California’s homeowners find themselves caught in a growing insurance crisis as the threat of wildfires intensifies and insurers withdraw from high-risk areas. Lynne Levin-Guzman, standing in her elderly parents’ front yard in Los Angeles County with a garden hose in hand, embodies the frustration and helplessness felt by many. Her parents, after 75 years in the same home and under the same insurance, had their fire coverage canceled. As she explained to CNN affiliate KABC, “They wonder why people leave California.”
This is not an isolated case. Between 2020 and 2022, insurance companies in California declined to renew 2.8 million homeowner policies, including over half a million in Los Angeles County alone, where wildfires are a constant threat. While some policies were voluntarily discontinued by homeowners, the majority were canceled by insurers unwilling to bear the escalating risks. This has left thousands in a precarious situation, forcing many to turn to the California FAIR Plan, a state-created insurance program designed as a last resort. However, this plan comes with steep premiums, limited coverage, and often necessitates additional policies for comprehensive protection—further straining homeowners’ finances.
The growing reliance on the FAIR Plan underscores the scale of the problem. By September, its exposure for residential properties had surged to $458 billion, a 61% increase from the previous year and three times the amount from four years ago. For commercial properties, the figures are even more staggering, with exposure nearly doubling to $26.6 billion in the past year alone, marking a 464% increase since 2019.
State Insurance Commissioner Ricardo Lara has sought to address the crisis through regulatory changes aimed at encouraging insurers to return to fire-prone areas. However, these measures have sparked significant criticism, particularly from consumer advocacy groups like Consumer Watchdog. The organization argues that Lara’s policies prioritize the interests of insurance companies over homeowners, allowing insurers to raise premiums by 40% to 50% without guaranteeing expanded access to coverage. Carmen Balber, Consumer Watchdog’s executive director, described the new rules as “guaranteeing higher rates but not necessarily access to coverage,” adding that loopholes and weak enforcement could leave vulnerable homeowners waiting indefinitely for meaningful relief.
Meanwhile, the insurance industry defends the need for higher premiums, citing rising costs driven by inflation, climate risk, and the escalating price of reinsurance. Janet Ruiz, spokesperson for the Insurance Information Institute (III), noted that California is the only state that has not allowed reinsurance costs to be factored into premiums until now. She emphasized that while insurers have been profitable in California in recent years, catastrophic wildfire losses in 2017 and 2018 erased a decade’s worth of gains.
The impact of these regulatory changes is being closely watched. Lara contends that incorporating reinsurance costs into premiums will allow more homeowners to transition from the FAIR Plan back to private insurance, potentially lowering their overall costs. He acknowledged the broader economic challenges, stating, “Inflation is even more of a factor than climate change. This will set premiums fairly for consumers.”
Consumer Watchdog, however, disputes the industry’s portrayal of its financial position, insisting that insurers have remained profitable in California despite recent challenges. They argue that insurers should be required to cover high-risk properties without dramatic rate increases, maintaining that “the insurance industry is not on the verge of catastrophe in California.”
As homeowners grapple with rising premiums and limited options, the broader implications for California’s housing market and population dynamics remain uncertain. The insurance crisis not only threatens financial stability for many residents but also underscores the urgent need for sustainable solutions to mitigate the risks posed by climate change and wildfires. For now, the cost of protection continues to climb, leaving many Californians wondering whether they can afford to stay in the state they call home.
