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California’s Home Insurance Crisis: What Homeowners Need to Know

California’s Home Insurance Crisis

If you’re a California homeowner, you already know that finding affordable home insurance is getting harder. Without knowing why, as a homeowner, you’re deeply immersed in California’s home insurance crisis. A crisis that has led many carriers to stop writing personal property in the state, or reduce capacity.

To deal with California’s home insurance crisis, insurance companies are raising rates to keep up with rising costs. In some cases, the increase is dramatic. If you live near or in a wildfire zone, you may find it nearly impossible to buy coverage.

Why is this happening? And what does it mean for homeowners moving forward? Let’s examine the key reasons behind the crisis, including long-term insurer losses, wildfire risks, regulatory challenges, and the growing reliance on the California FAIR Plan.

A Decade of Losses: Why Insurers Are Struggling

Insurance companies operate by collecting premiums from homeowners and using that money to pay claims. However, when claims consistently exceed the amount collected, insurers face financial instability. In California, that’s exactly what’s been happening. According to data from AM Best, 37 insurance companies have paid out more in claims and expenses than they’ve received in premiums over an 11-year period.

State Farm, for example, collected $19.6 billion in premiums during this time but paid out $20.4 billion in claims. Farmers, Liberty Mutual, and CSAA have also reported long-term underwriting losses. Meanwhile, wildfires in 2017 and 2018 caused insurers to pay out twice the amount they collected in premiums, leading to combined ratios of over 200% in those years.

How Proposition 103 Impacts the Crisis

One of the key factors shaping California’s insurance market is Proposition 103, a law passed in 1988 that requires insurers to get state approval before raising rates. While this regulation helps protect homeowners from sudden premium increases, it also limits insurers’ ability to price their insurance products in response to rising risks.

Beyond rate approvals, Proposition 103 restricts insurers from fully utilizing catastrophe modeling, a method used to predict potential future losses from wildfires and other disasters. In many other states, insurers use these models to proactively adjust pricing based on risk. In California, however, insurers must primarily rely on historical loss data, which may not fully capture the increasing threat of wildfires.

Additionally, the intervenor process allows consumer advocacy groups to challenge rate increases exceeding 6.9%, making it costly and time-consuming for insurers to secure necessary rate adjustments. This often results in insurers either leaving the market or applying for smaller increases that don’t fully reflect the rising cost of claims.

These regulatory hurdles have created a dilemma: insurers can’t charge enough to cover the rising costs of claims, making it hard to offer products. However, homeowners still need affordable coverage. This tension has led to a shrinking private insurance market and greater reliance on state-backed solutions like the FAIR Plan.

Wildfires & Climate Change: The Growing Risk Factor

Compounding the regulatory challenges to California’s home insurance market, the state’s worsening wildfire conditions have made home insurance riskier for insurers. While climate change is a complex and sometimes controversial topic, experts agree that rising temperatures, prolonged droughts, and high winds have contributed to more frequent and severe wildfires. These conditions mean that homes in wildfire-prone areas are more likely to experience damage, leading to higher payouts from insurance companies.

Recent fires, like the Pacific Palisades and Eaton Fires in 2025, highlight the ongoing threat. The California FAIR Plan, the state’s last-resort insurer, has $4.8 billion in potential exposure from just these two events.

The FAIR Plan: The Insurer of Last Resort

As private insurers withdraw from high-risk areas, more homeowners are turning to the California FAIR Plan, which provides fire insurance for those who can’t find coverage elsewhere. However, this program was never intended to be a long-term solution. The number of FAIR Plan policies has doubled since 2020, and its total exposure has nearly tripled.

But the Fair Plan isn’t a real solution. It’s not properly capitalized for the increased risk it’s underwriting. This means the problem will likely still fall on private insurers. If the FAIR Plan struggles to cover claims, it will require a special assessment from private insurers to meet its obligations. This will put even more strain on the system. While the program does have financial reserves and reinsurance agreements, its rapid growth raises concerns about long-term sustainability.

What This Means for Homeowners

For homeowners, California’s home insurance crisis presents challenges that translate into fewer insurance options and higher costs. If you live in a wildfire-prone area, you may have trouble securing coverage from a private insurer and could end up paying more for a FAIR Plan policy. Additionally, state regulators may need to consider reforms to ensure that homeowners can continue to access affordable insurance.

Some steps homeowners can take include:

  • Pay your premiums: If you have a policy don’t let it lapse, getting a replacement may be difficult or you may end up in the Fair Plan.
  • Review your coverage: Make sure you have the right coverage. Things change over time. Have you updated your policy for upgrades, renovations, or remodeling?
  • Exploring mitigation efforts: You can do things like installing fire-resistant materials and creating defensible space around your home.
  • Shopping around: While this isn’t easy right now, there are still some carriers available. You may want to look at alternatives to your current home insurance coverage options.
  • Staying informed: The landscape is changing quickly, and regulators, lawmakers, and carriers are working toward a solution.

The Bottom Line

California’s home insurance crisis is a complex issue driven by rising claims, wildfire risks, and regulatory constraints. While the state works to balance consumer protection with industry sustainability, homeowners must navigate a challenging landscape. We all hope the changes are too little too late

Going forward, potential solutions could include regulatory reforms, new risk-sharing mechanisms, and enhanced wildfire mitigation efforts. In the meantime, homeowners should stay proactive, keep up with changes in the insurance market, and take steps to protect their properties from wildfire risks.

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