Blog By: Madelyn Shelton
California is facing a dual crisis: wildfires in the state are intensifying and becoming more frequent, while insurers are pulling coverage from high-risk areas, leaving homeowners exposed to dangerous conditions without affordable coverage. This forces California residents to face a difficult choice, turn to extremely costly insurance alternatives, or go uninsured. As both disasters escalate, the gap between those who can afford protection and those left vulnerable continues to widen.
Climate change has intensified wildfires in California by creating hotter, drier conditions that are ripe for larger and more destructive fires.[1] All of Southern California is experiencing drought conditions, with many areas having nearly zero rainfall since May.[2] Further exacerbating conditions are severe Santa Ana winds which sweep down from the deserts across Southern California and push dust and smoke from wildfires across the Pacific Ocean.[3] As wildfire season continues to get longer and more devastating, the immense financial pressure is leading many insurance companies to reconsider their ability to provide coverage to high-risk areas.[4]
Insurance companies in California are facing significant challenges, often blaming high inflation, restrictive government regulations, and the increase in likeliness of wildfires as the reasons for their financial woes.[5] In March of 2025, State Farm, California’s largest home insurer, announced that it would not renew 72,000 property insurance policies.[6] The insurance giant cited financial concerns including claims-paying capacity and financial solvency laws as the motivating factor behind the decision.[7] State Farm wrote in a statement that the company “takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws.”[8] This decision comes as Southern California faces wildfires that could become one of the most expensive natural disasters in U.S. history, sparking concern about the growing connection between the state’s insurance crisis and the worsening impacts of climate change.[9] The losses resulting from the fires across Los Angeles County are currently estimated at $50 billion or more.[10] These losses are certain to worsen the insurance crisis facing the state, which has already left thousands of residents struggling to find and keep homeowners insurance.[11]
Currently, the California FAIR plan serves as a last resort for homeowners who are unable to obtain traditional fire insurance.[12] The FAIR plan is unique in that it supports homeowners regardless of the property’s fire risk, as opposed to traditional insurers who often refuse policies due to excessive risk.[13] However, the FAIR plan is meant to be a temporary solution in times of crisis as a last resort, not a permanent insurer.[14] FAIR plans provide coverage that is generally more expensive than private insurers and provides less coverage or coverage only against certain hazards.[15] But for many, it is the only option available. FAIR plans are typically run by the state and paid for by private insurance companies, who share the cost of covering these high-risk homes.[16] FAIR plans, while vital to many communities that are especially prone to natural disaster, are not without criticism.
While the FAIR plan provides essential coverage for high-risk homeowners, its limitations highlight the need for a more sustainable approach. Incentivizing risk reduction is a key strategy that could help states reduce their vulnerability to disaster while keeping insurance affordable.[17] Unlike private insurers, FAIR plans have a vested interest in risk mitigation because they cannot drop coverage from properties deemed too risky.[18] Because of this, FAIR plans should be more motivated to reduce risk and make homes less vulnerable to disaster. By encouraging proactive steps to reduce future harm, FAIR plans should implement a risk reduction service directly with policyholders. If homeowners were more aware of the potential risks and hazards on their properties, they would likely be more motivated to take steps to reduce this risk. By integrating risk reduction services into the FAIR plan, the state could provide homeowners with clear guidance on how to safeguard their homes from wildfires, making these homes less likely to be victim to high claims costs and thus more attractive to private insurers. Further, the state could offer discounts or incentives for completing preventative measures such as installing fire-resistant roofing, clearing vegetation, or improving emergency access routes. By encouraging homeowners to invest in long-term protection, states could reduce the financial burden of the FAIR plan while also reducing risk in their communities. This shift towards prevention, rather than response, would encourage private insurers to provide coverage for high-risk properties knowing the homeowners have taken steps to mitigate future damage. Integrating risk reduction into the FAIR plan not only helps homeowners protect their properties, but also promotes stability in the insurance market, ensuring more equitable and sustainable coverage.
As California wrestles with these dual challenges, the need for a more sustainable solution intensifies. While the FAIR plan offers a partial solution to the challenges facing California homeowners, it is clear that a more preventative approach could be the key to making insurance more stable and affordable in high-risk areas. By prioritizing risk reduction, California can shift the focus from merely responding to disaster, to preventing it. Investment in risk reduction is an investment in the future, one that protects homeowners, stabilizes the insurance market, and ensures that California residents can rebuild after disaster.
[1] Julie Cart, California Infernos in January? Here’s Why Wildfire Season Keeps Getting Longer and More Devastating, Cal Matters (Jan. 8, 2025), https://calmatters.org/explainers/california-wildfire-season-worsening-explained/ [https://perma.cc/CE8G-AXXF].
[2] Id.
[3] Jon Keeley, How Santa Ana Winds Fueled Deadly California Fires, The Daily Star (Jan. 31, 2025), https://www.thedailystar.com/opinion/columns/how-santa-ana-winds-fueled-deadly-california-fires/article_7eab2d88-de9b-11ef-9f90-dbce05135c30.html [https://perma.cc/24WJ-8B3M].
[4] Id.
[5]Ruben Vives, State Farm Won’t Renew 72,000 Insurance Policies in California, Worsening the State’s Insurance Crisis, LA Times (Mar. 23, 2024), https://www.latimes.com/california/story/2024-03-23/state-farm-wont-renew-72-000-insurance-policies-in-california-worsening-the-states-insurance-crisis [https://perma.cc/CK65-5Q88].
[6] Id.
[7] Id.
[8] Id.
[9] Don Lee, Economic Loss from L.A. Wildfires Could Top $50 Billion, Making it One of the Costliest U.S. Natural Disasters, LA Times (Jan. 9, 2025), https://www.latimes.com/business/story/2025-01-09/loss-from-wildfires-could-surpass-50-billion [https://perma.cc/E7K9-JBMS].
[10] Laurence Darmiento, How the Devastating Los Angles Fires Could Deepen California’s Home Insurance Crisis, LA Times (Jan. 9, 2025), https://www.latimes.com/business/story/2025-01-09/la-fires-property-home-insurance-crisis-fair-plan-lara-state-farm-allstate-palisades-eaton-altadena-wildfires [https://perma.cc/3C7U-QAJM].
[11] Id.
[12] Hearty et. al., What You Need to Know About the California FAIR Access to Insurance Requirements Plan (FAIR Plan), National Law Review (Jan. 28, 2025), https://natlawreview.com/article/what-you-need-know-about-california-fair-access-insurance-requirements-plan-fair [https://perma.cc/PE5L-2ZDA].
[13] Id.
[14] Alfonso Pating, Can FAIR Plans Help Build a More Resilient Future?, NRDC (Jan. 15, 2025), https://www.nrdc.org/bio/alfonso-pating/can-fair-plans-help-build-more-resilient-future [https://perma.cc/KY2F-5M3X].
[15] Id.
[16] Id.
[17] Id.
[18] Id.