Even before this week's wildfires in Los Angeles County, California was in the middle of an insurance crisis spurred by the threat of intensifying wildfires and other extreme weather events.
Since 2022, major insurance companies have either stopped writing new policies, pulled back coverage, or dropped residents altogether. In March, State Farm, the state's largest home insurance provider, dropped 72,000 property policies in the state, including 69% of policies in Pacific Palisades.
This week's fires will only worsen the situation, insurance and real-estate experts told Business Insider.
"It's like we took two steps forward, then we just took five back," Nick Ramirez, the owner of a California insurance agency, told BI.
Some progress had been made in recent months, Ramirez said. In August, Allstate agreed to temporarily halt mass nonrenewals in California, though with a 34% increase in premiums, the Los Angeles Times reported.
That progress now appears to be in jeopardy since multiple fires have been blazing through Los Angeles County neighborhoods, razing Pacific Palisades, Altadena, and Hurst, forcing over 100,000 residents to evacuate, and claiming five lives.
The destruction, Ramirez and other experts said, will likely exacerbate the crisis, jeopardizing the future of homeownership in California — even in regions outside wildfire zones.
Insurance stands to get more expensive for the whole region
For the lucky few who have secured insurance coverage in California in recent years, it's come with sticker shock.
"I've seen numbers go up 200%, 300%, even 500% in a year," Ramirez said.
Now, even if your home is not directly in an area at risk of wildfire, the regions surrounding these zones will likely feel the increased intensity of the situation.
Darren Nix, the CEO of Steadily Insurance Co., said premiums would likely continue to rise for everyone, even if they're far from harm's way. Residents of zones far away from the areas most vulnerable to wildfires are still likely to see 15% to 20% annual increases in premiums, Nix said.
"In order to come out ahead for California as a whole, it is going to mean that over time, rates are going to go up, even for the folks that are not wildfire-exposed," Nix said.
Residents seeking new policies throughout the region will also likely face more scrutiny when shopping around for policies.
"Each application in California is going to be getting triple-scrutinized for how close they are to the nearest green space they are," Nix said.
It may get harder for homebuyers to secure loans
A downstream impact of unaffordable insurance options is that it may get it harder to get a mortgage, Kevin Herzberg, a Los Angeles mortgage consultant, told BI.
Mortgage lenders won't lend on a house that doesn't have some type of insurance, Herzberg said, and if the consumer can't afford the insurance, the home won't sell.
"As insurance becomes less available or more expensive, fewer people qualify for loans," he said.
Last year, 13% of real-estate agents surveyed by the California Association of Realtors said they had sales transactions canceled because insurance was unaffordable or unavailable. That was double the 6.9% reported the previous year.
Californians scrambling to find new coverage have flocked to the state-run backup option FAIR, with active policies on residential properties jumping 41% from 320,518 in September 2023 to 451,799 in September 2024, according to the association's data.
"They were supposed to be the insurer of last resort," Ramirez said. Now they're becoming one of the most important.
