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The insurance market for homeowners in California is near catastrophic, as roughly $75 billion in damages is estimated to be left in the wake of unprecedented wildfires. Coupled with already elevated home values prior to the blazes and a new state assessment to support the FAIR plan, the road to recovery grows longer by the day.
State officials are levying a $1 billion assessment against the California FAIR Plan to account for the significant rise in claims being made due to the Palisades, Eaton and other noteworthy wildfires that swept across the state in January.
Home insurance policies were relatively cheaper in California when compared to those in more disaster-prone areas in the Midwest and Southeast regions of the country. However, the wildfires have all but changed that.
New state regulations mandate that private insurers kick in to help offset half of the initial $1 billion cost of the state’s plan of last resort, but the burden of all further wildfire-related costs could be put on the shoulders of policyholders.
Patrick Douville, vice president for global insurance and pension ratings at Morningstar DBRS, told Digital Insurance’s Michael Shashoua that the situation of California’s insurance market prior to the wildfires has left it difficult to support the FAIR Plan as well as more affordable policies.
“We’ve seen in these situations where you would try to ultimately get the next cohort of policyholders or future premiums to pay for it,” Douville said. “For that to happen, you need a healthy insurance market, which is not the case right now in California.”
Read more: Wildfires leave California insurance market on edge of collapse
The number of consumers vying for cheaper property insurance rates not just in California, but nationwide, is expected to increase in 2025.
Data from TransUnion’s Personal Lines Trends and Perspectives report for the first quarter of this year showed that for January 2025, 22.4% of consumers with a credit-based insurance score in the 300 to 500 range were shopping around for a new policy. In the 501 to 700 range, that percentage was 12.6% and in the 700 plus range, it was 11.5%.
The difference in profitability between automotive and homeowners insurance policies “has encouraged some carriers to double down on marketing bundled insurance offerings, essentially making homeowners insurance a loss leader for more lucrative auto insurance sales,” according to the report.
Read more: CoreLogic: How many properties were impacted by the LA wildfires?
Learn more about the shakeup in the housing market predicted for 2025 and how insurers and policyholders alike are scrambling to find stability.
Tierney L. Cross/Bloomberg
Powell predicts damaging impact on housing market from climate change
In speaking to members of the Senate Banking Committee this month, Federal Reserve Chair Jerome Powell said the pullout of banks and insurance companies from areas prone to flooding and fires will create “regions of the country where you can’t get a mortgage” in 10 to 15 years.
“I don’t know that it’s a financial stability issue, but it certainly will have significant economic consequences,” Powell said.
Further housing complications are on the horizon that stem from the 10-year Treasury, an issue that Powell distinguished was not tied directly to the Fed’s benchmark interest rate. Even if the rates were to drop, he highlighted that the pandemic’s lingering effects will leave many regions still in the middle of a housing shortage.
Read more: Fed’s Powell warns climate change will affect housing market
California governor’s office
California proposal could see fire victims earn interest on payouts
California Gov. Gavin Newsom has put his support behind a proposal that would see recipients of insurance payouts earn interest on funds held in escrow, extending similar standards currently applied to money held by lenders for property taxes and insurance.
While insurers are required by state law to pay interest on money held for property taxes as well as insurance, no such provision exists for money held as policy payoffs — a discrepancy Assemblymember John Harabedian, D-Calif., seeks to address through Assembly Bill 493.
“Homeowners rebuilding after a disaster need all the support they can get, including the interest earned on their insurance funds. … This is a commonsense solution that ensures that they receive every resource available to help them recover and rebuild,” Newsom said in a press release.
Read more: California bill would allow fire victims to receive interest earned on payouts
Kyle Grillot/Bloomberg
Policy differences will mean different payouts for LA wildfire victims
Legal experts that specialize in representing insurance policyholders during legal battles against insurers are urging homeowners impacted by the wildfires to closely review their coverage and rebuilding costs.
Jason Rosenthal, an attorney at Much Shelist, who specializes in representing insurance policyholders in disputes with insurers, told DI’s Michael Shashoua that coverage differences between replacement cost and actual cash value “can be a material difference,” and leave many unknowingly underinsured.
“If you buy a million-dollar home, that includes the land, so there’s some value attributed to the land itself,” he said. “But if you need to rebuild that home, the home itself could cost, if you’re building it from the ground up, a million dollars to rebuild.”
Read more: Wildfire claims payments and rebuilding costs will vary for LA homeowners
Eddie Seal/Bloomberg
Nebraska, Montana top list of states with soaring home insurance prices in 2024
Data from S&P Global Market Intelligence showed that insurers in the midwest raised rates in double-digit averages, while Florida and Texas saw only 1% and 3.4% raises respectively.
The top five states where private insurers raised homeowner insurance rates the most were Nebraska at 22.7%, Montana at 22%, Iowa with 21.1%, Minnesota at 20.7% and Utah with 20.5%.
Measurements did not include policies covering mobile homes, renters and condominiums, as well as rate hikes from the 32 state insurers of last resort, which are insurance plans designed by states to fill gaps in the private property insurance market.
Read more: Homeowners insurance prices soared in these states in 2024
North Carolina Rate Bureau settles dispute over increase with state regulators
Following homeowner outcries over a proposed 42.2% rate increase from the North Carolina Rate Bureau, the North Carolina Department of Insurance reached a settlement that substantially reduces cost hikes over the next two years.
The terms of the settlement allow for two 7.5% increases, one in June of this year and one in June 2026, while also agreeing to keep rates constant after that point until June 2027. Following the settlement, Jarred Chappell, COO of NCRB, highlighted how the reduced increases aren’t enough to offset the rising costs.
“Storms have gotten stronger and more damaging, more people are living in disaster-prone areas, inflation in the construction industry has been particularly high and reinsurance costs have exploded,” Chappell said. “All these cost drivers remain an issue.”
Read more: N.C. regulator, home insurers settle rate increase dispute
