California will crack down on home insurance in areas with a high risk of wildfires
The California Department of Insurance unveiled a new regulation this week that aims to increase insurance coverage for homeowners in wildfire-prone areas, a response to recent policy declines from several major insurers.
California Insurance Commissioner Ricardo Lara announced Monday that the regulation is under administrative review and would take effect at the end of January, according to law. reporting by The Associated Press (AP). The rule requires all insurers doing business in the state to increase their policies in high-risk wildfire areas by 5% every two years until at least 85% of their policies cover these homes. Currently, the state does not require insurers to offer coverage in these areas.
“Californians deserve a trusted insurance market that doesn’t pull away from communities most vulnerable to wildfires and climate change,” Lara said in a statement. “This is a historic moment for California. My sustainable insurance strategy aims to tackle the challenges we face today and build a resilient insurance market for the future. With input from thousands of residents across California, this reform balances consumer protections with the need to strengthen our market against climate risks.”
To incentivize insurance companies, the state will now allow them to pass on the costs of reinsurance to consumers. According to Lara, every other state already has this provision. But these costs will be capped through an industry-wide standard, which will attempt to determine the typical cost of reinsurance and encourage insurers to compete for the lowest price.
“As climate risks escalate across the country, reinsurance has become an even more important component for insurance companies operating in high-risk and distressed areas, including California,” Lara’s office said. “Modernizing regulations around reinsurance will allow insurance companies to expand coverage and write more policies in communities across the state that face greater risks, ensuring stability and resilience in our insurance market.”
Insurers have been keen to do this over the past two years State Farm, All states And The Hartford have taken drastic measures to prevent financial losses, including no longer issuing new policies for residential properties in California and not renewing some existing policies. Allstate said it before it would reverse its decision if it were allowed to take the costs of reinsurance into account when setting rates.
Fewer options have led more homeowners to switch to the California FAIR Plan, which is intended as a stopgap measure rather than a permanent solution. According to the AP, the number of policies under the FAIR Plan has more than doubled between 2020 and 2024.
The lack of insurance options has also caused many home sales to fail. The California Association of Realtors reported that 13% of its members had at least one deal canceled in 2024 due to insurance issues.
In explaining the reasoning Behind the new regulations, the Department of Insurance noted that climate change “has made California hotter and drier in recent decades.” The eight largest wildfires in the state’s history have occurred since 2017, and the worst in measuring loss of life was the 2018 Camp Fire, which killed 85 people.
In August, KernLogic reported that 2.6 million homes in 14 Western states were at risk from wildfires. About half of these were in California alone.
Last month, the beach community of Malibu was hit hard by the Franklin Fire, which burned about 4,000 acres and temporarily displaced about 20,000 residents. According to data from Realtor.comThe average home price in Malibu is $5.6 million, well above the $3 million coverage limit under the state’s FAIR Plan.
