Insurers Fled California in Recent Years—Experts Say Their Return Depends On Homeowners

Insurers have left many California homeowners facing the consequences of devastating wildfires as they pulled out of the state, and experts say it’s up to the homeowners to bring them back.

The cost of damages from the recent L.A. wildfires could total up to $275 billion, according to AccuWeather estimates. Meanwhile, supply chain disruptions from the COVID-19 pandemic and higher costs for home-building materials continue to make it more expensive to repair and rebuild.

To make up for the increased costs of claims, insurance companies raised the price of insurance premiums for all customers and have backed out of some disaster-prone areas. State Farm, Farmers Insurance Group and Allstate (ALL), which were three of the four main provides of insurance in California, stopped selling new home insurance policies in the state in 2022.

The only way insurers can return to the state, experts say, is if homeowners make their homes resistant to fires. Till then, with fewer insurance options, homeowners staring at major losses may find little relief.

What Are Your Options?

Californian residents whose insurance company pulled out of the state can adopt a California FAIR Plan policy, a state-mandated plan that comprises California insurance companies.

However, this policy only covers damages caused by fires and can be more expensive than traditional insurance premiums.

Another option can be the Sustainable Insurance Strategy, issued at the start of 2025 by the California Insurance Commissioner, which pulled back on some regulations so that more insurance companies will once again offer policies to Californian residents.

This regulation will also make it easier for companies to pay out claims, according to Janet Ruiz, director of strategic communications for the Insurance Information Institute, a data distributor for insurance companies.

It reversed previous rules that prevented insurance agencies from using catastrophe modeling while creating rates and that will allow insurance companies to pass reinsurance costs to customers. It also made rate approvals from the Department of Insurance quicker and less strict.

“Insurance companies can 1741090582 charge what we would call adequate premiums for insurance policies,” Ruiz said. “So, when we have catastrophes, we’ve taken in enough premium to pay the claims.”

However, critics believe that the new rules fall short.

Insurance companies do not have to disclose the catastrophe models they use or how they create rates, and this regulation allows them to raise insurance prices immediately, said Carmen Balbar, executive director at Consumer Watchdog, a consumer advocate group. 

Additionally, this new regulation will not force insurance companies to offer enough policies in California fire areas.

“Insurance companies continue to cherry-pick only the people they want to cover, and consumers are left in the same boat. So we need different solutions,” said Balbar.

Making Homes Resistant to Wildfires

The long-term solution to bring insurance companies back to California is the communities that are making their homes more wildfire-resistant, Ruiz said.

Steps like ensuring there are no flammable plants near the home, installing ember-resistant vents, and having a fire-resistant roof can significantly reduce the chances of a home catching fire. This mitigates the risks of totally destroyed homes and will eventually reduce the amount and costs of claims.

A home that fits California’s newer wildfire standards is about 40% less likely to be destroyed than an older home, according to a 2021 report by the National Bureau of Economic Research.

In addition, a home is 6% less likely to be destroyed if its neighbor complies with wildfire regulations.

Customers who take steps to protect their homes from wildfires can find benefits like reduced fire risk and discounted insurance premiums. However, these discounts are negligible compared to the amount customers will spend on wildfire prevention renovations and insurance rate increases, Balbar said.

“These are proven risk reduction tools, and we are not funding them in the way we need to,” Balbar said. “That means both big increases in government funding but also real commitments by the insurance industry to pitch in to solve the problem. The need for that is really crystallized by these fires.”