California Insurance Market
The California insurance market has dramatically shifted recently, especially within the homeowner’s insurance sector. The top 12 companies dominate 85% of the state’s market. However, since 2022, 7 of these leading 12 insurers have either paused or restricted new business despite having rate increases approved or pending with the Department of Insurance.
| Insurance Group and Ranking (2022) | Market Share | Major Action Since 2022 |
| State Farm | 21.22% | Paused new policies |
| Farmers (10 companies) | 14.9% | Limited new policies to 7,000 per month |
| CSAA (2 companies) | 6.9% | |
| Liberty Mutual (6 companies) | 6.6% | |
| Mercury | 6% | |
| Allstate (5 companies) | 6% | Paused new policies |
| USAA (4 companies) | 5.7% | Restricted underwriting to low-risk only |
| Auto Club | 5.1% | |
| Travelers | 4.2% | Limited new policies |
| American Family (3 companies) | 2.8% | |
| Nationwide (2 companies) | 2.5% | Limited new policies |
| Chubb (8 companies) | 2.2% | Ceased writing high-value homes with higher wildfire risk and non-renewed some high-value homes |
Source: NAIC Profitability Report (released January 2023)
This trend reflects a challenging landscape, where, over the past decade, California’s homeowners insurance companies have significantly underperformed compared to the national average. For instance, California’s direct incurred loss ratio from 2012 to 2021 was 73.9%, compared to the countrywide average of 59.7%.
| Metric | Countrywide | California |
| Direct incurred loss ratio (2012-2021) | 59.7% | 73.9% |
| Direct underwriting profit | 3.6% | -13.1% |
| Direct profit on insurance transactions | 4.2% | -6.1% |
| Direct return on net worth | 7% | 0.8% |
Insurance Claims
California has seen a marked increase in the frequency and intensity of wildfires, primarily driven by climate change. This has led to more claims and higher payouts, putting financial strain on insurers. In Pacific Palisades, where almost every home has been destroyed by fires, thousands of insurance policy renewals have been refused in the last year.
Between 2020 and 2022, insurance companies declined to renew 2.8 million homeowner policies in the state, with over half a million in Los Angeles County. Some of the significant wildfire events that caused claims to the insurance sector include:
- 2017 – Wine Country Fires: The Tubbs, Nuns, and Atlas fires in Napa, Sonoma, and surrounding counties were among the most destructive in California’s history, leading to extensive insurance payouts.
- 2018 – Camp Fire: This fire devastated the town of Paradise, becoming the deadliest and most destructive wildfire in California’s history, with insurance claims exceeding $12 billion.
- 2019—Kincade Fire: This fire, which burned in Sonoma County, prompted significant evacuations and led to substantial insurance losses.
As of 2020, several insurers reported billions in losses from wildfire-related claims over recent years, prompting an industry-wide reassessment of risk management in California.
The 2025 Los Angeles wildfire has deeply impacted California, causing not only massive physical damage but also significant economic consequences. Early estimates suggest the total damage exceeds $250 billion, posing a serious threat to the region’s economy and insurance market. The insurance industry has been significantly affected, with losses expected to reach $30 billion.
Causes of Wildfire
Climate change has played a significant role in the recent LA wildfire, and understanding this connection helps us grasp the broader challenges we face. Here’s how climate change contributes to such devastating events:
- Increased Temperature and Prolonged Heatwaves: Climate change has led to higher average temperatures and more frequent heatwaves. These conditions dry out vegetation, turning it into perfect fuel for wildfires.
- Drought Conditions: The region has been experiencing prolonged periods of drought, exacerbated by climate change. This lack of moisture stresses plant life, making it highly flammable and increasing the fire ignition and spread risk.
- Changes in Weather Patterns: Climate change affects weather patterns, leading to unpredictable and extreme conditions. For instance, shifting patterns can bring stronger winds that fan flames and spread fires more rapidly and unpredictably, challenging firefighting efforts.
- Longer Fire Seasons: Historically, wildfires in California and regions like LA had specific seasons. However, these seasons are extending due to climate change, resulting in a more significant window of opportunity for fires to start and spread.
Protecting Californian Homeowners: Key Regulatory Measures
Navigating the challenges of securing insurance in California can be tricky, especially with the rising risks associated with wildfires. The California Department of Insurance has indeed been proactive in introducing new regulations aimed at protecting homeowners and ensuring that insurance remains accessible:
- Moratorium on Cancellations: One of the significant steps taken is the implementation of a mandatory one-year moratorium on insurance policy non-renewals and cancellations for homeowners in areas impacted by recent wildfires. This regulation helps ensure that affected residents have the stability and time to make informed decisions about their coverage.
- Sustainable Insurance Strategy: The department has rolled out a comprehensive Sustainable Insurance Strategy, which includes introducing rules requiring insurers to utilize catastrophe models that consider measures homeowners take to mitigate risks, such as fire-hardening their properties.
- Expansion of the FAIR Plan: For homeowners struggling to find coverage, the FAIR Plan remains a crucial safety net. Efforts have been made to modernize and expand the scope of this plan, ensuring it provides more comprehensive coverage and better meets the needs of residents.
- Encouraging Insurer Commitment: The regulatory framework requires insurers to maintain coverage levels consistent with their statewide market shares, especially in wildfire-prone areas. This is intended to prevent insurers from withdrawing entirely from high-risk regions.
- Community Education and Support: The Department of Insurance also focuses on consumer education, providing resources and workshops to help homeowners understand their insurance rights, available options, and how to navigate claims effectively.
These measures reflect a commitment to protecting Californians and ensuring that homeowners can access the coverage they need, even in the face of uncertainty.
Sources :
- https://www.euronews.com/green/2025/01/13/la-fires-1000s-had-insurance-cancelled-in-the-months-before-the-disaster-whats-the-climate
- NAIC Profitability Report (released January 2023)
- California Department of Insurance
Disclaimer
Disclaimer: The information provided in this document is intended for informational purposes only and should not be considered professional advice. While efforts have been made to ensure the accuracy and completeness of the information, it is essential to conduct your research and seek professional guidance tailored to your specific circumstances before making any decisions based on the content provided. The California Department of Insurance regulations and strategies are subject to change, and it is crucial to stay updated with the latest information from reliable sources.