California’s Property Insurance Crisis: What Homeowners Need to Know

California’s property insurance industry remains in a state of chaos. The LA wildfires in January put further pressure on an already fragile system, complicating the Department of Insurance’s efforts to find a viable solution.

How Did We Get Here?

The current insurance crisis is the result of multiple factors and has been decades in the making. California has experienced a series of devastating natural disasters, including some of the largest wildfires on record. The recent LA wildfires are estimated to have cost insurers between $28 billion and $45 billion, with some projections as high as $75 billion.

However, Proposition 103, enacted in 1988, limits insurance companies to raising premiums by only 7% per year without undergoing a lengthy review process by the Department of Insurance. This restriction has made it nearly impossible for insurers to recoup their losses. As a result, most major carriers have stopped writing new policies in California and have begun canceling unprofitable ones to limit their exposure.

Many homeowners have been forced to turn to the California FAIR Plan, the state’s insurer of last resort. These policies tend to be expensive and offer only minimal coverage.

Where Do We Go From Here?

In January 2025, the Department of Insurance launched the Sustainable Insurance Strategy to address the crisis. This initiative aims to make the insurance industry more resilient to climate change while preserving affordable access to coverage for consumers.

Despite public support from insurers, progress has been slow. One sticking point is a new requirement that insurers must offer coverage in wildfire-prone areas equivalent to at least 85% of their statewide market share. This has created additional challenges, and it remains unclear whether the strategy will resolve the crisis.

What Can Homeowners Do?

Until a long-term solution is in place, homeowners should take steps to maintain access to affordable insurance:

  • Avoid Filing Small Claims. Insurance companies are increasingly scrutinizing claims history. If a minor issue arises, consider covering the cost out of pocket. Some insurers may cancel policies if there are two or more claims within a few years. Even “not-at-fault” auto claims can create difficulties if you’re dropped and need to find a new provider.
  • Stay on Top of Home Maintenance. Many insurers now use aerial or street-level imagery to assess property condition. Replace aging roofs, trim overhanging trees, and remove yard debris to reduce wildfire risk and avoid policy cancellation.
  • Open and Respond to Mail. Promptly read and reply to any communications from your insurer. Failing to comply with requests can be grounds for cancellation.

Final Thoughts

A lasting solution will require cooperation among regulators, the insurance industry, and homeowners. We should all prepare to pay more for insurance, as climate change and rising construction costs are driving up the true cost of insuring property. In the meantime, proactive risk mitigation—like defensible space and home hardening—can help protect your property and preserve your insurance coverage.