Mother Jones illustration; Unsplash
Lynn Levin-Guzman spent her Tuesday night within spitting distance of SUV-sized flames, trying to salvage her 90-year-old parents’ home with a mere garden hose. As the Eaton Fire devastated the Hastings Ranch neighborhood in Pasadena, California, the family seemed especially screwed: Their insurance provider had recently canceled their fire coverage.
“I know I’m not supposed to be here, but this is my parents’ home,” Levin-Guzman, an emergency room nurse, told a local ABC News station reporter, explaining why she’d chosen to defy evacuation orders. “Send me to jail.”
It’s unclear which carrier dropped the family, but their plight appears similar to that of the 30,000 California residents who saw their State Farm home insurance coverage revoked in 2024. More than 1,500 of the homes that lost coverage were in the Pacific Palisades area, which—like Hastings Ranch—has been decimated by one of the five fires that have so far scorched 29,000-plus combined California acres this week.
Faced with arcane regulatory rules and increasingly frequent and intense disasters—fueled by climate change and other factors—at least seven of the top 12 insurance companies in California have paused or restricted writing new home insurance policies since 2022. The upheaval mirrors troubling trends in Florida and Louisiana, where premiums are rising precipitously and carriers are closing shop.
Unable to get a policy on the open market, customers are flocking to their state-facilitated “insurers of last resort.” In California, that body is called Fair Access to Insurance Requirements (FAIR), and it insured $458 billion worth of California property as of its last filing—more than double its 2020 portfolio. While it’s better than nothing, FAIR is far from ideal: It offers less coverage than traditional policies.
Still, the massive fires ravaging Los Angeles right now will test FAIR’s solvency, and that of the broader industry. The roughly $2.5 billion that FAIR said it had lined up for quick claim fulfillment in 2024, for example, is not even half of its nearly $6 billion exposure in the now-charred Palisades. On Thursday, JP Morgan estimated the losses from this week’s fire could exceed $20 billion, 60 percent more than the $12.5 billion lost in the then-record setting 2018 Camp Fire in Northern California.
“I think it’s very likely that we will see losses that exceed the existing reserves,” says Benjamin Collier, a Temple University business school professor whose research focuses on how firms manage climate risk.
This is not just a climate problem or an insurance one, but a burgeoning housing crisis, too: The vast majority of homebuyers need mortgages. Mortgage lenders require home insurance to protect the value of the property securing these loans. What happens when the math of providing home insurance to immense stretches of densely populated communities no longer computes?
“If you look into the future,” Collier says, “we will continue to see really horrible, severe events, and that will create more challenges for homeowners and insurance markets.”
FAIR was created by lawmakers in 1968, but it isn’t funded by the state. Instead, it is underwritten by the pool of private insurance carriers licensed to sell policies in the state. When disaster strikes, FAIR will first use its reserves from premiums customers have paid into it. If it runs out of funds due to a wide-scale catastrophe, the state’s private insurers are expected to contribute money towards an emergency assessment. But that funding scheme presents a problem. As private insurance companies reduce or eliminate their marketshare in California, FAIR has fewer insurers to pay into those assessments.
They have fair reason to flee. Nationally, large insurance companies net an average profit of 4.2 percent on insurance transactions. In California, they lose more than 6 percent. Collier says the difference partially lies in California restricting insurers from raising premiums in a timely manner. “They’re limited in their ability to charge a rate that would be sustainable for them, and so many have left the market,” he explains. That’s thanks to Proposition 103, a ballot measure designed to protect consumers from arbitrary rate hikes that narrowly passed in the 1980s.
New regulatory changes, released in December, give insurers a little more leash. They will now be able to include the cost of reinsurance (essentially, insurance for insurers) in their premium prices. Carriers can also begin to factor in climate change concerns when calculating rates. In exchange for this new revenue, insurers will have to start increasing their coverage in high-risk areas, which will decrease the proportion of Californians forced to turn to FAIR.
Regardless, the changes didn’t come in time to reduce the heavy load on FAIR. In the immediate future, that means private insurers in California will likely look to raise rates on many of their customers to make up for the large assessment and increased reinsurance costs surely around the corner. Communities and buildings won’t be the only things that require rebuilding when the smoke eventually clears—the state’s insurance market will need restoration, too.
