LA wildfires hold important lessons in managing risks

The wildfires that raged through the Los Angeles area in January killed dozens of people and burned more than 37,000 acres.

As horrific as these losses are, there are lessons to learn from the tragic fires. Karen Clark, cofounder and CEO at catastrophe modeler Karen Clark & Co. (KCC) recently spoke with CFO Brew to share details on how the fires got so bad, and provided some important risk management takeaways.

KCC estimated the fires caused $30 billion in insured losses, according to Clark. UCLA estimated total losses, which includes uninsured damages, between $76 billion and $131 billion. The university also estimated the fires caused a $4.6 billion—or roughly half a percentage point—loss in 2025 GDP for Los Angeles County, and $297 million in lost wages for local workers and businesses.

However, as devastating as wildfires, and other natural disasters, can be, organizations have options for managing and mitigating wildfire risk.

How did the fires get so bad? To understand how the wildfires reached the level of widespread destruction they did, KCC scientists looked back to the winter of 2022–2023, Clark said. Record amounts of rainfall that year, followed up with another wet winter in 2023– 2024, created some uncommonly “lush vegetation” in southern California.

The rain stopped come spring 2024, and the area experienced drought-like conditions. And the rain didn’t pick back up in October like it normally would, either. “All of that lush vegetation turned to very dry wildfire fuel,” Clark noted.

Then came the dry, hot, “hurricane-force” Santa Ana winds. These strong gusts, combined with all that dead vegetation, created perfect conditions for catastrophic wildfires.

Risk-minded business leaders should keep in mind that when conditions get as bad as they did with the LA fires, “there is very little firefighters can do to stop the fire spread,” Clark said. She added, “In a very extreme event such as this, most of the resources turn to evacuation to make sure they save lives.”

And in case anyone was wondering: Yes, climate change is to blame for the extremely destructive wildfires that California and other places are experiencing.

“Of all the atmospheric perils, climate change is having the greatest impact on wildfires,” Clark said, “and climate change is increasing both the frequency and severity of wildfires.”

KCC scientists study the impacts of climate change to incorporate into the company’s models. Their research shows that loss potential from wildfires and other catastrophes is increasing, Clark said.

What businesses can do to help manage wildfire risk. Compared to other natural catastrophes, such as hurricanes, expected annual losses are significantly lower for wildfires. This fact “shows that wildfires are insurable,” Clark said, so long as insurance companies are able to use rigorous modeling to set rates in states like California.

Through investigating affected areas and speaking with firefighters, KCC experts identified some essential mitigation measures. The big ones, Clark said, are defensible space and fire-resistant roofs.

“There are lots of other ones that are important,” she said. “But in these LA wildfires, those two stood out as probably the most important.”

Defensible space refers to the area around a building that’s been cleared of vegetation or other combustible material. And Clark specifically stressed a Class A roof, which has the highest rating for fire resistance.

“The good news,” Clark said, is that many commercial buildings, such as warehouses, already have defensible spaces such as large parking lots, and fireproof roofs made of concrete or metal. Another plus is that they’re typically located near major highways, providing easy access in and out of the area.

But some more vulnerable commercial buildings include hotels, which tend to have more elaborate landscaping. In those instances, businesses and property owners would be wise to ensure their landscaping consists of fire-resistant plants.