California’s Worsening Crisis
Homeowners Insurance
Between 2020 and 2022, insurance companies declined to renew 2.8 million homeowner policies in California, including 531,000 in Los Angeles County, leaving many homeowners uninsured or reliant on costly providers of last resort. Insurance companies have canceled policies, raised rates or left the state due to the rising costs of doing business.
Most California home and fire insurance customers will be required to pay part of a $1 billion bailout of the FAIR Plan, California's insurer of last resort, which quickly ran out of funding following the recent LA fires.
California’s Uncertain Home Insurance Crisis Worsens After LA Fires
The already precarious homeowners insurance market in California is facing further turmoil in the wake of the recent Los Angeles wildfires. Insurance companies have been retreating from the state for years, citing mounting wildfire-related losses and regulatory constraints. This trend has forced many homeowners onto the California FAIR Plan, the state’s insurer of last resort, which has seen its exposure skyrocket to $458 billion—an alarming 61% increase in just one year.
FAIR Plan policies are not a viable long-term solution for most homeowners. They come with significantly higher premiums than traditional insurance and offer more limited coverage, often requiring homeowners to buy costly supplementary policies. With major insurers like State Farm refusing to issue new policies and dropping tens of thousands of existing ones, more Californians are being pushed onto the FAIR Plan, further straining its ability to cover claims. Now, following the devastating Los Angeles fires, the FAIR Plan has admitted it lacks the funds to pay out the surge in claims, forcing state regulators to approve a $1 billion assessment on private insurers to cover the shortfall. At least half of this surcharge will be passed on to all policyholders statewide.
State Farm, the largest homeowners insurance provider in the state, has also filed for an emergency 22% rate hike on renewals starting in May to help offset its newest wildfire-related payouts. The hike would amount to 38% for condominiums and 15% for renters. The company has already paid out several billion in claims related to the recent fires and insists that more increases are necessary to keep up with growing risks. Meanwhile, newly approved state regulations require private insurers to expand coverage in fire-prone areas equal to 85% of their market share statewide, an attempt to shift homeowners off the FAIR Plan. However, this reform comes with a major catch: insurers are now allowed to factor in reinsurance costs when setting rates, which could drive premiums up by 40% - 50%. Any way you cut it, it looks like property insurance is about to get a lot more expensive in our already costly state.
The spiraling costs of home insurance in California, compounded by the state’s restrictive policies, increasingly worsening wildfire risks, inflation in construction costs, and industry-wide instability, are pushing homeownership further out of reach for many residents.
