They get paid to rebuild the house. The cost to build a new house is a lot less than what many of those were worth, because a huge part of the value was the location and the land and that didn’t go away. Those $1M homes may only cost $200k to rebuild.

In Canada my insurance company uses app $400 a sq ft to rebuild so my policy is based on that for my 2000sq ft house. Imagine same idea in California. A city near me burnt a few years ago and build just started in 2024. Years later after all the clean up had taken place etc. all new infrastructure was needed etc. the whole town burn.

Andrewlei3 is right. Insurers package all their exposures in a certain area (or all their exposures to a certain peril) then buy reinsurance in layers of 10’s of millions. Whether they bought enough layers for this loss is however a big question. Insurers go bust quite frequently.

Everyone’s insurance premiums worldwide will go up so that the insurance companies can claw back their losses. Everyone, worldwide.

For every house that burnt down the insurance company would collect 100x that rebuild amount per year from people across the country that never make a single claim in their life. They also only insure the value of the building (and contents), not the land, which is where most of the value is.