Wildfires have burned nearly 10 million acres of forest and destroyed 39,000 homes in California over the last five years, providing a glimpse at just how dire the state’s climate crisis has become.
Yet at a time when it’s more vital than ever for homeowners to have adequate insurance coverage, many carriers have decided to no longer insure homes in certain parts of the state, while others have left the home insurance market altogether. As a result, many California residents are left with little to no options for homeowners insurance — particularly those with homes in areas most at risk of wildfire damage.
While shopping through an independent insurance agent or broker is often your best bet if you’re short on options, several companies have stopped writing new business in California until market conditions improve.
"Insurance companies need to remain profitable enough to comply with state law and to pay out the claims of their existing customers, but this has proven to be increasingly difficult in recent years due to wildfire losses and other factors," said Angele Doakes, senior manager of property and casualty insurance strategy at Policygenius. "While many companies are restricting who can sell and purchase their insurance, Policygenius is working diligently with our carrier partners to find a solution for our customers and ensure everyone gets the coverage they need."
Here’s a look at how everything got to this point, as well as what to do if you can’t find homeowners insurance in California.
Why it’s so difficult to find home insurance in California
From surging climate disasters to government regulations to ongoing problems with the supply chain, here’s a rundown of the various issues plaguing California’s home insurance market.
Record wildfire losses
California insurers paid a record $15.4 billion in losses in 2017 and $13.6 billion in 2018 due to what were by far the two most destructive wildfire seasons in state history. To put these numbers into context, annual losses never once eclipsed $5 billion prior to 2017, and have yet to exceed that amount since 2018. [1]
After two straight years of insurers paying out $1.85 in losses for every $1.00 of premium earned, the California Department of Insurance approved 71 rate increase requests from 50 different companies in 2019. This means many homeowners have likely seen a steep premium increase the last few years.
Year | Earned premium | Incurred losses | Loss ratio |
|---|---|---|---|
2012 | $6,962,824,501 | $3,076,419,837 | 44.2% |
2013 | $7,038,071,457 | $3,189,727,981 | 45.3% |
2014 | $7,031,937,018 | $3,351,846,286 | 47.7% |
2015 | $7,248,990,918 | $4,230,850,026 | 58.4% |
2016 | $7,475,784,553 | $4,047,329,931 | 54.1% |
2017 | $7,664,490,935 | $15,418,577,650 | 201.2% |
2018 | $7,983,075,132 | $13,577,455,112 | 170.1% |
2019 | $8,631,287,540 | $2,818,562,833 | 32.7% |
2020 | $9,362,270,255 | $3,539,955,749 | 37.8% |
2021 | $10,298,463,872 | $4,753,166,698 | 46.2% |
Source: 2021 California property & casualty market share report
The current crisis reached its tipping point in 2019. That year, more than 230,000 policies weren’t renewed by insurance companies — up 42% from 2018. And new policies written under the California FAIR Plan — a state-mandated program designed as a last-resort option for homeowners struggling to find coverage on the private market — increased by 219%. [2]
In response to the surge in nonrenewals and FAIR Plan policies, the California Department of Insurance has issued 25 moratoriums since 2019 barring insurers from canceling or nonrenewing policies in wildfire-adjacent areas for up to one year. [3]
But as well intentioned as these moratoriums were, they didn’t address what insurers would likely describe as the elephant in the room: Proposition 103.
Rating & underwriting regulations
To recoup prior years’ losses and remain profitable, home insurance companies will often request rate increases through their state’s insurance department. Once the request is approved, insurers are free to increase their average statewide policy premiums by whatever amount they requested.
In California, this process is made significantly more difficult by Proposition 103. The 1988 law requires insurance companies to justify rate increase requests for future wildfire losses based on their average annual wildfire losses over the last 20 years. In other words, given the fact that wildfire losses have increased exponentially even compared to 10 years ago, Prop. 103 is essentially asking insurers to take on more risk than they’re able to compensate for in premiums.
As shown in the table below, the number of rate increase approvals has dwindled since 2020, indicating that many insurers have likely reached the allowable limit according to Prop. 103. Rather than take on more exposure than they’re able to pay out, many insurers have either pulled back from certain areas or have left the state altogether. [4]
Year | California rate increases approved |
2019 | 71 |
2020 | 79 |
2021 | 36 |
2022 | 29 |
Source: California Department of Insurance rate filing data for 2019 to 2022
Inflation & supply chain issues
Residential construction costs are up roughly 34% since the start of the pandemic due to ongoing supply chain issues and labor shortages, further complicating matters for both California insurers and homeowners. [5]
On the carrier side, higher rebuild costs have driven up the insured value of homes in their existing book of business, leading to higher average claim payouts and loss ratios. Supply chain issues extend the amount of time it takes to make repairs or rebuild a home, while also driving up costs. With materials costs increasing by the day, a delayed shipment of lumber or asphalt can be a costly problem for insurers.
For consumers, inflation has caused a majority of U.S. homeowners to be underinsured, or without enough insurance coverage to completely rebuild their home after a disaster. And it’s also caused home insurance prices to soar, as many policies were updated to reflect the higher cost to rebuild. Last year, California homeowners saw their premiums increase an average of 9.9% at renewal, according to our analysis of quoted home insurance premiums from May 2021 to May 2022.
5 steps to finding home insurance coverage in California
While there’s no timetable around when market conditions in California will return to normal, there are several steps that residents can take in the meantime to ensure their home and finances are adequately protected.
Contact your insurer if your policy is canceled or nonrenewed. If you get a notice from your insurer informing you that your policy won’t be renewed, contact your insurance agent and ask if there are any specific property upgrades or steps you can take to mitigate your home ’s risk and keep your policy.
Take steps to fireproof your home. Taking steps to reduce your home’s wildfire risk not only makes your property more attractive to insurers, but it also can earn you discounts on premiums. Certain programs, like the Wildfire Prepared Home initiative offered through the Insurance Institute for Business & Home Safety (IBHS) and the Department of Insurance, offer fireproofing designations if you install fire-resistant roofing or create a defensible space around your home. You also may be eligible for additional discounts if your home is in a Firewise community. Here's a list of companies currently offering wildfire mitigations discounts in California.
Contact a local agent. Many insurance companies in California have placed restrictions on what kind of agents can sell their insurance policies. Consider contacting a local insurance agent who’s familiar with California’s unique insurance landscape. If you’re having trouble finding an agent that’s licensed to sell policies other than the California FAIR Plan, the Department of Insurance has a handy home insurance finder tool that can provide you with a list of agents in your area and the insurance companies they represent.
Contact the California FAIR Plan. The California FAIR Plan is the state’s insurance program of last resort that provides insurance coverage to homeowners who are denied coverage on the voluntary market. If you’re unable to find home insurance coverage because of your home’s wildfire risk or other factors, the FAIR Plan is a suitable short-term option. However, keep in mind that FAIR Plans are often significantly pricier and coverage is more limited than a standard policy, as it generally doesn’t offer coverage for liability, water damage, or theft. To supplement this gap in coverage, consider a difference in conditions (DIC) policy. Here’s a list of insurance companies that write DIC insurance policies in California.
Consider an E&S carrier. An excess and surplus (E&S) carrier is an insurance provider that's specialized in insuring high-risk properties that are considered too risky for traditional insurers. Keep in mind these policies are not backed by the California Insurance Guarantee Association, which means if your house is destroyed and the insurer doesn’t have the funds to pay out your claim, you could be left footing the bill yourself. You can find a list of E&S brokers in California on the Surplus Line Association of California website.
Image: Khanh Bui / Getty
