California’s Wildfire Insurance Crisis and What Homeowners Must Know
Published Date: 03/06/2025
As California continues to burn—literally and figuratively—under the weight of another devastating wildfire season, a new challenge is sweeping across the state: the battle for affordable, accessible homeowners insurance. In the aftermath of the Los Angeles wildfires, thousands of residents face uncertainty about whether their homes, families, and financial futures are truly protected.
Insurance expert Karl Susman recently appeared on To The Point to shed light on how these fires are reshaping the insurance landscape, the crucial policy details homeowners often overlook, and what the state’s new “sustainable insurance strategy” really means for California’s future.
Wildfires Are the New Normal — and So Are Rising Rates
California’s climate reality has changed. “We’re going to have to come to grips with the fact that wildfires are the new normal,” Susman explained. Each year brings stronger, faster-moving, and more destructive fires fueled by drought, heat, and expanding urban-wildland boundaries. The insurance industry’s challenge is that this risk is now predictable—not a rare event but an ongoing financial exposure.
As losses mount, premiums inevitably rise. The math behind insurance is simple: when insurers pay more in claims than they collect in premiums, rates must adjust to maintain solvency. “Rates haven’t even gone up to follow inflation in the last three or four years,” Susman noted. That lag, he warned, has created an unsustainable imbalance where rebuilding costs skyrocket, yet premium pricing remains frozen by outdated regulation.
Check Your Policy—Because It Probably Doesn’t Cover Everything
Susman urged all Californians to review their homeowners insurance policies immediately. “A policy today does not exist that would cover everything the way we probably think it should or would,” he cautioned.
Here are three critical areas every homeowner should check:
1. Auto-Pay & Policy Renewal
This might sound basic, but failing to pay your premium—by even one day—could mean permanent loss of coverage. “If you miss that renewal, you’re not going to be able to get that policy again,” Susman warned. With many insurers scaling back in California, reinstating coverage can be nearly impossible. Set your policy to auto-pay to ensure uninterrupted protection.
2. Replacement Cost Coverage
Wildfire rebuilding costs have exploded. What used to cost $400–$500 per square foot now easily exceeds $800–$1,000 per foot in high-demand markets like Pacific Palisades or Malibu. This means homeowners with outdated coverage limits could find themselves hundreds of thousands of dollars short. “It’s difficult to decide where you want to fall,” Susman said. “Do you want to be prepared for a fire—or for a fire that wipes out your entire neighborhood?”
3. Additional Living Expenses (ALE)
This coverage pays for temporary housing and living costs while your home is being rebuilt. Many policies cap this benefit at 12–24 months—but reconstruction timelines in California can stretch well beyond that. “They’re talking about 12 to 18 months before we can even start rebuilding,” Susman explained. That means homeowners could run out of funds long before moving back in. He advises reviewing and, if possible, increasing your ALE coverage to reflect real-world recovery timelines.
Mortgage-Free Doesn’t Mean Risk-Free
Many Californians believe that once their mortgage is paid off, they can afford to skip homeowners insurance. Susman calls this a dangerous misconception. “Once you pay your home off, now it’s 100% your asset,” he said. “That’s the last time you want to stop protecting it.”
Without insurance, a wildfire or other catastrophe could wipe out your entire life savings overnight. Even minimal coverage is better than none—especially for those in high-risk fire zones.
The Financial Reality: Can Insurers Cover All These Claims?
Despite the unprecedented destruction in Los Angeles and surrounding counties, Susman says the good news is that “all of the private companies really have been stepping up and paying claims.” The state’s insurance system, though strained, has not collapsed. However, it’s clear the industry is walking a tightrope between sustainability and accessibility.
California’s sustainable insurance strategy, which took effect just days before the recent wildfires, may have prevented a mass exodus of insurers. “If that hadn’t happened,” Susman explained, “we would be seeing a wholesale pulling out of California.”
These new regulations aim to modernize how rates are approved and help insurers account for climate-related risks more accurately. It’s a delicate balance: too little reform and insurers leave; too much, and consumers face unaffordable premiums.
State Farm’s Emergency Rate Request: A Turning Point
The most striking development following the LA wildfires is State Farm’s emergency request for a rate increase—a move rarely seen from a household-name carrier. Susman explained that this type of request allows insurers to bypass the lengthy standard rate-approval process if financial solvency is at risk.
“They did it under the auspice of, ‘We can’t wait. If we don’t have this, we genuinely may not be able to pay our bills,’” he said. State Farm, which insures roughly 20% of California homeowners, reportedly argued that wildfire losses have pushed its reserves to the breaking point.
Insurance Commissioner Ricardo Lara did not immediately approve the request, choosing instead to negotiate with State Farm. Lara sought two assurances before granting relief:
- Commitment to stay in California, and
- Agreement to start writing new policies again—something State Farm has not done for several years.
While these negotiations continue, the outcome could set a precedent for how California handles future emergency rate requests. If relief is denied or delayed, Susman warns, “We could see the domino effect of carriers not only not offering new policies but leaving the state altogether.”
Behind the Scenes: The Industry’s Long-Term View
While consumers think in terms of months and years, insurers think in decades. “They’re always thinking five years, ten years, fifteen years down the line,” Susman said. This long-term perspective means companies are less reactive to individual events and more focused on sustainable risk models.
However, insurers’ caution has real human consequences. When companies stop renewing or writing new business, entire communities are left uninsured, forced into the state-run FAIR Plan—a high-cost, last-resort option that offers limited protection.
In essence, the LA wildfires have accelerated a crisis that’s been brewing for years: how to maintain private insurance availability in a state facing billion-dollar natural disasters every season.
What Homeowners Should Do Now
- Review your policy immediately. Confirm coverage limits, deductibles, and ALE duration.
- Document everything. Keep digital copies of receipts, photos, and valuables in cloud storage.
- Add extended replacement coverage (if available) to safeguard against inflation.
- Consult an independent agent. They can compare multiple carriers to find the best fit.
- Avoid lapses. Use auto-pay and maintain continuous coverage, even if you switch insurers.
- Plan for the long haul. Rebuilding after a wildfire can take years; prepare financially and emotionally for a marathon, not a sprint.
The Road Ahead: A Fragile Hope
Despite the immense challenges, there are signs of progress. Regulatory reforms are slowly giving insurers a path forward. Companies are still paying claims, and Californians—though weary—are adapting.
But the message from Karl Susman is clear: this is the new normal. California’s insurance future will be defined not by avoiding wildfires, but by learning how to live—and rebuild—in their aftermath.
“Even if it costs more than you’d like,” Susman concluded, “make sure you have some type of fire insurance coverage. That’s it. That’s everything now. It belongs to you.”
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