Just when the CA property insurance market was showing signs of recovery, the LA wildfires have thrown the market into total chaos. As the claim dollars are being tallied, the property insurance companies are in a state of shock. Many of the admitted companies that had planned on slowly opening up in 2025 have taken some type of a pause. Several non-admitted carriers have reduced available coverage limits and stated they will be increasing premiums. The CA Fair Plan appears to be insolvent as a result of being over concentrated in the fire affected areas, and not having the appropriate cash on hand and reinsurance to pay the pending claims. The government of the State of CA and the CA Department of Insurance (DOI) have tried to legislate their way out of the insurance crisis and have failed miserably.
On February 3, State Farm filed an emergency request with the Department of Insurance for an immediate 22% rate increase. We are watching this closely, as State Farm has been waiting since July 2024 for a response from the DOI for their last rate increase request. The DOI's response to State Farm's request will have far reaching effects, as State Farm is the largest provider of property insurance in the state.
Insurers and insurance consumers are facing a challenging remainder of the year. Insurers are going to see their reserves decline and reinsurance costs substantially increase. Admitted carriers may be required to bail out the CA Fair Plan as a result of the fire losses incurred by the Fair Plan.
Read: New insurance rules mean homeowners throughout California are likely to pay more after fires
Implementing the new insurance regulations and proper pricing now have become a huge challenge for insurance companies. Some insurers may pause writing new policies or even exit the state entirely. Consumers are facing limited choices (especially in high wildfire areas), extremely tight underwriting, and much higher premiums. Non renewals due to wildfire risk, over concentration and property condition will continue. Consumers with admitted insurers may be on the hook for reimbursing a portion of the bail out of the Fair Plan that their admitted carrier had to pay. This could possibly happen every time that the Fair Plan is unable to pay for catastrophic wildfire losses! In conclusion, the insurance industry will remain unpredictable and volatile for the foreseeable future for everyone involved in the system.
If you are concerned about your property insurance, open every letter and email, take our call, and read our 5 Tips For Property Owners in 2025.