California’s Home Insurance Crisis and What Comes Next
Published Date: 10/25/2024
California’s homeowners are facing a new kind of crisis — one driven not by wildfires or earthquakes alone, but by the insurance industry itself. Premiums are skyrocketing. Policies are being canceled or not renewed. Carriers that once competed for business are now pulling out of the market altogether.
To unpack what’s happening and why it matters far beyond the Golden State, Insurance Hour host Karl Susman spoke with Amy Bach, Executive Director of United Policyholders, one of the nation’s leading consumer insurance advocacy organizations. Their discussion made one thing clear: this crisis is unprecedented, national in scope, and forcing a rethink of how private insurance works in a climate-altered world.
An Unprecedented Insurance Crisis Hitting Every State
Bach described today’s market with a phrase she hears constantly: “We’ve never seen anything like this.”
After more than 30 years helping consumers recover from disasters, she says the current insurance breakdown is unlike anything in the past. In many California communities, private insurance competition has nearly vanished. Homeowners who once had several options now find that no insurer is willing to write a policy at all.
And the pattern is spreading.
“It’s like a virus,” Bach said. “Florida got it first. Then California. Now Colorado, Iowa, Georgia, Pennsylvania — nearly every state is seeing markets that no longer look like they used to.”
This is no longer a regional issue tied only to wildfires or coastal storms. It reflects deep structural stress across the national insurance system.
The Perfect Storm Behind the Market Collapse
Both Bach and Susman emphasized that no single factor caused the crisis. Instead, it is the convergence of several powerful forces.
Climate Change and Catastrophe Risk
California’s wildfire losses have been staggering. Fires like the Camp, Thomas, and Woolsey destroyed more than 25,000 structures and caused tens of billions in damage. Prolonged drought and more than 120 million dead trees along the Sierra Nevada have further amplified wildfire risk.
Technology and Precision Risk Scoring
Modern insurers now use satellite imagery, drone mapping, and advanced analytics to identify risk with pinpoint accuracy.
“We’ve seen the rise of ‘insurance scores,’ like credit scores,” Bach explained. “They can now pinpoint exactly which homes they don’t want. That’s made competition disappear in some areas.”
Economic Volatility and Investment Losses
Insurers rely heavily on investment income. Inflation, interest-rate shifts, and stock market volatility have reduced returns, shrinking carriers’ tolerance for risk.
Regulatory Constraints
California’s regulatory system, particularly Proposition 103, limits how and when insurers can raise rates. While designed to protect consumers, it has slowed insurers’ ability to price accurately as climate risk changes faster than regulation can adapt.
Together, these forces have pushed many carriers to retreat rather than remain exposed to unpredictable losses.
A System Designed for Yesterday’s Risks
At its core, the crisis raises a fundamental question: Can private insurance still function as a universal safety net in an era of accelerating climate risk?
“For decades,” Bach said, “we’ve relied on competition to serve all customers. That’s not working anymore.”
She compared insurance to public utilities. Power companies must serve all customers who pay; they cannot opt out of high-risk neighborhoods.
Insurers, however, can and do choose which risks to insure.
“We regulate them, but we don’t require them to insure everyone,” she explained. “And now we’re seeing what happens when they decide not to.”
What Homeowners Are Experiencing on the Ground
United Policyholders hears from hundreds of distressed homeowners every week. Their stories follow the same troubling pattern:
- Unmanageable premiums: Homeowners once paying $1,200 per year now face $6,000–$10,000 bills.
- Forced into the FAIR Plan: Many can only obtain coverage through California’s insurer of last resort.
- Dropped despite mitigation: Even homeowners who cleared brush, hardened homes, and followed fire-safety guidelines are being non-renewed.
These experiences leave consumers feeling powerless and betrayed by a system they relied on for decades.
Survival Strategies for Homeowners Right Now
Despite the instability, Bach offered practical guidance for homeowners trying to hold onto coverage.
- Bundle policies where possible. Combining home and auto can still improve renewal odds and reduce costs.
- Raise deductibles. Higher deductibles lower premiums and reduce the likelihood of being dropped for small claims.
- Work with a proactive independent agent. Independent brokers can search regional and specialty markets beyond the FAIR Plan.
- Trim non-essential coverage carefully. Reducing contents or other-structure limits may ease costs while preserving full dwelling protection.
- Document all mitigation efforts. Proof of defensible space, fire-resistant roofing, and safety upgrades can trigger mandatory discounts under California’s wildfire mitigation rules.
The California FAIR Plan: Safety Net With Growing Risks
As private coverage disappears, the FAIR Plan has become the default insurer for many households. Bach clarified its structure:
“The FAIR Plan is not a government program. It’s an association of private insurers. Every company doing business in California must participate.”
Each insurer contributes based on market share. Historically, participating carriers covered 100% of any post-disaster shortfall. Under a recent agreement with the Department of Insurance, insurers would now cover 50%, while the remaining 50% could be passed to policyholders statewide.
The FAIR Plan currently holds about $2.8 billion in reserves against roughly $280 billion in total exposure.
“That sounds alarming,” Bach said, “but not everyone will have a total loss, and not all at once.”
Still, transparency concerns remain. The FAIR Plan is not subject to public meetings or open-records requirements, leaving its internal governance largely opaque.
How California Is Trying to Prevent a Deeper Collapse
Both Susman and Bach agree the existing system is unsustainable. If insurers do not voluntarily return to high-risk markets, California faces two broad paths:
- Treat insurers like utilities, requiring them to serve all paying customers.
- Create a public disaster insurance program, backed by government or federal reinsurance.
“We either tell insurers they must take the bad with the good,” Bach said, “or we build something new — a public-private safety net that can handle catastrophic risk.”
Some progress is already underway. The Department of Insurance has approved the use of forward-looking catastrophe models in rate-setting. In exchange, insurers have pledged to expand availability in distressed areas. It is a step forward — but far from a complete solution.
The National Implications of a Warming World
Bach’s warning extends well beyond California. As climate risk intensifies nationwide, the traditional business of insurance is colliding with a more volatile planet.
“We’re in an era where technology shows insurers exactly how risky we are — and they’re using that to say no,” she said. “If private insurance can’t serve everyone, we have to rethink what comes next.”
Future solutions may require a national resilience framework that blends private insurance, state regulation, and federal reinsurance to distribute catastrophic risk more broadly.
What Homeowners Should Do Now
Until long-term reforms take hold, homeowners must protect themselves as best they can:
- Review coverage annually to keep pace with inflation and rebuilding costs.
- Avoid filing small claims that increase non-renewal risk.
- Maintain photographic proof of mitigation and upgrades.
- Shop through independent brokers with access to niche and surplus markets.
- Use trusted consumer resources like United Policyholders for unbiased guidance.
A Market at a Crossroads
California’s insurance crisis is a preview of what many other states may soon face. Private insurance — long the backbone of disaster recovery — is showing clear signs of structural strain under the pressure of climate change, data-driven risk avoidance, and economic volatility.
“We’re in a moment of reckoning,” Bach concluded. “We have to decide whether insurance remains a private product or becomes part of public infrastructure — like utilities, like healthcare.”
For now, preparedness, documentation, and informed advocacy remain the only protections no insurer can take away.
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