How Wildfires Are Reshaping California’s Insurance Market
Published Date: 11/12/2024
When wildfires sweep across California, the destruction is instantly visible in burned landscapes, destroyed homes, and displaced families. But beneath the smoke lies another crisis that is less visible and just as damaging: the steady unraveling of California’s property insurance market.
In a recent appearance on FOX’s On Your Side, insurance expert Karl Susman joined journalist Christine Lozara to discuss the impact of the Mountain Fire, which destroyed more than 100 homes and scorched over a million acres. The central message was clear—the Mountain Fire did not create the insurance crisis. It revealed just how deep it already is.
“We’ve already fallen over that edge,” Susman said. “The industry has been afraid of exactly this—not one big event, but the accumulation of many smaller ones that make California uninsurable under the current system.”
California’s Insurance Crisis Began Long Before the Mountain Fire
The current turmoil did not start with this single wildfire. Between 2017 and 2018, catastrophic blazes such as the Camp, Tubbs, and Woolsey fires generated more than $25 billion in insured losses. During that period, insurers paid out roughly twice as much in claims and expenses as they collected in premiums.
That imbalance changed everything. In the years that followed:
- Major insurers including State Farm, Allstate, Farmers, and USAA restricted or froze new business.
- The California FAIR Plan surged past 350,000 policies.
- Homeowners saw premiums jump and renewals disappear.
- Regulators struggled to modernize outdated pricing rules.
By 2024, the system was already stretched to the breaking point. Each new wildfire now adds pressure to a market that has almost no margin left.
“The Mountain Fire isn’t an isolated event,” Susman noted. “It’s part of a pattern—and the market can’t absorb it anymore.”
Why One Wildfire Can Disrupt the Entire Insurance System
Even a fire that is not historically catastrophic can shake the entire insurance market. That’s because modern insurance stress is driven by cumulative exposure, not just single losses.
Reinsurance costs rise after each fire season, forcing carriers to pay more for their own protection. Those costs are passed down to homeowners through higher premiums or reduced availability.
Under current rating rules, many insurers still rely heavily on zip-code level risk maps rather than individual property features. This means that even homeowners who harden their homes can be penalized simply for living near a burn zone.
“You can do everything right—clear brush, upgrade your roof—and still be penalized just for living nearby,” Susman explained.
Beyond pricing, insurers are experiencing cumulative loss fatigue. They are not just insuring against one disaster, but against years of repeated, escalating wildfire losses.
How the Department of Insurance Protects Homeowners After a Fire
After a major wildfire, the California Department of Insurance activates a temporary non-renewal moratorium
“If you’re in an affected area or close to it, there’s a freeze in place,” Susman explained. “Carriers can’t non-renew you for a year.”
This protection prevents insurers from canceling or refusing to renew policies for 12 months within or near the wildfire perimeter. While this provides short-term stability for affected homeowners, it does not solve the long-term availability problem. Once the moratorium expires, many homeowners are pushed back into the same unstable marketplace.
The Sustainable Insurance Strategy and Market Modernization
For the first time in years, insurers and homeowners may see meaningful reform. The California Department of Insurance is rolling out its long-awaited Sustainable Insurance Strategy, expected to take effect by the end of the year.
“It’s a whole modernization program,” Susman said, “to allow carriers to underwrite based on individual risk—not just by zip code.”
The strategy will allow insurers to:
- Use advanced catastrophe modeling to assess wildfire risk more accurately.
- Credit homeowners for mitigation efforts such as defensible space and fire-resistant materials.
- Apply rate discounts for verified home-hardening improvements.
- Include reinsurance costs in rate filings.
If successful, insurers may begin re-entering California markets in early 2025.
“We’re looking for the first quarter of next year,” Susman said, “to see the market reopen and have carriers reenter to start writing insurance again.”
Why Proposition 103 Has Become a Barrier to Stability
California’s insurance system still operates under Proposition 103, passed in 1988. While it was designed to protect consumers from excessive rate increases, it was built for a very different risk environment.
Under Prop 103:
- Insurers must use historical loss data rather than forward-looking risk models.
- Reinsurance costs cannot be fully factored into rates.
- Rate approvals can take years.
In today’s climate-driven risk environment, these rules create a widening gap between actual risk and allowed pricing.
“We’ve been talking about this for years,” Susman said. “It’s been bad, bad, bad—and now, finally, the Department is modernizing the system.”
What Homeowners in Fire Zones Should Do Right Now
Even with reform coming, homeowners in wildfire-prone areas should expect continued volatility in the near term. Susman recommends several immediate steps:
If you are within or near a wildfire footprint, you are protected temporarily under the non-renewal moratorium. Use this time strategically.
Document all mitigation work including brush clearing, roof upgrades, ember-resistant vents, and defensible space. These records will become critical once individualized underwriting is fully implemented.
Work with independent insurance agents who can access surplus lines carriers willing to insure higher-risk properties.
Budget for higher short-term premiums as the market recalibrates.
Never allow a policy to lapse. Restoring coverage after a lapse in a fire zone is far more difficult than maintaining continuous coverage.
The Human Impact Behind the Insurance Statistics
Behind every policy is a family. After the Mountain Fire, many homeowners discovered they were underinsured. Construction costs, labor shortages, and stricter building codes have driven rebuild costs 40–60% higher since 2020.
“The tragedy isn’t just losing a home,” Susman said. “It’s realizing your policy won’t rebuild it.”
Underinsurance now compounds the emotional and financial devastation of wildfires.
Can California’s Insurance Market Truly Recover?
Experts believe recovery will come in stages:
Short term (2024–2025): Gradual implementation of new catastrophe modeling rules and limited carrier re-entry.
Medium term (2026–2027): Expanded availability in select fire zones with individualized pricing.
Long term (2028 and beyond): Full stabilization may require deeper legislative reform beyond Prop 103 modernization.
Individualized risk pricing is expected to reward homeowners who invest in mitigation and give them greater control over their future insurability.
Lessons from the Mountain Fire
The Mountain Fire reinforced a painful reality: California’s insurance crisis is not the result of one disaster, but the accumulation of decades of underpriced climate risk meeting a new environmental reality.
At the same time, it highlighted the first real path forward. By modernizing risk assessment and recognizing home-hardening efforts, California may finally balance consumer protection with insurer sustainability.
“We’ve been talking about relief for years,” Susman concluded. “It’s finally on the way—and it couldn’t come soon enough.”
The Bottom Line for California Homeowners
If you live in a wildfire-prone area, you cannot control the next fire—but you can control your preparedness:
Know your rights under the non-renewal moratorium.
Keep permanent records of all mitigation efforts.
Review coverage limits annually for inflation and rising rebuild costs.
Work with independent agents who understand the evolving market.
California’s insurance crisis will not resolve overnight. But as modernization takes hold and insurers begin to reprice risk more accurately, there is cautious hope that the market can move from survival mode back toward stability—without waiting for the next wildfire to force change.
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