eaton Fires.

“I am using my moratorium powers to prevent insurance companies from canceling or non-renewing policies in wildfire-impacted areas, so people don’t face the added stress of finding new insurance during this horrific event,” he said, according to a report from NBC News. “I am working on all fronts to make sure wildfire victims get the benefits they are entitled to, and they get it as soon as possible.”