​California’s Home Insurance Crisis: Rising Risks, Soaring Costs and Limited Options 

(Image credit: Getty Images)A series of catastrophic wildfires have been tearing through the Los Angeles metropolitan area, driven by prolonged drought, critically low humidity and hurricane-force Santa Ana winds. The fast-moving fires consumed thousands of acres, destroying entire neighborhoods, displacing tens of thousands of residents and overwhelming emergency response efforts, in what may turn out to be one of the most expensive natural disasters in U.S. history.According to the EPA, wildfire season begins earlier, lasts longer and sees fires occurring more frequently due to the effects of climate change. Residents affected by the Los Angeles wildfires will face a cycle of rebuilding and risk management for years to come as policymakers and insurers struggle to balance financial sustainability with the need for protection in high-risk areas.As the recovery begins, insurance companies are again reassessing coverage in wildfire-prone regions, citing mounting losses and increased risk. This comes as homeowners across the state have been facing a worsening insurance crisis with rising premiums, policy cancellations and limited coverage options. This instability has led several major insurers to scale back or withdraw from the California home insurance market entirely, citing excessive risk and financial exposure. Here’s what to know.Subscribe to Kiplinger’s Personal FinanceBe a smarter, better informed investor.
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Sign up for Kiplinger’s Free E-NewslettersProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.Profit and prosper with the best of expert advice – straight to your e-mail.Why have major insurance companies pulled out of California?California’s current home insurance challenges can be traced back to Proposition 103. This law, enacted in 1988, requires insurers to obtain approval from the California Department of Insurance before increasing premiums, aiming to prevent steep rate hikes. While originally intended to protect consumers, it now limits insurers’ ability to adjust rates in response to rising wildfire risks, forcing some companies to exit the insurance market.In 2024, California introduced new insurance regulations in response to escalating natural disaster risks. The new rules allow insurers to factor climate change risks into their pricing models and pass reinsurance costs — the coverage they buy to protect themselves from catastrophic losses — directly to policyholders. The goal is to balance risk exposure with financial sustainability so insurers can continue offering coverage without facing overwhelming losses.The new rules implemented before the 2025 wildfires did help some insurance companies provide home insurance policies in high-risk areas. Farmers Insurance, for example, resumed issuing policies in certain areas, though often with stricter terms, higher premiums and coverage caps.The 2025 Los Angeles wildfires have c