There is a fundamental problem with insurance.
You can control the premium. You cannot control the underlying risk.
The old rules
For decades, California’s insurance regulation has run on prior approval: under Proposition 103 (1988), insurers need the state’s permission before changing rates. For wildfire, the rules were specific. Catastrophe losses had to be estimated from a minimum 20-year average of historical losses. Forward-looking wildfire catastrophe models weren’t allowed for ratemaking. And insurers generally couldn’t include the cost of reinsurance — the insurance insurers buy for themselves — in homeowners rates. Rate reviews averaged about a year.
Meanwhile wildfire exposure, rebuilding costs and reinsurance prices changed. When State Farm stopped accepting new homeowners applications in California in May 2023, it cited all three: catastrophe exposure, construction costs outpacing inflation, and a challenging reinsurance market.
The result
Seven of California’s twelve largest home insurers — together about 85% of the market — paused or restricted new business at some point. Homeowners found fewer conventional insurers willing to write policies.
Many landed in the California FAIR Plan, the insurer of last resort:
| California FAIR Plan | Figure |
|---|---|
| Policies in force, June 2026 | 696,562 |
| Growth since September 2022 | +157% |
| Total exposure | $768 billion |
| Assessment on member insurers after the January 2025 LA fires | $1 billion |
That last line matters. After the Palisades and Eaton fires, the Department of Insurance approved a $1 billion assessment on insurers to keep the FAIR Plan paying claims, and allowed insurers to recover half from their own policyholders through a temporary fee. The risk didn’t disappear. It moved.
Ask around Los Angeles and Beverly Hills and you’ll hear the same story: homeowners spending days calling insurers after familiar large carriers stopped being realistic options, and eventually considering companies they had barely heard of. That’s an observation, not proof — but it matches what the FAIR Plan numbers show.
California changed course
In September 2023, the governor launched what became the Sustainable Insurance Strategy. The key regulations were finalized in December 2024 and January 2025:
- Insurers may use approved forward-looking wildfire catastrophe models (the first was cleared in July 2025).
- They may include a capped, California-only cost of reinsurance.
- In exchange, insurers using either must write policies in wildfire-distressed areas equal to at least 85% of their statewide market share.
- Models must account for mitigation, such as hardened homes and community fire protection.
The department says the goal is to improve availability and bring insurers back into the market. Its commissioner put the old system’s problem bluntly: consumers were paying rate spikes after major wildfires “without increased availability.”
Changing a policy when the evidence changes shouldn’t be treated as hypocrisy. It is what policymakers should do.
The underlying lesson
If the allowed price does not adequately compensate someone for assuming a risk, one possible response is not cheaper insurance. It is no insurance.
Research on California’s market supports the mechanism: economists studying prior-approval pricing found that insurers relying on coarse pricing methods charge relatively high prices in high-risk segments or choose not to serve those areas at all.
That doesn’t prove regulation caused the entire crisis. Wildfire exposure, construction costs, climate conditions and global reinsurance markets matter too. But California’s own decision to overhaul its pricing rules tells us regulators concluded the old framework wasn’t producing enough coverage.
What to watch
The next test is straightforward. Not whether premiums fall — under the reforms, most are expected to rise. Not whether insurers issue optimistic press releases. Watch whether homeowners regain meaningful choice:
- How many insurers will actually quote a property? Six of the ten largest home-insurance groups had joined the new framework by May 2026.
- How many people leave the FAIR Plan? So far, growth has slowed — about 16,000 residential policies added in the first quarter of 2026, versus 35,000–50,000 a quarter in 2024–25 — but the plan is still growing, not shrinking.
- What does sustainable coverage cost? Consumer Watchdog counts $571 million in requested rate increases against about 12,000 new-policy commitments. The department calls that analysis premature for a multiyear strategy.
Both can be true for a while: prices rising first, availability returning slowly. The number to track is the one that measures choice.
Insurance cannot make risk disappear. Its job is to put a price on it. For what the state’s fire maps can — and can’t — tell you about your own house, read Is your California house actually in a fire zone?
The Zesht box
Follow the incentive
- What behavior does this reward?
- Under the old rules, insurers that avoided high-risk areas. Under the new rules, insurers that write in distressed areas in exchange for model-based rates — and homeowners who harden their homes.
- What does it discourage?
- Under the old rules, voluntary coverage of wildfire-exposed homes. Under the new rules, staying out of distressed areas, since that blocks access to model-based pricing.
- What becomes more expensive?
- Premiums in high-hazard areas as rates move toward expected risk. FAIR Plan policies averaged about $3,068 in 2024 versus about $1,968 across the homeowners market, though FAIR Plan coverage is narrower.
- What becomes scarcer?
- Under price suppression, voluntary coverage in wildfire areas. Under the new rules, cheap-but-unavailable policies.
- Who receives the benefit?
- Under the old rules, homeowners who kept below-cost policies. Under the new rules, homeowners who regain voluntary coverage and insurers that can earn an adequate return.
- Who ultimately pays?
- Policyholders, through higher risk-based premiums; policyholders statewide, through FAIR Plan assessment surcharges; lower-risk homeowners, where rates cross-subsidize higher-risk ones.
- What happens when people have another option?
- Insurers exit the state or the line of business. Homeowners move to the FAIR Plan, to surplus-lines carriers, or go without coverage. Each shift shows where price and risk diverged.
Goal → mechanism → result
The scorecard
- 1The goal
- Proposition 103's prior-approval system aims to keep rates from being excessive, inadequate or unfairly discriminatory. The 2023–2025 reforms aim to restore availability and shrink reliance on the FAIR Plan.
- 2The mechanism
- Before: backward-looking catastrophe loads, no reinsurance pass-through, reviews averaging about a year. After: approved catastrophe models and capped, California-only reinsurance costs, conditioned on writing more in distressed areas.
- 3The incentive
- Before: insurers couldn't charge for expected future wildfire losses, so limiting exposure was the rational move. After: they can price for expected risk if they commit to writing in high-risk areas.
- 4The observed result
- Major insurers paused or restricted writing; the FAIR Plan reached 696,562 policies by June 2026 and needed a $1 billion assessment after the January 2025 fires. Since the reforms, FAIR Plan growth has slowed.
- 5The unintended consequences
- Risk concentrated in the FAIR Plan, whose assessment is partly recoverable from ordinary policyholders statewide; suppressed prices hid risk signals from buyers, builders and local governments.
- 6What supporters say
- The department, insurers and many economists say forward-looking models and reinsurance costs are standard elsewhere and that insurers won't return without them; the distressed-area commitment ties pricing freedom to availability.
- 7What critics say
- Consumer advocates call the models black boxes, say rates are rising faster than coverage returns, and argue Proposition 103's protections are being weakened.
- 8What the evidence actually shows
- Research on California's market finds coarse risk pricing under prior approval leads insurers to charge more in high-risk areas or not serve them at all. Market data show FAIR Plan growth slowing but not reversing as of mid-2026.
- 9What remains uncertain
- How many policies insurers will actually write versus commit to, whether model-based rates reward mitigation in practice, FAIR Plan solvency in another large fire year, and whether reinsurance and climate trends outpace the reforms.
Questions people ask
Why did insurers stop writing home policies in California?
Insurers cited rising catastrophe exposure, rebuilding costs that outpaced inflation and reinsurance costs; State Farm cited all three when it stopped accepting new homeowners applications in May 2023. At the time, California rules based wildfire rates on at least 20 years of historical losses and excluded reinsurance costs. Seven of the top twelve insurers, holding about 85% of the market, paused or restricted new business at some point.
How many homes are on the California FAIR Plan?
The FAIR Plan had 696,562 policies in force as of June 2026, up 157% since September 2022, with about $768 billion in exposure. Growth has slowed; the first quarter of 2026 added about 16,000 residential policies.
What is California's Sustainable Insurance Strategy?
It is a set of reforms launched in 2023 and finalized in December 2024 and January 2025. Insurers may use approved wildfire catastrophe models and a capped, California-only reinsurance cost in rates; in exchange they must write policies in wildfire-distressed areas equal to at least 85% of their statewide market share.
Will the reforms lower my premium?
Probably not in the short run. The reforms are designed to trade higher, risk-based rates for more availability, and models must credit mitigation, which could lower costs for hardened homes. Consumer advocates say rate increases have far outpaced new policies so far; the Department of Insurance says it is too early to judge.
Sources
- Oversight Hearing: Sustainable Insurance Strategy (background paper)
- Cal. Code Regs. tit. 10, § 2644.25 (Reinsurance)
- Commissioner Lara announces enforcement of regulation to expand insurance coverage (catastrophe models)
- Commissioner Lara issues landmark regulation to expand insurance access (net cost of reinsurance)
- State Farm General Insurance Company: California New Business Update
- Key Statistics & Data
- Sustainable Insurance Strategy
- California's Sustainable Insurance Strategy Summary
- Momentum continues to build under the Sustainable Insurance Strategy
- Commissioner Lara takes action to ensure FAIR Plan can continue paying claims after the Southern California wildfires
- How Are Insurance Markets Adapting to Climate Change? Risk Classification and Pricing in the Market for Homeowners Insurance
- Insurers say they're starting to write new California homeowner policies, but how many?
- Model rules generate $571 million in rate hikes but just twelve thousand new home insurance policies
- Earthquake Premium and Policy Count Data Call: Summary of 2024 Residential Totals
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