- Wildfires in California are causing a crisis in the insurance industry, with companies dropping policies and raising rates, leaving homeowners uncertain about insurability and costs.
- Major insurers like Allstate and State Farm have stopped writing new policies or exited California, forcing homeowners to rely on the state’s FAIR Plan, which is nearing financial collapse.
- Insurers are passing reinsurance costs to customers, potentially leading to skyrocketing premiums and worsening California’s affordable housing crisis.
- California’s insurance system is at a breaking point, with the FAIR Plan’s future uncertain and homeowners increasingly vulnerable to financial and social fallout.
As wildfires continue to ravage California, leaving charred landscapes and displaced families in their wake, the state’s insurance industry faces a crisis that could reshape the future of homeownership in the Golden State. With insurers increasingly dropping customers and hiking rates, homeowners are left wondering: Will their homes still be insurable, and at what cost?
Mike Zuckerman, CEO of CSAA Insurance Group, one of California’s largest home insurers, issued a warning last week. “Not being able to insure homes in California against these kinds of risks will completely upend the state,” he told the San Francisco Chronicle. While Zuckerman insists that wildfires are still insurable, his company has already dropped 5,500 policies—1.2% of its total—due to wildfire risk.
The situation is dire. Over the past four years, at least 10 major insurers, including Allstate, State Farm, and The Hartford, have either stopped writing new policies or pulled out of California altogether. This exodus has forced thousands of homeowners to turn to the California FAIR Plan, the state’s insurer of last resort. But even the FAIR Plan, which now covers nearly half a million properties, is teetering on the edge of financial collapse.
The FAIR Plan was never designed to be a long-term solution. Created in 1968 to provide coverage for high-risk properties, it has become a lifeline for homeowners abandoned by traditional insurers. However, with just $377 million on hand to cover potential claims from the current wildfires—estimated to exceed $30 billion—the plan's ability to pay out is in serious doubt.
“We are one event away from a large assessment,” FAIR Plan President Victoria Roach warned lawmakers earlier this year. If the plan runs out of money, it can demand payments from private insurers to cover the shortfall. However, this could drive even more companies out of California, further destabilizing the market.
Insurers under fire
Critics argue that insurers are abandoning Californians when they need coverage most. Companies like Allstate and State Farm have cited wildfire risks as justification for dropping customers and raising rates. Allstate, for example, stopped writing new homeowner policies in California in 2022 and has since pushed for higher premiums to account for reinsurance costs.
The California Department of Insurance recently allowed insurers to use wildfire catastrophe models and pass on reinsurance costs to customers. While this may help companies stay afloat, it could also lead to skyrocketing premiums. Experts fear these increases will exacerbate the state’s affordable housing crisis, pricing out middle- and lower-income families.
Insurance Commissioner Ricardo Lara has pledged to hold insurers accountable, but the industry’s retreat from California shows no signs of slowing. Meanwhile, homeowners like Lynn Levin Guzman, whose parents’ fire insurance was canceled just before the Eaton Fire, are left to fend for themselves. “"They're 90 years old. They've lived in this house for 75 years, and they've had the same insurance, and the insurance people decided to cancel their fire insurance." Guzman told ABC7.
As the fires rage on, the question remains: Can California’s insurance system withstand the mounting losses, or will it collapse? For now, the FAIR Plan is the only option for many, but its future is anything but certain.
The wildfires devastating California are not just a natural disaster—they are a financial and social crisis that threatens to upend the state’s housing market. Insurers’ decisions to drop customers and raise rates have left homeowners vulnerable, while the FAIR Plan’s precarious finances raise concerns about its ability to pay claims. As the state grapples with the escalating costs of the disaster, one thing is clear: California’s insurance system is at a breaking point, and the consequences will be felt for years to come.
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