California Home Insurance Crisis: What Homeowners Need to Know

Published Date: 08/13/2024

California’s homeowners are facing one of the most volatile insurance markets in decades. Premiums are rising, insurers are pausing new business, and terms like non-renewal, CAT models, and the FAIR Plan have become part of everyday conversations. But what do they really mean—and what can policyholders actually do about them?



In this episode of Insurance Hour, host Karl Susman tackled the state’s most pressing insurance questions—from why non-renewals are accelerating to how catastrophe modeling (CAT models) could change the way risk is priced in California. The discussion offered a clear look at the root causes of the crisis and practical steps homeowners can take to protect themselves.

Why Homeowners Are Being Non-Renewed

The most common question Susman hears is simple: “Why did my insurance company drop me?” The answer is rarely personal—and not always tied to the individual home.

“People think it’s something they did wrong,” Susman explained. “Sometimes it is, but often it’s about the company’s exposure in that region.”

Insurers limit the amount of risk they carry in any one geographic area. If too many policies are concentrated in a wildfire-prone ZIP code, one major fire could threaten a company’s financial stability. To manage that risk, carriers may stop writing new policies or non-renew existing ones in those areas.

“It’s not because they don’t like you,” Susman said. “It’s because their financial models say they can’t afford that level of exposure in one place.”

When private insurers pull back, homeowners often turn to the California FAIR Plan, the state’s insurer of last resort. However, the FAIR Plan only provides fire coverage. Homeowners must also purchase a separate difference-in-conditions (DIC) policy to cover water, theft, and liability—resulting in two policies and significantly higher total premiums.

The Growing Strain on the California FAIR Plan

The FAIR Plan was created in the 1960s after catastrophic urban fires left many Californians unable to secure coverage. It was designed as a temporary safety net, not a permanent solution.

Today, it has become a lifeline for hundreds of thousands of homeowners, creating a new problem: too much risk concentrated in one place.

“The FAIR Plan is already carrying billions in exposure,” Susman noted. “And every time another insurer pulls back, that exposure grows.”

If the FAIR Plan suffers massive losses after a major wildfire, those costs ultimately flow back to all insurers—and indirectly to consumers statewide.

That’s why market stabilization is critical to prevent the FAIR Plan from becoming dangerously overextended.

“If the FAIR Plan ever has to make huge payouts,” Susman warned, “that burden eventually gets passed back to all policyholders.”

Why Fire Safety and Mitigation Still Matter

Even with regulatory and market uncertainty, individual homeowner actions still make a difference.

“Insurance is about managing risk,” Susman said. “The lower your risk, the better your chances of keeping coverage—and possibly paying less.”

Many insurers now recognize wildfire mitigation efforts, including:

• Clearing vegetation and maintaining defensible space
• Installing ember-resistant vents and Class A roofing
• Upgrading windows and decks with fire-safe materials
• Participating in Firewise USA® or Wildfire Prepared Home™ programs

Homes in recognized wildfire-prepared communities may qualify for discounts or improved access to coverage.

“If you’ve taken those steps, make sure your insurer knows,” Susman advised. “You want that on record before renewal time.”

How CAT Models Could Reshape California Insurance

Catastrophe risk models—commonly called CAT models—use large data sets to predict potential future losses from natural disasters.

“It’s not about what happened last year,” Susman explained. “It’s about what might happen next year.”

In most states, insurers can use CAT models to help calculate rates. In California, regulators historically required companies to rely on backward-looking data. The problem is that past wildfire patterns no longer reflect current realities driven by climate change, drought, and expanding development.

“We’ve had 35 years of regulations based on the past,” Susman said. “Meanwhile, the risk has changed dramatically.”

Without forward-looking models, insurers underprice high-risk policies and eventually withdraw from those markets. Proposed reforms by the Department of Insurance would finally allow CAT models in rate filings—helping insurers price risk more accurately and return capacity to the market.

“When insurers can price accurately, more of them can afford to do business here,” Susman said.

Why Some Insurers Are Slowly Returning

State Farm, Allstate, and other major carriers made headlines for pausing new business, but they have not exited California entirely.

“These companies still have thousands of policies here,” Susman explained. “They’re just not writing new ones until the math works again.”

Some insurers are cautiously re-entering limited ZIP codes. The Department of Insurance’s Sustainable Insurance Strategy aims to formalize this by:

• Allowing CAT modeling and reinsurance costs in rate filings
• Accelerating approval timelines for rate changes
• Encouraging insurers to write in wildfire-exposed areas again

If fully implemented, this would represent the most significant modernization of California insurance regulation since Proposition 103 in 1988.

“Insurers want to be here,” Susman emphasized. “But they need to charge rates that reflect reality—not 1980s economics.”

The Critical Role of Reinsurance

Behind every insurance company is reinsurance—insurance for insurers. These global firms help U.S. carriers pay catastrophic claims after major disasters.

“Reinsurance is one of the most expensive line items for any insurer,” Susman said. “And when reinsurance rates go up, those costs eventually reach consumers.”

After years of record wildfire losses, global reinsurers raised prices sharply. California insurers, unable to adjust rates quickly under existing regulations, were forced to absorb those costs—prompting many to pause underwriting.

“That’s why so many carriers paused,” Susman explained. “Their reinsurance costs went up, but their ability to adjust rates didn’t.”

Allowing those costs in rate filings could help restore balance.

What California Homeowners Should Do Right Now

Even with reforms underway, homeowners still face immediate decisions. Susman offered several practical steps:

Act immediately after a non-renewal notice
“You only have about 75 days before coverage ends,” he warned.

Work with an independent broker
Independent brokers access multiple carriers and surplus-line markets that captive agents cannot.

Stay in contact with your current carrier
Some insurers quietly resume writing in select areas.

Document all home improvements and mitigation
Keep proof of fire-resistant upgrades and submit it to your carrier.

“Insurance companies love data,” Susman said. “Show them you’ve reduced your risk.”

Understand the FAIR Plan and your DIC policy
The FAIR Plan is fire-only. You still need a DIC policy for full protection.

“A good broker can bundle both so you’re not underinsured,” Susman advised.

Why Market Modernization Matters

California’s insurance challenges stem from decades of outdated regulation colliding with new climate realities. But reform momentum is growing.

“We’re finally seeing progress,” Susman said. “Between the Department of Insurance reforms, legislative support, and industry cooperation, stability is possible.”

Modernized rules could create a system where:

• Consumers regain coverage options
• Insurers remain solvent
• The FAIR Plan returns to its intended role as a safety net

“Insurance works when everyone participates,” Susman said. “If companies operate sustainably, everyone benefits.”

A Shared Responsibility for Future Stability

As regulations evolve, homeowners also play a role by reducing risk and supporting balanced policy.

“This isn’t about helping insurance companies,” Susman said. “It’s about keeping insurance available for everyone.”

Without a functioning insurance market, buying, selling, and rebuilding homes becomes far more difficult—impacting the entire California economy.

Final Thoughts on California’s Insurance Turning Point

The insurance landscape in California is changing rapidly. While uncertainty remains, experts like Susman see opportunity in the reforms now underway.

“We’re in a rebuilding phase,” he said. “It’s not hopeless. We’re learning and adapting.”

Homeowners who stay informed, invest in mitigation, and work with experienced brokers will be best positioned moving forward.

Insurance may not be exciting, but as Susman reminds listeners each week, understanding it is essential to protecting what matters most.

Key Takeaways

• Non-renewals are driven by geographic exposure, not personal fault.
• The FAIR Plan is expanding but strained and must be paired with DIC coverage.
• CAT models are essential for accurate, forward-looking risk pricing.
• Regulatory reforms aim to modernize California’s 35-year-old system.
• Fire mitigation and documentation improve insurability.
• Market stability depends on shared responsibility among regulators, insurers, and consumers.