us, California’s home insurance is in crisis, as many insurers have decided to reduce their exposure to the state or exit from it entirely. The crisis does not only impact homeowners but also apartment building owners and HOAs whose bylaws require the purchase of policies to cover their communities.
While debating climate science is beyond my scope here, it is worth noting that climate change is a long-term trend rather than a new development. Indeed, none of the last four wildfire seasons have approached either theFurther, California cannot solve the climate problem on its own because the state accounted for less than 0.8 percent of 2022 global emissions.
In a free market, one might expect insurers to compensate for increased payouts by raising premiums. But California’s insurance rate regulations hinder this adjustment. Insurance companies “admitted” to the California insurance market must obtain approval for proposed rate hikes from the state’s Department of Insurance.
Another alternative is for customers to join the California FAIR Plan, a form of state-mandated last resort insurance. In the three years ended September 2024, the FAIR Plan’sfrom $202 billion to $485 billion. But the plan receives no state aid and must be fully backed by admitted insurers, raising their risk of staying in California.