As of March 5, 2025, the California Department of Insurance has paid more than $12 billion in claims related to the catastrophic January wildfire, but recovery is only just beginning. Insurance losses alone from the Palisades and Eaton fires alone are estimated between $25 billion and $39 billion. So, payments so far represent just a small portion of what you would expect.
And it’s just the insurance side. Gov. Gavin Newsom may still take years to recover what has been lost, in order to sign an executive order to quickly track restructurings and suspend certain permits and review requirements. Major trading partners such as Canada, China and Mexico (combining proposed tariffs from the Trump administration on key trading partners such as three US building materials suppliers) are pushing for higher than expected construction costs.
This shows what California homeowners need to know now and what challenges are ahead.
What has happened in California since the wildfire?
Evaluation of the Fire Loss Spark Fair Plan
California’s insurance industry is on the volatile ground following wildfires. The Fair Plan, a state-run but personally supported last resort insurance option, has been assessed. That is, they needed extra cash to cover the inflow of claims. The fair plan was in a tough financial position for some time. Last March, Fairplan president Victoria Roach told the California Legislative Insurance Committee that the plan was “one event away from a massive assessment.” Since then, fairplan exposure has increased exponentially, up 217% from September 2021 to December 2024.
Previously, insurance companies were solely responsible for paying valuations, but under a sustainable insurance strategy, California homeowners must also get tips. Californians in the state – not only those affected by the wildfire, but also on Hook for a total of about $500 million. This amounts to around $60 per household.
Looking ahead
$60 isn’t a huge expense for most households, but this may not be the end. The Fairplan passed the reserve and reinsurance tier within the first month of 2025. California lawmakers are aware of this issue and are working to provide a broader safety net with a fair plan. The Fair Plan Stabilization Act (AB 226) is pending approval in the state Senate. If passed, it will allow for fair plans to access bonds and credit lines from California’s Infrastructure and Economic Development Bank when money is needed.
By allowing bonds to grow costs over time, AB 226 stabilizes fair plans and prevents sudden insurers valuations that could surge premiums and small businesses in bankruptcy. This emergency fix protects homeowners and protects the insurance market from catastrophic failures.
– Lisa Calderon
Assembly Members and Co-authors of AB 226
One thing is certain: too many homes are insured with fair plans, and their growth is not sustainable. However, by reducing coverage availability, many homeowners (even people in low-risk areas) have no choice but to go beyond California’s last resort insurance companies.
State farms demand emergency home insurance rates increase
State Farm, California’s biggest insurance company, has problems. The insurance giant has called for an emergency rate hike, claiming that extra money was needed to avoid a “disastrous” financial situation. The three-day hearing before the administrative law judge was concluded on April 10th, and the final decision is still pending approval from Judge Carl Frederick Seligman. If approved, a 17% increase in home insurance premiums will come into effect on June 1st.
Looking ahead
When household insurers lose their money, they often try to get it back elsewhere – for example, by raising premiums in other states or making other insurance lines more expensive. In addition to seeking approval to raise the state’s insurance rates, the state farms have requested a 39% increase for umbrella insurance and a 15% in tenant insurance. As the state’s biggest insurance company, the next step on a state farm could burn trails other insurers follow, making the already tough property insurance market even more challenging.
Will he do that? Trump’s tariffs
President Donald Trump’s “liberation day” tariffs have overturned the stock market and put the insurance industry in a tailspin. Duties on vehicles and parts directly affect car insurance costs, but the home insurance industry also did not escape. Most home insurance prices vary based on the cost of rebuilding your home after you destroy it. As these costs increase, household insurance costs generally increase tandem. In 2024, almost 72% of imported sawmills and timber products came from Canada, and there was a possibility of 250% tariffs on timber soon.
Looking ahead
On April 9, Trump announced a 90-day suspension in non-retaliatory countries. At the time of writing, it is unclear whether the tariffs will come into effect and how much of them will affect the cost of the building. Gov. Newsom said he would “fight back” against Trump administration tariffs, saying “California is not Washington, DC.” The governor’s office has announced that it will create its own “strategic” alliance with trading partners to protect Californians from potential price increases.
The future of California home insurance
By the end of 2024, the California home insurance market appeared ready for a recovery. The insurance company was ultimately granted permission to use forward-looking catastrophe modeling when setting rates. This has been wanted by the industry for many years. Insurance companies argued that California’s strict regulatory environment was preventing accurate pricing, which artificially lowered household premiums. If the insurance company is not making any profits somewhere, it can get out of that market.
“We will never fully know the extent to which a (sustainable insurance strategy) was working to strengthen the issue of access to insurance,” Jordan Hedler, policy advisor for the Insurance Equity Project, told Bankrate. “The Los Angeles wildfires were a very large event and further disrupted the insurance market.”
When it comes to profitability for California insurance companies, Haedtler says the issue is more complicated. Insurers usually measure profits in terms of loss rates. This compares the dollars received in premiums to the dollars paid in claims, but this alone doesn’t tell the complete story. Insurance companies behave like large institutional investors, Haedtler said. “Data from NAIC released last year showed that in 2024, property insurance companies’ profits increased by 800%, primarily due to investment returns.”
An unstable investment environment can push the insurance industry deep into the unknown. For the time being, Haedtler hopes that both home and car insurance will continue to rise “at truly unsustainable rates.”
