Before the world watched on as wildfires engulfed large swathes of California early in 2025, an insurance crisis was already starting to heat up.
In the months and years before the disastrous 2025 fires, insurance companies began backing away from the California market.
As they pulled away from the market, by dropping policies and choosing not to insure certain homes, insurers generally cited the rising risks of extreme weather and growing rebuilding costs.
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For many California homeowners, the changing insurance market left them scrambling to get the coverage they needed.
California facing an insurance crisis
Peggy Holter was one of the many Californians who lost their home in the blaze of the January wildfires.
With her home of 47 years left in a pile of rubble, she was not sure what her next move would be. But, she voiced her frustrations with the insurance market in an interview with PBS News Hour.
“They made money off people [like me] for 47 years. That’s the point of insurance, isn’t it? That you chip in and, when somebody else needs it, they get it, and when you need it, you get it,” Holter said.
“But, in this case, they’re saying, ‘We’re sorry. Too bad.’”
Like many, Holter was dropped by State Farm, her previous insurance company of many years, before the wildfires.
Although she was able to get a policy through the California FAIR Plan, a state-backed insurance option of last resort, she didn’t expect the pay out to cover rebuilding costs at the time of her interview.
For homeowners struggling to find an affordable home insurance option, the FAIR Plan can help. It offers all California homeowners access to basic fire coverage, making it especially useful for homeowners with high-risk properties that other home insurance companies don’t want to cover.
But in the long term, for Ricardo Lara, commissioner for California’s Department of Insurance, the goal is to work with insurers to reenter the market.
“If we’re going to ever get to affordable rates, we have to tackle the availability issue,” Lara told PBS News Hour. “Insurers have to come back to California and expand in order to bring down the cost, and that is what the reforms do.”
State Farm is one of the insurers under pressure for backing out of the California home insurance market. Even though the company dropped many homeowners, it still faced thousands of insurance claims after the 2025 wildfires.
Although the company has paid out around $4 billion in related claims, many have complaints about how State Farm has handled the situation.
“Californians deserve fair and comprehensive treatment from their insurance companies. No one should be left in uncertainty, forced to fight for what they are owed, or face endless delays that often lead consumers to give up,” Lana said In a recent press release announcing an investigation by his office.
“While there are national standards for insurance claims handling, they can be vague and inconsistently applied, especially during large-scale, climate-driven disasters. This examination will assess whether State Farm has complied with California’s consumer protection and claims handling laws and will help determine if further reforms are needed as natural disasters increasingly disrupt insurance markets across the country,” he went on to say in the release.
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No easy fix on the horizon
While everyone wants a straightforward solution to the California insurance crisis, the reality is that there isn’t an easy fix to reach for.
“We are in a statewide insurance crisis, affecting millions of Californians. Taking this on requires tough decisions. This is not a game,” Lana said In an earlier press release.
Those tough decisions impact homeowners, renters and insurance companies. Earlier this year, Lara testified to state lawmakers than he expects the California insurance market to stablize in 2026, with assurances from the major insurance companeis that the recent wildfires won’t impact that timeline.
California isn’t the only part of the country dealing with devastation due to natural disasters, with other widespread losses occurring in North Carolina and Florida.
“Climate change has affected every aspect of our lives, and I would be lying to you if I told you that [it] doesn’t impact insurance,” Lara told PBS.
As a part of the way forward, he spearheaded new rules for insurers. For starters, the rules allow insurers to consider the likelihood of a disaster and the cost of reinsurance when determining rates.
Additionally, Lara has advocated for homes to be built and upgraded with disaster-resistant features. He’s hoping that as Californians build back after the Los Angeles fires, smart building choices will mitigate potential losses and risks for insurers, which could lure them back to the state.
But even with all these changes, the California insurance market has yet to stabilize. For now, homeowners can only wait to see how regulatory changes play out on the insurance market.
If you are a California homeowner who needs coverage, look into the FAIR Plan, it might offer the last-resort option you’ve been looking for.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
