California’s property insurance market remains in turmoil, exacerbated by escalating wildfire risks, insurer withdrawals, and systemic shortcomings in the state’s safety net—the California FAIR Plan. As homeowners confront rising premiums and limited coverage options, comprehensive reform is imperative to stabilize the market and protect policyholders.

In the aftermath of the January 2025 wildfires in Southern California, which destroyed over 18,000 structures and claimed at least 30 lives, insurers like State Farm, Farmers, and Allstate have further scaled back their presence. State Farm, the state’s largest home insurer, stopped issuing new policies in 2023 and has since implemented a 17% interim rate hike effective June 2025. It has also requested an additional 11% increase, citing $7.6 billion in wildfire losses in Los Angeles County. A hearing is scheduled for October.

Two lawsuits filed in Los Angeles allege that major insurers colluded to limit coverage in wildfire-prone areas, effectively funneling homeowners to the FAIR Plan. The complaints claim coordination through industry groups to reduce exposure while preserving profitability, at the cost of coverage availability and affordability.

The FAIR Plan, originally intended as a last-resort fire insurer, has now become a primary fallback for over 555,000 policyholders—nearly four times the number it served in 2015. As of March 2025, its total exposure had reached $599 billion, a 31% increase since the fall of 2024. The plan covers only named perils, excluding theft, water damage, and liability, requiring costly supplemental policies for full protection. Following the January wildfires, it paid out over $900 million across nearly 4,800 claims and levied a $1 billion assessment on its member insurers to maintain solvency.

Consumer advocates, including Consumer Watchdog, are suing the California Department of Insurance and Commissioner Ricardo Lara to block insurers from passing $500 million of that assessment onto homeowners through surcharges. They argue the fees lack legislative approval and place undue financial strain on policyholders already grappling with rising costs.

In response to the deepening crisis, lawmakers have introduced several bills. Assembly Bill 1354 proposes a tax credit for homeowners whose fire insurance premiums exceed their 2023 baseline, beginning in 2026. AB 226 would let the state issue bonds and provide the FAIR Plan access to a revolving credit facility to bolster liquidity. AB 567 seeks to suspend the gross premiums tax on residential property policies for four years starting in 2026.

New regulations now permit insurers to pass a portion of reinsurance costs directly to policyholders, in exchange for commitments to continue writing policies in high-risk areas. Although this may result in average increases between 30% and 40%, the goal is to stabilize the market and reduce FAIR Plan dependency. Insurers are also authorized to use forward-looking catastrophe models that incorporate projected wildfire risks into rate calculations, encouraging more accurate pricing and potentially incentivizing mitigation.