The raging wildfires in Southern California are serving as an early, critical test for new regulations aimed at stabilizing the state’s struggling homeowners insurance market. These rules, finalized in December by the state’s insurance commissioner, allow insurers to factor in climate change risks when setting rates and require them to extend coverage to high-risk areas.

The regulations are part of an effort to make California’s insurance rules more consistent with those of other states and to address the growing crisis exacerbated by increasing wildfires and natural disasters driven by climate change. Currently, five wildfires have burned 29,000 acres in Los Angeles and surrounding areas, forcing nearly 180,000 people to evacuate and becoming the most destructive fires in the city’s history.

Karl Susman, president of Susman Insurance Services, remarked on the unprecedented number of fires across Southern California, highlighting the widespread nature of the threat.

These fires exemplify why insurers have been withdrawing from the region in recent years. Although January is not typically wildfire season in California, a drier climate has extended the fire risk into colder months, impacting wealthy neighborhoods like Pacific Palisades with median home prices of $3.5 million.

Insurers are expected to bear a significant portion of the losses incurred from these wildfires.