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California’s homeowners insurance industry is facing a rough road as the wildfires continue

The wildfires in California have led to an unprecedented insurance crisis. (Stock )

The California wildfires have brought widespread disaster to Southern California communities. It also contributes to the major insurance crisis in the state. Many insurers have gone out of state or suspended coverage.

AIG left the region in 2022, while Chubb and Allstate have been weighing their merger options for the past few years. In an even bigger blow, State Farm pulled 72,000 of their policies by 2024.

“It usually takes [admitted carriers] long turnaround time, so their only options are to try to turn things around or gradually exit, which is where the E&S market comes in,” said Christopher Hatt, managing director of Lloyd’s institutions and US personal lines at Novatae Risk Group.

California’s FAIR Plan, the insurer of last resort, also faces uncertainty, adding to the significant insurance challenges the state currently faces. The FAIR system distributes losses among government insurance companies, based on market capitalization.

The claims that are expected to come due to wildfires are beyond the scope of the insurance. Companies selling goods and victims are expected to pay billions of dollars due to the damage caused by the wildfire.

Back in 2018, the Camp Fire cost $10 billion, the Woolsey Fire caused $4.2 billion back. The Los Angeles fires will likely cost more than both fires, ranking as one of the costliest fires to date.

If you need new insurance, visit Credible to get a better understanding of the different types of home insurance you can get. You can get free quotes from Credible partners.

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Homeowners insurance costs are expected to rise in and out of fire-prone areas

Homeowners insurance across the country is still on the rise, and 2025 isn’t expected to be any better for homeowners. Premiums can rise as much as 15%, on average, when states like California see hikes due to more frequent natural disasters that hit the area.

Insurers pass on their biggest losses to homeowners. In the first half of 2024, insurance losses reached $62 billion. Losses are expected to be even greater this year, meaning higher premiums for homeowners as insurers try to recover.

Specialty insurance, such as wind and flood insurance, is expected to become more expensive next year. A rate of increase of 20% or more is predicted due to updated FEMA flood maps and a significant increase in natural disasters.

Homeowners are worried about what these price increases will mean for their bottom lines. As home prices continue to rise and homeowner’s insurance costs continue to rise, the housing market is becoming more and more expensive. Two out of three insured homeowners blame weather-related events for the increase in their insurance premiums, according to Fannie Mae.

In an effort to address the insurance crisis, California Insurance Commissioner Ricardo Lara announced his Sustainable Insurance Strategy. This regulation aims to stabilize the insurance market in California while at the same time addressing the growing risks of wildfires. Under the plan, insurers will expand coverage in high-risk areas, ensuring that all Californians get the insurance they need.

“Californians deserve a reliable insurance market that doesn’t take away from communities most at risk from wildfires and climate change,” said Commissioner Lara. “This is a historic moment for California. My Sustainable Insurance Strategy is focused on addressing the challenges we face today and building a strong insurance market for the future. With input from thousands of citizens across California, this change balances consumer protection with the need to strengthen our market against climate risks.”

Lara’s plans have met with some criticism, however. Consumer Watchdog, a California-based advocacy group, said the new rules would mean huge price increases, up to 50%.

Having adequate insurance is important. Having the right insurance is equally important. To make sure your insurance is right for your circumstances, visit Credible to check plans, providers and costs.

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Help options for those affected by the California wildfires

There are a variety of options to help anyone affected by the wildfires in California. Freddie Mac and Fannie Mae have forbearance programs that give homeowners mortgage relief for up to 12 months without incurring late payments or penalties.

“The number one priority for those affected by the devastation of these ongoing wildfires is access to safety,” said Mike Reynolds, Freddie Mac’s One Family vice president and head of operations. “Once it’s over, we encourage homeowners in these affected areas to contact their mortgage servicer to learn about assistance options. Freddie Mac and our partners are ready to provide immediate help and assistance in the recovery of families and individuals.”

Freddie Mac and Fannie Mae assistance options are available to any homeowner with a Freddie Mac or Fannie Mae mortgage affected by an eligible disaster. Foreclosures and other legal proceedings are also subject to a 12-month forbearance.

More federal funding is available now that President Biden has issued a major disaster declaration for California. There is a 90-day foreclosure requirement that is insured by the Federal Housing Administration (FHA).

Anyone whose home has been destroyed by fire may be eligible for HUD’s section 203(h) program that provides FHA insurance for disaster victims. HUD housing counselors are also available to help anyone affected. Find a HUD-approved housing counseling agency online or use our phone search tool by calling (800) 569-4287.

Comparing multiple insurance quotes can save you hundreds of dollars a year. Plus, it’s super easy to get a free quote in minutes with our Credible partners here.

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Have a financial question, but don’t know who to ask? Email The Honest Money Expert at moneyexpert@credible.com and your question may be answered by Credible in our Money Expert column.


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