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California’s Growing Insurance Crisis




When Claudia Knights and her husband set foot in California with just a suitcase each, they anticipated a short stay of 18 months, with a job awaiting at Dreamworks. Yet, the state beckoned them to stay for 28 years, during which they started a family in the Los Angeles vicinity.

The Unfolding Crisis

However, the state’s escalating insurance problems are currently presenting hurdles even for residents like the Knights. Reports suggest:

  • A surge in insurance firms pulling out of California due to risks from wildfires, mounting construction expenses, and a demanding regulatory setting.
  • Skyrocketing insurance premiums; with the average homeowner’s insurance premium for dwelling fire coverage soaring from under $600 to over $1,200 between 2015 and 2021.
  • An uptick in wildfires due to climate change has indirectly resulted in increased costs for homeowners.
  • Insurance issues potentially restrict people from living in certain areas, thus possibly escalating housing costs.

Human Impact

The Knights’ journey mirrors the difficulties Californians face in the wake of this insurance turmoil. As they planned to shift homes, they were taken aback when the only insurance option, the California FAIR Plan, quoted a staggering $12,000 annually. This exorbitant figure consisted of $7,000 for fire insurance and an additional $5,000 for supplementary policies.

California’s Unique Landscape of Risk

California, a region marked by billion-dollar wildfires, mudslides, and the ever-present earthquake threat, has recently witnessed massive losses in the insurance sector. For instance:

  • State Farm, the state’s leading property insurer, registered a staggering loss of $5.9 billion in the previous year.
  • Prominent property insurers, including State Farm, have declared their intention to cease new property insurance issuance in California.
  • A surge in natural disasters, higher reconstruction expenses, and a stringent reinsurance market have been cited as primary factors.

Governmental Role and Effects of Proposition 103

Understanding this crisis demands a closer look at state policies and their potential effects on insurance prices and accessibility:

  • Proposition 103, adopted in 1998, enforced a 20% reduction in property and casualty insurance rates. Additionally, it compelled insurance firms to acquire rate approval from an elected State Insurance Commissioner. This proposition has seemingly suppressed the rates that insurers can demand.
  • California’s unique mandate, which directs insurers to price current risks based on two decades of historical risk patterns, presents challenges. Unlike other states, California restricts home insurers from employing future risk forecasts for rate determination, although earthquake insurers are exempt from this rule.
  • Proposals to augment premiums beyond 6.9% can be contested by consumer protection advocates, which can be a lengthy, costly, and profit-draining procedure for insurance firms.
  • California’s “efficient proximate cause” regulation compels insurers to incorporate coverage for damages ensuing from post-fire flooding and mudslides. This can significantly heighten their costs, especially when new homes are constructed in regions vulnerable to both fires and mudslides.


California’s insurance crisis is multifaceted, influenced by both natural and regulatory factors. While residents like the Knightses grapple with rising costs, it’s evident that broader systemic changes are essential for long-term solutions. From wildfires to governmental policies, various elements converge to shape the state’s insurance landscape, necessitating a comprehensive approach to address and mitigate these challenges.