California’s becoming uninsurable

Several major insurance companies have stopped accepting California homeowners for new policies because of growing wildfire risks. As the number of fires in the state increases and other factors escalate, insurance companies worry about the risk — and the expense.

In 2022 there were over 5,000 wildfires, according to Cal Fire, that burned about 118,000 acres. Already this year 4,337 fires have burned over 114,560 acres.

Residents in high-risk fire areas or hurricane regions need homeowners’ insurance — and lenders require it. No insurance, no home loan. More people are moving into the interface, costing insurance companies too much to repair and replace houses while battling inflation, said Janet Ruiz with the Insurance Information Institute. Two insurance giants withdrew from California’s home insurance marketplace, explaining that increasing wildfire risk and soaring construction costs have resulted in their decisions to stop writing new policies in the state. State Farm announced last week it would stop accepting applications for all business and personal lines of property and casualty insurance, according to the Associated Press. The company cited inflation, a challenging reinsurance market, and rapidly growing catastrophe exposure.

“We take seriously our responsibility to manage risk,” State Farm said. “It’s necessary to take these actions now to improve the company’s financial strength.”

Unlike heavyweights State Farm and Allstate, which declined to sign new homeowners in the state, AmGUARD and Falls Lake will also drop their existing policyholders.

Allstate, another insurance powerhouse, announced in November it would pause new policies for homeowners, condos and commercial properties in California to protect current customers.

Homeowners may have to turn to the California FAIR Plan, which provides basic fire coverage, if they aren’t able to find an insurer that will cover fire expenses. The high-risk pool known as the FAIR Plan is not a government entity or a state program. Taxpayers do not fund the FAIR Plan — it’s supported by all carriers licensed to do business in California, which spreads the risk among all the insurance carriers. Because the FAIR Plan is a high-risk policy, people should expect to pay more than they would for a standard homeowner policy.

The San Francisco Standard reported last week that two more companies quietly left the California market, further narrowing options for those trying to insure their home or purchase one with a mortgage.

AmGUARD Insurance — a subsidiary of Berkshire Hathaway GUARD Insurance Companies — will withdraw its homeowners and personal umbrella programs, and Falls Lake Insurance will also end its homeowners program. Both companies made the announcements July 21 in little-noticed filings submitted to the state regulator. AmGUARD and Falls Lake are the latest insurers to end or limit their business in the state during the past year.

Unlike heavyweights State Farm and Allstate, which declined to sign new homeowners in the state, AmGUARD and Falls Lake will also drop their existing policyholders. Safeco plans to drop 950 policies in October in San Francisco and the East Bay.

An SFGATE report noted that State Farm held the most policies in the California property market in 2021, and the company experienced about a 60 percent loss that year.


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21 thoughts on “California’s becoming uninsurable”

  1. Is it really that the costs are rising… or that the insurance companies are not allowed to set rates at appropriate amounts to recoup and pay for losses? Is the regulatory environment in CA too restrictive? It makes no sense that the costs are simply too high. Whatever the costs are, the insurance companies should be able to assess the long term risk and set rates appropriately, it should be as simple as that. Many of these articles don’t seem to acknowledge that the real problem is the regulatory environment, not the “increased costs”.

  2. Jason, how is the regulatory environment different in California from other high-fire-risk states?

  3. It’s a very good question Kelly, and I don’t completely know the answer as I’m not in this industry. A Google search turned up some info that may help start to explain some of this (again, I’m no expert here, if anyone else has better info please present it):

    In this article:

    there is a quick description of part of the process involved in an insurance company increasing rates, here is an excerpt:

    In California, this process is made significantly more difficult by Proposition 103. The 1988 law requires insurance companies to justify rate increase requests for future wildfire losses based on their average annual wildfire losses over the last 20 years. In other words, given the fact that wildfire losses have increased exponentially even compared to 10 years ago, Prop. 103 is essentially asking insurers to take on more risk than they’re able to compensate for in premiums.

    So if this is correct, basically this law is restricting insurance companies from setting rates appropriately (it is restricting the increase to the calculation mentioned). I don’t know if other states have this type of restriction in place.

  4. Effective structure fire protection. I am setting up water storage and auto-start pumps and plan to plumb the house and outbuildings to intercept firebrands, as well suppress structure ignitions inside and out.

    A major problem with housing developments is that structures are built too close to each other. Consider that if a 100′ defensible space is required between wildland fuel and structures (and wildland flame fronts burn out far more quickly and “cooler” than structure fires), why is it that an 8′ separation between structures is considered adequate? The wildland flame-fronts make impressive footage, leaving the public with the impression that structure fires are responsible for the huge structure, property, and injuries/losses of life long after the wildland is an ash-bed. Hell, they even blame God!

  5. The cost of construction in CA is 9% higher than the national average. In some areas like Sonoma County it’s 26% higher than the national average.

    None of the insurers will give CA homeowners credit for defensible space work, sprinklers or other suppression systems on the property. Given that, when you do the work, you’re working for your insurance company because they don’t seem to notice if you do the work or not. The only break they appear to offer is being within a certain response time from the fully staffed 24/7 firehouse.

    The Fair Plan covers very little, so additional riders are necessary for a decent amount of coverage. Used to be that outfits like Lloyd’s would cover residential properties at very high rates in Sonoma County, not sure that happens any longer.

  6. Jason – excellent questions and background info.
    I was recently curious about the reasons insurers were “leaving” Florida as has been in the news in the past year or so as well. The problem in Florida is hurricanes. A relatively simple google search asking about the effects of regulatory efforts by the state legislature on insurers led me to the fact that insurers are limited on how much they can charge customers for coverage or increase rates. According to many insurers, this has caused them to make business decisions leading to withdrawal from that state. I’m sure there are complexities to the equation that I don’t understand or know about, but the situation sounds extremely similar to me. Just like building homes in the Wildland urban interface; when you build in hurricane alley, your risk rating is snd should go up. Businesses should be able to cover costs. Or don’t build your home there. Or be willing to pay the real cost.
    We subsidize the “freedoms” of lots of folks in this country. Taxpayers often foot the bill. The discussion about capitalism vs socialism here affects all areas of our lives. As the long term weather changes (climate change?), so will the risks to our ways of life and where we live.
    I can barely wrap my head around all these things anymore. But so many of them are interconnected. I know our politicians and many of our leaders struggle with just having intelligent, problem solving discussions about this stuff. Americans need to step up and start trying to understand how their legislatures work. They need to pony up the true costs of doing business.
    We need to quit giving tax breaks to those who can most afford to pay.
    Sorry for going down what seems like a rabbit trail but I think all this stuff IS interconnected.

  7. Looks like folks a lot smarter than me have already hashed this topic pretty well a while back. Thanks for reminding us about this earlier discussion Kelly!

  8. The economics of rebuilding in all classes of disasters has put some insurance companies on the business objective of taking action to survive. The public at large and the political insurance commissions paint the insurance companies as the greedy bad guy, we must remember why insurance came about in the time of Benjamin Franklin, insurance is not a birthright, or guaranteed in the Constitution. Insurance companies are publicly owned and must show their shareholders a profit, something that is more difficult to do with multiple disasters happening.

    The real choice to build in a disaster prone region is the homeowners decision, nobody is drafted by the government and forced to live in an area. The homebuyer has access to enough information to determine threats, mitigation procedures and whether an address is in durable or not. Ultimately the homeowner makes a decision concerning risk/benefit for a home purchase.

    There is an unfair burden or belief placed on structure and wildland fire agencies that an engine will be in every driveway, an unrealistic expectation! As an NWCG Structure Protection Specialist I have seen approximately 12% to a high of 18% of structures that need protection in a threatened area have resources positioned close enough to make a positive impact. Expanding agency resources to cover all homes is economically infeasible, therefore mitigation, engineering (sprinklers), and Long Term Retardant must be utilized to replace the small engine fleet for self preservation.

    The crux of the problem is that we have study after study that indicates among many things that homes spaced less than 30 feet apart are difficult to defend and tend to burn in urban conflagrations (Marshall Fire, CO 12/31/2021) but developers, architects, planning commissions, county commissioners, city councils and even fire departments/districts ignore this data and the information provided by IBHS with proof in their ember flow video. In CO after the Marshall Fire we seem to see this event as a signal to build more like communities before any regulation (which most of CO does not have) might come into effect. I have seen 8 calls for regulations statewide in CO over the years, still none, this is a local matter.

    I cannot find a school of Architecture that spends time instructing in structure hardening when it applies to WUI or UCF events.

  9. Insurance companies have rationally decided whether they can afford the risk in California. They can’t & are leaving the market.

    California is not helping the situation either. The state through the California Department of Forestry and Fire Protection – “Cal Fire” and the California Department of Insurance (state insurance regulator) have been authorized and appropriated by the legislature to insure “prescribed burn associations” state-wide to allow these poorly trained and naive burners the ability to to ignite “controlled burns” on non-industrial, private forest lands of the state. Escapes are inevitable! Insurance companies know this.

    With minimal training, depauperate skills and state backing, prescribed burn associations are lighting fires, killing trees, shrubs, wildlife and pollinators. The state legislature has indemnified these burners for $2million/occurrence.

    Meanwhile Forester’s practicing in the state must pass the most arduous written forestry exam in the Nation and demonstrate 7 years of technical field forestry experience before they can legally manipulate quadratic mean diameter in a stand and must have their work reviewed by a Cal Fire regulator who has a side arm. What’s up with that?

    Insurance companies see the irrationality of these risky schemes and are leaving. They are not in the business to loose money. Escaped “controlled burns” cost billions and insurance companies shoulder much of the claim costs.

  10. Kelly, thank you for the insightful article, and good discussion here. My colleagues and I have had this discussion for many years– either society would rally around reforms (building codes, zoning, etc.), or areas of the country would simply be uninsurable (akin to some of the “lava zones” in Hawaii from my understanding). The individual homeowner is now paying the price for society’s failure.

    There are some places we should not build… this may be a rude awakening and financially injurious for many, but it’s a necessary course-correction.

  11. ACF: There are some places we should not build
    Yes, that’s called the stupid zone.
    When I lived in Montana there was a proposal put forth to add on a new rural fire district station with a couple of engines and staff, and all the neighbors for a mile up and down the road opposed it — vigorously and loudly. Sirens and alarms and stuff, y’know. I couldn’t believe it! A fire station across from my house? Yes please!

    When it comes to wildfire, most people are just stupid.

  12. Insurance won’t compensate me enough to cover my losses in any case. I’m motivated to keep the house and outbuildings from burning. My house and separate garage are plaster with a Class C “flat” roofs, no eaves, and over 90 years old. I can’t harden it much more. I had a friend who built a “hardened” house and defensible space who lost it in a fire–a window blew outward (low pressure outside?). I do not believe that “sprinklers” are up to the task if they are impact heads, but like everything else, they can help a little; maybe crucially so, depending upon conditions. The system needs to be designed to resist wind for maximum effectiveness, and even then if a house lights up eight feet away, it’s unlikely to help. In such urban interface situations (structures too close together) the wildland fire is no longer a significant factor–whole blocks are going to burn, and since no defenders should be in place at the head of a wind-driven fire, so much for the defensible space, hardening, and most on-site fire suppression systems.

  13. Did anyone else notice the one house in Lahaina that didn’t burn while surrounded by others that did? It was somewhat recently remodeled and had a metal roof.

  14. Charles:
    The owners replaced the old roof with commercial-grade steel and dug out the old landscaping and replaced it with river rock around the house. That river rock is probably what saved the house, said Michael Wara, director of the Climate and Energy Policy Program at the Stanford Wood Institute for the Environment.

    and Bill Gabbert wrote about this often. Here’s just one:

    … and from that last link:

    • High intensity wildfire does not continuously spread through a residential area as a tsunami or flood of flame.
    • Unconsumed shrub and tree canopies adjacent to homes do not produce high intensity flames that ignite the homes; ignitions can be only from burning embers and low intensity surface fires.
    • The “big flames” of high intensity wildfires are not causing total home destruction.
  15. Although rarely covered by the media, CA state government regulations have definitely helped cause the insurance crisis by preventing the industry from using catastrophe risk modeling which would allow adjusting rates based on changing risks and mitigation. Here are a few articles on the subject:

  16. Jimson, excellent links and background discussing the role of government regulation in causing this problem. Thanks!

  17. Kelly – great information in the Politico story. One detail I found interesting (among many) was the part about the Federal Government and flood insurance.
    When the Feds used more forward looking modeling of future flooding to base costs of federally available insurance for those living in flood plains, as more and more costly flooding events occur, as any business would, 10 states sued them because costs to citizens in those states would increase.
    Many citizens ask the federal government to be run more like a business. I hear it all the time. Then, when Uncle Sam does, they get sued for it cuz I guess it’s not fair.
    Hopefully…..this will at least cause the hard discussions to occur as another part of the article described.
    I’ll quit before I head down 100 rabbit trails and get the dreaded notice about posting rules!
    I’ve enjoyed this particular story and the very interesting discussion associated with it. Thanks.

  18. There are so many facets to this issue, where to begin? I had my insurance cancelled 23 years ago, not because of the wildfire danger, which is all too real, but because I had begun a home-based manufacturing business here. I decided then that I would plow the savings of no insurance premiums (I could do that because I’d paid cash and had no mortgage) into my own firefighting capability. I’m up to four pumps (3 gasoline and 1 electric), hundreds of feet of 1.5″ and 1″ hose, and a nice selection of nozzles and fittings … Most importantly, my cistern system has slowly expanded from 12,000 gallons to 53,000 gallons. Although I also use that water for the garden, I keep an untouchable 9,000 gallon firefighting reserve. Every building except a couple of sheds have fireproof siding and closed soffits. If every person living in a fire-prone area did half as much to take responsibility for the risk, houses lost in wildfires would drop precipitously.

    … [edited] …

    But ultimately the worst aspect of California’s regulatory system affecting fire risk and insurance is, oddly enough, air quality. By nixing safe prescribed burns because they don’t want the smoke, they end up with the same smoke, only worse, in destructive wildfires. Until that changes, the wildfire problem will continue to grow worse. We had our third dramatic round of lightning last night in as many weeks here in SW Oregon. The smoke was already so bad (down to 1 mile visibility this morning) that I can’t even see far enough to find out how many new fires were ignited this time, when firefighting assets were already stretched to the limit. I’m ready; my neighbors are not.

What do you think?