Insurance Cancellation and Wildfires
Published Date: 01/25/2025
🔥 Wildfires, Non-Renewals, and California’s Insurance Crisis: What Every Homeowner Must Know
California’s homeowners are facing a storm that’s not made of wind or fire—but of policy cancellations, non-renewals, and skyrocketing premiums. As wildfires intensify, insurers are reassessing their exposure, leaving thousands of residents scrambling for coverage. In a recent discussion, insurance expert Karl Susman shed light on why insurers are retreating, how the system really works, and what homeowners can do to protect themselves in this rapidly changing environment.
1. The New Reality: Insurers Retreating from Wildfire Zones
For decades, Californians trusted familiar insurance names like State Farm or Allstate to safeguard their homes. But in the past few years, these companies have pulled back, non-renewing tens of thousands of homeowners—particularly in fire-prone regions like the Pacific Palisades, Malibu, and parts of Northern California.
In one instance, State Farm non-renewed 1,626 policies in a single ZIP code (90272). For many residents, this was a devastating blow. Some had been loyal customers for 20 or 30 years, only to receive a terse letter: “We will not be renewing your policy.”
As Susman explains, “We were upset at the time. But looking back, maybe they knew something we didn’t. They were using catastrophe modeling.”
2. Catastrophe Modeling: How Insurers Are Using Data to Predict Risk
The term catastrophe modeling may sound technical, but it’s at the heart of today’s insurance crisis. Insurers now use advanced data analytics—satellite imagery, drone surveys, and risk simulations—to forecast potential losses from natural disasters. These models don’t just assess an individual property; they evaluate the entire region’s risk profile.
The results have been sobering. Wildfires once considered “100-year events” are now occurring every three to four years. In insurance math, that’s a game-changer. As Susman notes, “When a loss becomes a near certainty, how do you insure that? You can’t do the math on an uninsurable event.”
These models inform insurers’ underwriting decisions. If the probability of loss exceeds acceptable thresholds, companies reduce exposure—meaning they stop writing or renewing policies in that region. That’s why once-affordable, widely available coverage has become so scarce in California’s hills and canyons.
3. From “Shopping” to “Hunting” for Coverage
Susman describes the shift bluntly: “It’s no longer shopping for insurance—it’s hunting.”
Years ago, a broker could call a dozen carriers and find the best fit for a homeowner’s needs. Today, options are so limited that agents scramble to secure any policy before it’s gone. It’s not about comparison—it’s about survival.
The ripple effects are immediate:
- Prices surge when fewer companies are willing to write policies.
- Coverage gets pared down. Some homeowners now insure only their structure, skipping personal property coverage.
- Non-admitted markets and the California FAIR Plan become the last resorts.
4. The FAIR Plan: A Safety Net with Holes
The California FAIR Plan is often misunderstood. It’s not a state-run program, though it was created by state law. Instead, it’s an insurance pool funded entirely by private insurers that operate in California. Its goal is simple: ensure every homeowner can obtain at least basic fire insurance.
However, the FAIR Plan has limits:
- It only covers fire and certain perils unless a “wraparound” policy is purchased.
- The maximum coverage limit is $3 million per location—a fraction of what’s needed for many California homes, especially in areas like the Palisades or Napa Valley.
- It’s a last resort, not a full replacement for traditional homeowners’ insurance.
If the FAIR Plan’s own funds and reinsurance are exhausted, private insurers are assessed to cover claims proportionally to their market share. So even companies that withdrew from fire zones end up paying indirectly through FAIR Plan losses.
5. The Non-Renewal vs. Cancellation Confusion
Homeowners often use “cancellation” and “non-renewal” interchangeably—but they’re very different in legal and practical terms.
- Cancellation means immediate termination of your current policy.
- Non-renewal means your policy will end when it expires, typically giving you 60 days’ notice or more.
That time window is crucial. It allows homeowners to appeal, fix inspection issues, or shop for alternatives.
In some cases, non-renewals stem from automated inspections—not just human appraisals. Insurers are now using drones, planes, and satellites to assess risk conditions remotely. While efficient, this system has flaws.
“Sometimes the wrong house gets flagged,” Susman warns. “Or a skylight is mistaken for roof damage.”
That’s why he urges consumers to challenge errors immediately. If you receive a non-renewal based on inspection data, take photos, contact your agent, and provide proof. Many carriers will reverse a non-renewal if shown accurate evidence.
6. The Power of Knowing Your Rights
The California Department of Insurance (CDI) has enacted emergency rules that temporarily ban non-renewals in wildfire-affected and adjacent ZIP codes. These protections can extend coverage for up to a year, giving homeowners breathing room.
But there’s a catch—these protections aren’t automatic.
“If you receive a non-renewal notice and live in an affected ZIP code, you must contact your insurance company and assert your right to the moratorium,” Susman emphasizes. “It doesn’t just happen on its own.”
This highlights a recurring theme: informed consumers fare better. Knowledge and proactive communication can make the difference between losing coverage and keeping it.
7. A National Problem: The “Uninsurable America” Dilemma
While California dominates headlines, the problem isn’t isolated.
- Florida faces a hurricane insurance meltdown.
- Colorado struggles with wildfire exposure.
- Texas battles wind and hailstorm losses.
Susman argues that as natural disasters grow more frequent, the traditional insurance model can’t keep up. “If a loss is a certainty, there’s no way to insure it. At some point, there must be a federal solution—something like an SBA-style disaster backstop.”
A federal catastrophe fund could pool risks across states, stabilizing premiums and ensuring claims get paid even during systemic crises. It’s an idea gaining traction as private carriers withdraw from multiple markets nationwide.
8. The Future: Sustainable Insurance and Regulatory Reform
California’s Sustainable Insurance Strategy, introduced in 2023, aims to modernize outdated laws from the 1980s. It encourages insurers to:
- Incorporate catastrophe modeling into rate filings,
- Recognize mitigation efforts like defensible space and fire-resistant construction, and
- Balance consumer protection with market viability.
These reforms are a critical step, but their implementation will take time. The challenge is balancing fairness for homeowners with financial solvency for insurers.
As Susman puts it: “Insurance companies aren’t nonprofits. They make money when you don’t have losses. We need a model where risk mitigation pays off—for both sides.”
9. What Homeowners Can Do Right Now
Until the system stabilizes, homeowners should take proactive steps:
- Engage your insurance agent early. Don’t wait for a non-renewal to start looking.
- Document everything. Keep inspection reports, photos, and correspondence.
- Harden your home. Clear vegetation, upgrade roofing, and maintain defensible space.
- Explore surplus-line and specialty markets. Independent brokers may access niche carriers.
- Know your appeal rights. Challenge errors or unfair non-renewals with the CDI.
- Maintain continuous coverage. Gaps can disqualify you from future policies.
Conclusion: Adapting to a New Insurance Landscape
California’s insurance market is evolving from predictable to precarious. Wildfires, advanced modeling, and outdated regulations have collided to create a crisis that tests both insurers and homeowners. Yet amid the uncertainty, knowledge remains the most powerful tool.
As Susman reminds us, “Every renewal is like re-upping your vows—both you and the carrier get to decide if you want to stay together.”
Understanding that dynamic—and acting before disaster strikes—can mean the difference between protection and peril.
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