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Green Building News

California’s Insurance Crisis is about to Get Worse

LA's wildfires are placing a greater strain on the state's insurance markets. Rebuilding efforts will require careful consideration of codes, regulations, and mitigation strategies.

The vast destruction of property and homes in California's most recent wildfires is sure to further disrupt their already teetering insurance market.

The Los Angeles wildfires are on pace to collectively be the most destructive in California’s history. The Eaton fire alone that ravaged Altadena, is projected to be the second worst in the state’s history. All told, more than 12,000 properties, most of them single-family homes, have been destroyed or severely damaged thus far. And while that figure is a few thousand shy of the destruction toll of Northern California’s 2018 Camp Fire, as journalist Lydia DePillis noted in The Times, “This is a different kind of house.”

The difference in question is one of the homes’ market value; in Altadena the average was $1.3 million by the end of 2024, according to Redfin, and in Pacific Palisades, it’s at least $3.1 million, which is actually down about 6% from the previous year. Considering the acute impacts of these devastating fires on America’s second most populous city, and in several of LA County’s most expensive zip codes, a grim reality comes to bear: California’s insurance crisis is about to get worse.

An insurance market in peril

California was already experiencing a crisis of underinsured homeowners prior to these wildfires. Last spring, I wrote in Fine Homebuilding about how large providers, including the likes of Allstate and State Farm (the state’s largest insurer), were pausing on issuing any new home policies in the state. One industry expert told me at the time this was not an unusual practice, but it also seemed like a harbinger.

Indeed, in recent months large providers have been dropping policies en masse in high-risk areas, the Palisades among them, that suffer from a trifecta of vulnerabilities: high value homes, difficult topography, and high susceptibility to wind, and dry weather. Last July, State Farm dropped about 1600 home policies in Pacific Palisades, according to a California Department of Insurance representative, speaking with CBS News. Insurance providers retreating from California has been a persistent trend for years, but never to this degree.

Consequently, California’s FAIR Plan (the acronym stands for fair access to insurance requirements), commonly known as the insurer of last resort in the states that offer them, has absorbed greater market share in those zip codes. From 2023-2024, FAIR reported a 41% increase in policies issued over a one-year span.

This is a problem no one wants.

According to Alex Michon, area president of the Sacramento office of insurance brokerage Gallagher, his state’s FAIR plan has “about $6 billion in exposure in Pacific Palisades alone” but only “about $700 million in cash” to pay claims, not including reinsurance (aka an insurance company’s insurance on its policies). “If these fires hadn’t happened, FAIR hopefully would’ve done like the California Earthquake Authority and built up huge cash reserves. But they didn’t get that lucky. Now, they’ve got a limit claim that’s probably going to wipe out their cash and get heavily into their reinsurance, and other carriers are going to have to participate.”

And as one of the few insurers that will write a policy for homes with wildfire exposure (FAIR has to by law), that exposure comes down to more than dollars and cents. The greater their market share, the higher the number of underinsured homeowners. “FAIR plans will continue to grow. There’s no other option. But the coverage is extremely limited,” Michon says, referring to FAIR plans’ reputation for high premiums and substandard coverage. To his point, FAIR plans were never designed to be a primary option. But in many areas, that’s just what they’ve become.

Rebuilding for resiliency

On the question of California’s FAIR Plan and the tenuous state of the market, Michon lays much of the blame on his state’s “enormous amounts of regulation.” He points to the California insurance commissioner’s recent issuing of a mandatory one-year moratorium on non-renewals and cancellations. “Carriers will not want to do business in a state that doesn’t let them not renew policies. They need the flexibility to underwrite, not just within zip codes, but house to house,” he says. “We are entering a death cycle that can only be broken by drastic measures and drastic deregulation.”

To be fair, Michon isn’t against all regulations. “There are some good ones out there, like [California’s] building codes. But others cause enormous amounts of red tape.” Of course, this leaves the question: what can California possibly do to mitigate the risks of further catastrophes like the one we are still witnessing?

At this stage, playing the blame game helps no one. But coming to terms with how the state develops residential properties (and with what) is critical. Further, having that discussion without giving due consideration to climate change and the increasing number and severity of climate-induced disasters would be foolhardy. “While climate risks like extreme heat affect an area’s livability, wildfire, flood, and wind risk are more likely to impact a homeowner’s ability to find or afford home insurance,” writes Jennifer Castenson in Forbes. “Paired with the current housing affordability crisis, the cost of insurance could be the difference between a buyer being able to afford a home and not.” To use an indelicate metaphor, this feels like the perfect storm.

To be certain, once the literal dust settles, the rebuilding process will be long and painful, to say nothing of the personal toll hundreds of thousands of Angelenos are enduring and will endure after losing so much. Anticipating these hardships, Governor Gavin Newsom recently issued an executive order waiving California Environmental Quality Act (CEQA) and California Coastal Act requirements for reconstruction. As a short-term measure, this should help with the red tape. The long term will require something more thoughtful.

Even accessory structures in wildfire prone areas, like this detached porch, need to be built to resist ignition and slow flame spread.

“When rebuilding after any wildfire catastrophe, it’s critical we use the science that we have,” says Dr. Ian Giammanco, managing director for standards and data analytics at the Insurance Institute for Business & Home Safety (IBHS). “We know what system of protections can increase a home’s chances of survival.” Such protections, or best practices, include things like walls with one-hour fire ratings, airtight envelopes with no attic vents, metal roofs, using fire-resistant Class A wood for outside decks, and designing homes with simple and compact forms, meaning doing away with all the fancy dormers, doo dads, and complex roof lines that all create inviting intersections for fire on the move.

Giammanco is careful to distinguish wildfires as a unique phenomenon among the usual cast of natural disasters. This is because they require deploying “resilience tools across entire neighborhoods and communities,” he says. One such measure is constructing strategic fuel breaks in nearby forestland. These buffer zones are strips or blocks of land, many of them several miles wide, where vegetation and detritus have been heavily thinned to diminish the risk of wildfires spreading quickly.

Of course, with the severity of this year’s Santa Ana winds, fuel breaks are more of a stopgap for fire crews who need precious time to catch up with the fires. But when rebuilding efforts do get underway, many are hopeful that renewed development patterns will allow for manufactured fuel breaks between sub-developments, rather than grouping a bunch of wood construction close together. “We just need to have the will to do this,” Giammanco says.

Exactly how these fires will impact California’s building code and insurance market remain unknowns, but few are optimistic about the outcomes. Whatever the case, LA’s future will be defined by rapidly changing climate conditions that we sorely need to get a firmer grasp on.


Justin R. Wolf is a Maine-based writer who covers green building trends and energy policy. He is the author of Healing Ground, Living Values: Stanley Center for Peace and Security, published by Ecotone.

One Comment

  1. chrshale | | #1

    California politicians actually believe that price controls work. They don't. California prohibits insurance companies and utilities from receiving sufficient revenues to run their businesses. How many contractors would agree to build a house at less than their cost? Not a single one that I know.

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