California’s home insurance market has been in a state of crisis, but a few tentative signs of relief have emerged.
Yalonda M. James/S.F. Chronicle
When California’s insurance market deteriorated into a state of crisis, Insurance Commissioner Ricardo Lara sought to solve it with a bargain: he would give insurance companies long-desired reforms that would make it easier to raise rates so long as they promised to write more policies in high wildfire-risk parts of the state.
But the precise terms of this deal, coined the Sustainable Insurance Strategy, were unclear: how much exactly would rates rise, and how many policies would companies realistically write in the areas they had just been fleeing?
To date, six private insurers have filed to raise rates under these new reforms. The group does not include Allstate Insurance or State Farm General, the two major insurers who have not written any new policies in several years.
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These six insurers, which collectively cover roughly a third of all insured residences in California, each sought to raise rates by about 6.9%, far less than the double-digit increases several have pursued over the past few years. Together, they have committed to writing about 13,250 new policies — only about 2% of the residences currently on the California FAIR Plan, the state’s insurer of last resort.
There are caveats to both of these numbers. While each company’s premiums might increase by just 6.9% overall, individual customers in particularly high-risk areas could see their rates double, while others’ rates might barely budge. Meanwhile, companies may end up writing far more policies than just what they promised in their filings, and several have indicated they will.
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It’s a tentative sign that California’s insurance market may be starting to climb out of its crisis, despite the devastating Los Angeles County wildfires last year — though another test may soon loom as signs point to an early and potentially prolonged wildfire season this year.
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The Sustainable Insurance Strategy made two major changes to the way insurance companies price their policies. Rather than using historical data about wildfire losses to estimate future risk, the reforms allowed companies to instead set their prices based on forward-looking wildfire catastrophe models. They’re also now allowed, for the first time, to charge policyholders for part of what they pay for reinsurance — insurance that insurers themselves buy in case a fire or other catastrophe becomes too large for the company to handle on its own.
In order to use these two reforms, companies had to promise to insure homes in parts of the state the Department of Insurance designated as “distressed” — communities where wildfire risk is high and so are FAIR Plan numbers. (The entire county of Marin, for example, is considered “distressed.”) Specifically, companies would need to ensure that their market share in these distressed areas was at least 85% of its overall statewide market share.
So, a company that insured 100 out of every 1,000 homes in California would need to insure at least 85 out of every 1,000 homes in these specific distressed areas. However, under the regulations, there was a second option — a company could write 5% more policies in distressed areas.
Regulators’ goal was to get insurers to reduce the number of policyholders who have turned to the FAIR Plan, a state-created but privately-run insurer that only covers fire and often costs much more than a policy from the private market.
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Half of the insurers who have filed for rate changes under the Sustainable Insurance Strategy were required to write new policies. These three companies — Mercury Insurance, Farmers Insurance Group and Pacific Specialty Insurance Co. — all chose the 5% option, a total of just 8,111 new policies on paper.
Mercury wrote in its filing that it is planning to go beyond the 5% by internally targeting a 15% increase in its distressed area market share, or about 6,242 new policies rather than the required 2,107.
For Mercury to meet the full 85% threshold, the company would have had to write more than 28,600 new policies within the regulation’s two year requirement, according to its filing. Victor Joseph, the insurer’s chief operating officer, said the minimum 5% option allowed the company to pursue more conservative but sustainable growth, rather than pursue rapid expansion that could have strained its ability to pay potential claims.
Both Farmers and Pacific Specialty also indicated that they considered 5% to be a minimum rather than the goal. After submitting its filing, Farmers said it would lift its more than 2-year-old cap on the number of homeowners policies it writes per month. In a statement, a spokesperson told the Chronicle its agents had already begun reaching out to homeowners in distressed areas to offer new policies. Pacific Specialty did not respond to a request for comment on its plans.
If an insurer applying to change rates had already met its required number of policies in distressed areas, the regulations do not require them to write any additional policies. That’s the case for the other three insurers who were recently approved to hike rates — USAA, San Mateo-based California Casualty Indemnity Exchange and CSAA, the AAA-affiliated insurer for northern and central California.
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Karen Collins, vice president of property and environmental for the American Property Casualty Insurance Association, an industry group, said the Sustainable Insurance Strategy was designed to recognize that some companies already insure a significant number of homes in wildfire-prone areas.
“There are some companies that did not fully pull back,” Collins said. “What their commitment is going to look like may not be the same as other companies that maybe did have to pull back for various reasons.”
CSAA and California Casualty have never stopped writing new policies in California, according to the companies. Two USAA subsidiaries have a moratorium on new policies, but the other two do not; all four insure a greater share of homes in distressed areas than they do in the state overall. A company spokesperson told the Chronicle that USAA remains optimistic about the California insurance market, but did not offer specific details about when these subsidiaries might reopen.
Though not required under the reforms, CSAA said it would offer new policies to about 1,000 policyholders who currently get fire coverage from the FAIR Plan but have a secondary policy with CSAA to cover everything else, known as a difference in conditions policy. Laurna Castillo, CSAA’s senior vice president of western state product, said this decision came from conversations with the Department of Insurance on how to support the Sustainable Insurance Strategy and a competitive insurance market.
Even with this extra effort, these first few filings under the Sustainable Insurance Strategy do not come close to combating the hundreds of thousands of California homeowners who have lost insurance over the past several years and been forced to the FAIR Plan — a fact that the department acknowledges.
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“The numbers we’re seeing are initial signs of market growth. Obviously, we know much more is going to be needed to reduce the FAIR Plan’s growth and turn that around,” said Deputy Insurance Commissioner Michael Soller.
Over the next two years, regulators will be monitoring whether companies fulfill their commitments and where exactly they’re writing policies.
There are still more than 90 home insurers, responsible for the other 70% of policies in California, who have yet to make any filings — though the state’s biggest player, State Farm General, will not be jumping in any time soon. Earlier this month, State Farm agreed to a settlement over a two-year-old rate request, filed before the Sustainable Insurance Strategy was finalized. As part of that settlement, which allowed it to cement a 17% rate increase for homeowners, it agreed to not file for any additional rate changes that would take effect before 2027, according to a company spokesperson.
“At the rate levels agreed to in the settlement, it will take time for State Farm General to rebuild the financial capacity to reopen to new business,” the spokesperson wrote. State Farm has not offered new home insurance policies in the state since 2023.
California’s other major insurer that no longer writes new homeowners policies, Allstate, has also not yet filed for a rate change under the Sustainable Insurance Strategy.
In 2024, as the regulations were being workshopped, an Allstate executive told regulators, “If the regulations were in effect today, we would begin selling new homeowner insurance policies tomorrow.” A company spokesperson did not respond to a request for comment.
Jamie Court, president of the advocacy group Consumer Watchdog, views the reforms as a failure.
Since September 2023, when Lara first announced the Sustainable Insurance Strategy, the number of residences insured by the FAIR Plan has more than doubled from just under 320,600 to nearly 646,900 as of the end of 2025.
“Given the size of increases in the FAIR Plan, it’s nothing. It’s a negative number,” said Court, whose group has been critical of the reforms since they were first introduced. “The commissioner put this out as the salvation for the market, and it clearly isn’t.”
Even if policies become more available, that doesn’t mean they’ll be affordable, he added.
To these critiques, Soller and his boss, Lara, point out that insurance companies have always raised rates in California. The 6.9% increases are not a coincidence — at 7% or above, California regulations allow for greater public oversight which can lengthen the approval process.
But for the first time, these rate hikes will be explicitly tied to the promise of writing new policies or maintaining their current presence, Soller said.
“Insurance companies are now filing knowing that that is the requirement,” Lara told the Assembly Insurance Committee last month. “They’re recommitting to California, which is different.”
Representatives for Farmers, Mercury and CSAA each said their companies have expanded the level of discounts customers can qualify for by bundling policies or performing work to reduce their properties’ wildfire risk in order to offset increased rates.
Lara told legislators he predicted some relief within the first one to two years of the reforms, with full market stabilization in three to five years — progress that will be measured by sustained decline in FAIR Plan policies, Soller said.
Amy Bach, executive director of the consumer advocacy group United Policyholders, said she’s begun to see signs of the Sustainable Insurance Strategy improving the market. Both CSAA and Farmers said their agents have already begun reaching out to homeowners to offer new policies. Meanwhile, no new companies have announced mass non-renewals or placed new restrictions recently, even after the Eaton and Palisades wildfires in Los Angeles broke the record for the costliest wildfire event in history, Soller noted.
But Bach said there are some issues these regulations don’t touch, like the rapid flow of homeowners being pushed into another type of insurer, known as a non-admitted or surplus lines insurer. These companies’ prices and policies are not regulated the way traditional insurers are, often leaving homeowners with exorbitant premiums and coverage carveouts. In 2023, the latest available data from the Department of Insurance, these insurers represented a record 0.4% of the market, double what it had been five years prior.
Before the Assembly committee, Lara, who is termed out of his position early next year, named a number of legislative reforms he’d like to see build upon the Sustainable Insurance Strategy — grant programs for home hardening, increasing policy limits during disasters, expanding the coverages offered by the FAIR Plan and more. Some of these enjoy wide support from both consumer advocates and the industry, others are more controversial.
“Every decision we make and the bills we’re looking at as a whole can … either shorten the timeline or lengthen it,” Lara testified. “It all depends.”