
California’s wildfire-prone regions face an insurance crisis as major providers pull out, leaving homeowners scrambling for coverage.
At a Glance
- Major insurers like State Farm and Allstate have stopped writing new property insurance policies in California
- The California FAIR Plan, an insurer of last resort, has seen a significant increase in policies
- Recent regulatory changes allow insurers to consider climate change in pricing
- Consumer advocates criticize insurance companies for being “greedy” and lowballing claims
- Insurance Commissioner Ricardo Lara has mandated insurers to offer coverage in fire-prone areas
Insurance Market on the Brink
California’s homeowner insurance market is teetering on the edge of collapse due to increasing wildfire risks and onerous regulations. Major insurers, including State Farm and Allstate, have ceased writing new property insurance policies in the state, citing inflation and growing catastrophe exposure. This retreat has left many homeowners in fire-prone areas struggling to find adequate coverage.
The situation has been exacerbated by recent wildfires, such as the Palisades Fire, which caused significant damage estimated at up to $150 billion. Since 2015, 15 of the top 20 most destructive wildfires in California have occurred, highlighting the escalating risk faced by insurers and homeowners alike.
The FAIR Plan: A Double-Edged Sword
As traditional insurers retreat, many Californians are turning to the California FAIR Plan, an insurer of last resort. The number of FAIR Plan policies has doubled from 2020 to 2024, reaching nearly 452,000. However, this solution comes with its own set of challenges.
“The policies can be very bare bones, with some options only covering the actual cash value of what was lost rather than the true replacement costs,” Amy Bach said.
FAIR Plan policies have a $3 million limit, which is often insufficient for high-value properties. Moreover, if the FAIR Plan becomes insolvent, the cost could be passed on to consumers, further increasing insurance prices across the board.
Regulatory Response and Industry Pushback
In response to the crisis, California’s Insurance Commissioner Ricardo Lara has announced new regulations aimed at improving access to coverage and building a resilient insurance market. These changes allow insurers to consider climate change in pricing and pass reinsurance costs to consumers.
“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires,” Lara said.
However, these measures have been met with mixed reactions. While some insurers, like Farmers Insurance, have resumed issuing new policies under the new rules, concerns about significant rate increases remain. Consumer advocates argue that insurance companies are being “greedy” and unfairly denying claims, while insurers maintain that the risks in certain areas are simply unmanageable.
Looking Ahead
The insurance crisis in California serves as a stark warning to other states facing similar climate-related risks. As one expert noted, “We’re a few bad decisions away from being where California is.” The situation underscores the delicate balance between ensuring adequate coverage for homeowners and managing the financial risks faced by insurers in an era of increasing natural disasters.