Wildfire Insurance Crisis in California – Karl Susman Speaks Out

Published Date: 01/11/2025

California’s Wildfire Insurance Crisis: What It Means for Homeowners and the Future of the Market

California’s worsening wildfire seasons have left more than just scorched earth behind — they’ve set the state’s insurance market ablaze. As devastating fires continue to destroy homes and businesses across Los Angeles County and beyond, the financial fallout for both insurers and property owners has grown increasingly severe. The result? An evolving insurance crisis that’s reshaping coverage availability, premium pricing, and even the role of government in stabilizing the market.

This post breaks down what’s happening, why insurance companies are reassessing their exposure, and what policies like the California FAIR Plan mean for homeowners navigating this volatile landscape.

Wildfire Risk and the Insurance Domino Effect

Every time a major wildfire devastates a California community, the economic impact ripples far beyond the burned zone. In the recent fires across Los Angeles County, millions of dollars in property damage have been reported. While insurance will help many recover, countless others face financial ruin — not necessarily because their properties burned, but because they’ve lost or been priced out of their insurance coverage.

Here’s why: when insurers face catastrophic losses that exceed their yearly projections, they must reassess their risk models. That process often leads to higher premiums, reduced coverage options, or outright nonrenewal of policies in fire-prone areas. As Southern California insurance broker Michael Kiefer explains, “Insurance coverage could be in flux, and people could see their rates rise. Others may be dropped by their insurance company.”

For homeowners, this instability has become the new normal. Neighborhoods that were once considered safe are now labeled “high-risk zones.” Carriers, facing billions in potential losses, have started retreating from these areas altogether. And that has opened the door for the state’s safety-net insurer: the California FAIR Plan.

The California FAIR Plan: A Lifeline Under Strain

The California FAIR Plan was never designed to be a permanent solution. Created decades ago as a last-resort insurer for those unable to find coverage elsewhere, it provides basic fire insurance — not the comprehensive protection of a traditional homeowners policy. Yet, as more private insurers withdraw from high-risk markets, the FAIR Plan’s role has expanded dramatically.

Since September 2020, the number of FAIR Plan policies has surged by more than 120%, reflecting just how many Californians have been left without private coverage. Nowhere is this more evident than in high-value regions like the Pacific Palisades, which recently suffered massive losses. According to FAIR Plan data, the insurer’s exposure in that single neighborhood — the amount it could be liable to pay in claims — now totals nearly $6 billion.

This sharp increase has alarmed both regulators and industry experts. The FAIR Plan’s limited capacity makes it vulnerable to insolvency in the face of large-scale disasters. Essentially, it’s a stopgap measure that’s being stretched to its limits.

Regulatory Intervention: Commissioner Lara’s Plan

Recognizing the growing instability, California Insurance Commissioner Ricardo Lara introduced a plan to compel insurers to gradually re-enter wildfire-prone regions. Under his proposal, companies would be required to increase their coverage in high-risk zones by 5% every two years until they reach at least 85% of their statewide market share.

The goal is to rebuild access and competition in the private market, reducing overreliance on the FAIR Plan. However, consumer advocates have expressed concern that such mandates could backfire. If insurers are forced to assume more risk than they’re comfortable with, premiums could skyrocket statewide as companies attempt to balance their books.

Karl Susman, a Los Angeles–based insurance expert, describes the challenge succinctly: “We’re going to see a shuffling of premium, underwriting, and carriers’ appetites depending on where they are. Some areas are going to become less expensive. Some areas are going to be significantly more expensive.” In other words, location has never mattered more.

Why Insurers Are Pulling Back

To understand the root of the crisis, it’s essential to look at how insurers manage risk. Wildfires introduce a kind of unpredictability that traditional actuarial models struggle to capture. Climate change has intensified that volatility — fires are now larger, more frequent, and more destructive than ever.

Insurers rely heavily on reinsurance (insurance for insurance companies) to offset catastrophic losses. But as reinsurance costs rise globally — partly due to climate disasters in multiple regions — primary insurers must adjust their pricing or retreat from markets entirely.

For many, the math simply doesn’t add up:

• Premiums can’t rise fast enough to match escalating losses.
• Regulatory rate approval processes in California make it difficult to adjust prices quickly.
• Litigation risk and public backlash against higher premiums further complicate things.

The result? Companies like State Farm and Allstate have either frozen new policies or scaled back coverage in wildfire zones, citing “unsustainable risk exposure.”

What This Means for Homeowners

For Californians, the implications are profound. Losing insurance coverage doesn’t just increase financial vulnerability — it can also affect mortgage eligibility, property values, and even community resilience.

Here’s what homeowners are experiencing:

• Nonrenewal notices arriving unexpectedly.
• Premiums doubling or tripling upon renewal.
• Limited options that force them into high-cost FAIR Plan policies.
• Coverage gaps that require purchasing multiple supplemental policies.

Many homeowners are now being advised to take mitigation measures — such as installing fire-resistant roofing, clearing vegetation, or using ember-proof vents — to make their properties more insurable. Yet even these proactive steps don’t guarantee access to affordable coverage.

The Bigger Picture: A Climate and Policy Challenge

California’s insurance crisis isn’t just about economics — it’s a symptom of a larger climate and policy dilemma. As wildfires become more intense, insurers and regulators are caught between two competing imperatives:

1. Protect consumers by ensuring affordable access to insurance.
2. Protect solvency by allowing insurers to price risk accurately.

Balancing these goals is difficult. Restricting rate increases can drive insurers out of the market, while allowing unchecked premium hikes can make coverage unaffordable for middle-class homeowners. The state’s approach must therefore evolve toward sustainable risk-sharing, where mitigation, transparency, and innovation all play key roles.

Potential Solutions on the Horizon

Experts are exploring several ways to stabilize the system:

1. Incentivizing Fire Mitigation – Programs that reward homeowners for creating “defensible space” and using fire-resistant materials could help lower risks and insurance costs.
2. Expanding Public-Private Partnerships – Collaboration between government, insurers, and reinsurers could help spread risk more evenly, particularly for extreme events.
3. Modernizing Rate-Setting Models – Allowing insurers to incorporate forward-looking climate data and reinsurance costs into rate filings would make pricing more realistic and sustainable.
4. Encouraging Market Competition – Reducing regulatory barriers could entice smaller carriers or specialty insurers to enter high-risk markets with innovative coverage options.
5. Building Community Resilience – Investing in regional fire prevention, early warning systems, and infrastructure improvements can reduce the overall loss exposure.

Conclusion: Navigating the Future of Wildfire Insurance

The wildfire insurance crisis in California is not a temporary disturbance — it’s a structural challenge that demands systemic solutions. As catastrophic events become more common, both insurers and policymakers will need to rethink how risk is measured, shared, and priced.

For homeowners, the key takeaway is clear: insurance availability and affordability are no longer guaranteed, especially in high-risk regions. Staying informed, engaging with brokers, and investing in mitigation measures can make a meaningful difference.

As Karl Susman and other industry experts emphasize, the future of California’s insurance market will depend on adaptability — not just from insurers and regulators, but from every homeowner living on the frontlines of climate change.