Embers of Change: Building a fire-resilient California

Coverage crisis in California

Of the 12 major home insurers in California, nine have paused or restricted new business since 2022.

While no law requires property owners in the state to have insurance, those with mortgages must have it. However, typical property insurance policies rarely cover damage caused by disasters like earthquakes, floods, and landslides. Separate insurance policies are required to protect against those types of calamities.

In the affluent Pacific Palisades neighborhood, devastated by wildfires, some homeowners were caught off guard in March when State Farm announced it would stop renewing their coverage.

State Farm, California’s largest home insurer, said its decision “was not taken lightly.” It blamed costs associated with inflation, catastrophe exposure, reinsurance, and regulations for its need to protect “its results.”

State Farm said in a non-renewal letter provided to the state that the 30,000 property insurance policyholders being canceled in California lived in areas considered as “presenting the most significant wildfire or post-earthquake fire risks.” The west side Los Angeles region was most affected by the company’s decision, which took effect last summer. In Pacific Palisades, more than 1,600 policies were not renewed.

State Farm had already said in 2023 that it would no longer offer home insurance to new customers in California, partly due to catastrophe exposure. Allstate, California’s sixth-largest home insurer, also said that year it was stopping new policies in the state. California has an insurance program under the Fair Access to Insurance Requirements Plan, established in the 1960s, that provides fire insurance coverage for high-risk properties. The coverage is basic and funded by insurance companies.

Although intended as a last resort for homeowners, its use has only skyrocketed in recent years, from nearly 154,500 residential policies in September 2019 to more than 408,400 in June, creating high-risk exposure that state officials say was never the intention.