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Blog category: Right at Home

California Insurance: Homeowners in Crisis

5 min read

For years, homeowners in the Golden State have had to pay dearly to experience the California Dream. With a high cost of living and one of the most expensive real estate markets in the country, property owners in California must also contend with a wide range of natural disasters. The state’s diverse geography and climate make it particularly susceptible to wildfires, mega-storms, floods, and mudslides, which have all increased in frequency as humans build into fire-prone areas.

Record Breaking Destruction

According to the California Department of Insurance or CDI, California insurers paid a record $15.4 billion in claims in 2017 and $13.6 billion in 2018 due to two of the most destructive wildfire seasons in state history. The 2017 Tubbs Fire destroyed more than 5,600 structures. The notorious Camp Fire in 2018 was responsible for the loss of almost 19,000 structures, the majority of which were private residences.

Rising Costs and Strict Regulations

It’s not just the cost of reimbursing policyholders’ claims that’s affecting insurers. Soaring home construction costs and a heavily regulated property insurance market have forced many insurers to reevaluate their presence in California. This has left many homeowners in a precarious position — scrambling to secure alternative coverage while becoming increasingly vulnerable to the devastating effects of a natural disaster.

As wildfires grow more frequent and more severe, it follows that related insurance claims will increase too. Earthquakes, while less frequent, have also caused major damage to homes in the state. The huge financial losses incurred by California insurers have resulted in some of the bigger players — 7 of the 12 largest companies — either pausing or restricting coverage in California. Rest assured that’s not the case for Wawanesa. We are deeply committed to serving our California customers. In fact, over 90% of our existing business is in the state and we have no plans to change that.

Protecting Homeowners Affected by Wildfire

A recent law (SB 824) ensures homeowners in areas affected by wildfires cannot have their homeowner's insurance coverage canceled or non-renewed within a year of the Governor issuing a state of emergency for a wildfire. This law allows homeowners to recover from the impact of a wildfire without the risk of losing coverage. Learn more about SB 824 and see a list of areas where the law has been activated due to wildfire damage.

Why is this Crisis Happening?

Let’s take a deeper dive into the factors contributing to the homeowners' insurance crisis:

  • Unprecedented number of payouts: Insurance companies and reinsurers operating in California have had to reimburse billions of dollars in homeowners’ claims in the past few years. This level of financial exposure has resulted in certain insurers either limiting the sale of new policies in high-risk areas or not renewing existing coverage.
  • State regulations: As mentioned, a California law was passed prohibiting insurance companies from non-renewing policies in areas impacted by wildfire disasters. This increased risk exposure played a major part in the decision of some companies to stop underwriting new policies in California.
  • Soaring costs: The cost to insure California dwellings has risen dramatically in recent years with significant premium increases across the state especially in high-risk fire areas. This is driven, in large part, by rising building material costs and labor.
  • Non-renewals: The California Department of Insurance (CDI) reports that in 2020, insurance companies in the state declined to renew approximately 280,000 policies in high-risk wildfire areas compared to 90,000 in 2015. The number of policies non-renewed since 2020 is expected to keep growing.
  • Higher rates: Homeowners still able to renew their policies or find new coverage are paying significantly more. Policyholders are seeing huge hikes in premiums, sometimes having to pay more than double what their rates were a few years ago.

KPBS offers the following tips for consumers:

If you're in the process of purchasing a home:

  • Begin your search for insurance early, before obtaining preapproval for a loan.
  • Prior to making any offers, familiarize yourself with the potential risks associated with the property by consulting hazard maps to avoid issues with insurability or expensive insurance premiums.
  • Refrain from submitting a bid on a property until you've confirmed its insurability and assessed the associated costs.
  • Ensure you receive a written quote for insurance coverage.

Maintaining your coverage is essential:

  • Avoid letting your insurance policy lapse.
  • Ensure timely payment of your premiums to prevent any lapses in coverage.
  • Before canceling insurance due to rate hikes, secure alternative coverage first. Canceling abruptly may lead to unexpected expenses from required home inspections and repairs without insurance coverage.
  • Initiate discussions with your agent well in advance regarding policy renewals to anticipate any changes such as increased costs, inspection requirements, or switching carriers.

The FAIR Plan Insurance

FAIR (Fair Access to Insurance Requirements) was established in the late 60s to provide insurance to homeowners unable to buy a policy from the regular insurance marketplace. The plan offers basic coverage at a higher rate (on average, 25 percent more) than regular options to incentivize consumers to buy from regular insurance companies whenever possible.

  • The plan is administered by an association consisting of California insurers.
  • Coverage is limited to fire and lightning with no theft, liability, flooding, or earthquake protection available.
  • To qualify, homeowners need to show they’ve been turned down by at least one regular insurer.
  • Policies come with $1,500 deductibles and payouts are capped at $1.5 million.

Known as the "insurance plan of last resort," increasing numbers of homeowners in the Golden State are now forced to go this route to protect their homes due to so many insurers in the marketplace withdrawing their offerings. New FAIR policies have increased exponentially over the past few years, with 1000 percent or tenfold growth, according to the CDI.

Wawanesa Insurance: Steadfast and Reliable

In these uncertain times for California homeowners, it’s reassuring to know that Wawanesa is here to stay. Offering reliable and fairly priced insurance to California customers for 50 years, rest assured, we’ll be here for you when you need us most.

Get a homeowners quote, or call 800-640-2920 today to speak with one of our helpful agents and learn more about our affordable rates, award-winning service, and coverage options. Don't forget about our multi-policy discount, which offers savings of up to 20% when you bundle your homeowners insurance with your auto insurance policy—it's a straightforward way to maximize your savings and protect what matters most.

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The above content is for informational purposes only and is not a direct representation of coverages offered by Wawanesa or its policies. The information does not refer to any specific contract of insurance and does not modify any definitions, provisions, exclusions or limitations expressly stated in any contracts of insurance. All references within the above content are illustrative and may not apply to your situation. The terms and conditions of the actual insurance policy or policies involved in a claim are determinative as to whether an accident or other loss is covered. To understand the coverage under your current policy, please log into the account management platform to review your policy or contact an agent directly.

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