Wildfire Insurance Crisis: California’s Market Collapse and National Fallout

California’s wildfire crisis has rapidly intensified, evolving into a deep and systemic breakdown within the insurance industry. In the early months of 2025, devastating wildfires in Los Angeles and the surrounding regions caused insured losses that surpassed an astonishing $30 billion. These catastrophic events forced traditional insurance companies into heavy financial losses, with major insurers such as State Farm reporting multi-billion-dollar deficits. As a result, many insurers have taken the drastic step of refusing to renew policies in areas deemed to be at high risk for wildfires, leaving homeowners vulnerable.

In response, regulators have approved the implementation of advanced catastrophe modeling tools designed to help insurance companies more accurately assess and price future wildfire risks. This initiative is a key component of California’s Sustainable Insurance Strategy, which enables insurers like Mercury to petition for rate adjustments that better reflect the true exposure faced by policyholders. Depending on a homeowner’s specific location and the mitigation measures they have adopted, insurance premiums may increase significantly—or, in some rare instances, they may remain stable or even decrease.

The forced withdrawal of major insurers from high-risk markets has triggered a dramatic surge in enrollment in FAIR plans, the state-run insurer of last resort. Although FAIR plans provide essential coverage options when no other insurer is available, they typically come with higher deductibles and offer less comprehensive protection for personal belongings. Additionally, the financial burden of covering FAIR plan losses is passed on to private insurers through assessments, creating a vicious cycle of escalating costs throughout the insurance market.

Thousands of homeowners in California have been dropped by their insurers or compelled to seek alternative coverage options. From 2018 to 2023, there was a sharp rise in non-renewal rates across counties most vulnerable to wildfires. Without access to insurance, properties become difficult or even impossible to finance through mortgages, posing a significant threat to the stability of the housing market and credit availability statewide.

The impact of California’s wildfire insurance crisis is now being felt nationwide. Insurers are recalibrating their risk models and adjusting capital reserves, leading to new underwriting restrictions and proposed rate hikes in other states. As wildfires grow increasingly frequent and severe across the Western United States, similar insurance challenges are expected to emerge in states like Oregon, Colorado, and parts of the Southwest region.

Homeowners living in high-risk wildfire zones should consider proactive steps to protect their properties and insurance options: