California’s battered property insurance market, which has been a leading symbol of financial destabilization due to climate change, is continuing to weaken despite state efforts to revive a sector that has lost billions in recent years.
Insurance companies are dropping coverage in California’s wildfire-prone areas at an accelerating rate, according to new data that raises questions about the effectiveness of recent state regulations aimed at boosting the insurers.
California has the nation’s worst property insurance crisis by some measures and is being watched nationally as it tries to encourage insurers to expand by making it easier to raise rates.
Other states — including Florida, Louisiana and Texas — are trying different strategies to revive their struggling insurance markets that broadly involve cutting costs to insurers or policyholders.
The new data shows the California FAIR Plan, a state-chartered insurer that sells property coverage to those declined by the private market, hit a record 646,000 policies on Sept. 30 — nearly double its policy count two years ago.
The number of policies sold by state-chartered insurers is a key measurement of the health of a state’s property insurance market.
The California policy count, growing steadily since 2020, surged in the third quarter of 2025 raising questions about recent state efforts to shift FAIR plan policyholders to private insurers. In December, the state launched a program to draw insurers back to California.
“The migration into California FAIR is increasing,” said Rob Moore, director of climate adaptation at the Natural Resources Defense Council. Policymakers “have a huge challenge ahead of them. And it’s a climate resilience and climate risk challenge they’re facing.”
Moore called the continued FAIR plan growth “scary.”
The plan’s total liability is now nearly $700 billion, more than double the level two years ago. The soaring liability raises fears that the FAIR plan will run out of money and force insurance companies and policyholders statewide to pay its claims.
Democratic Gov. Gavin Newsom signed a law Oct. 9 that could expand the FAIR plan’s liability by increasing claims payments to owners of mobile or manufactured homes.
The California FAIR Plan Association, which runs the state-chartered insurance program, had opposed the bill as “inconsistent” with state efforts to shrink the program. A spokesperson for the association said the association is complying with the new law.
The California Department of Insurance said its recent policy changes will take effect gradually and that they are starting to encourage private insurers to expand coverage in wildfire-prone areas.
“We are already seeing progress, but it’s not going to change overnight,” department spokesperson Michael Soller said in an email.
The changes by Insurance Commissioner Ricardo Lara will get FAIR plan policyholders “back into the traditional market, so that the FAIR Plan can function as it was intended, to be the insurer of last resort,” Soller added.
Lara is being watched nationwide as he tries to balance industry efforts to get significant rate hikes with consumer concerns about rising premiums.
Recent disasters have pushed the FAIR plan’s finances to its limit. The Los Angeles wildfires in January generated so many claims that the plan assessed insurers and their policyholders statewide $1 billion to pay the claims.
The FAIR plan said that if a disaster hits California, it “has payment mechanisms in place, including reinsurance, to ensure all covered claims are paid.”
‘This will take some time’
Private insurers pulled back dramatically from the state after a run of natural disasters, including the Los Angeles-area wildfires, demonstrated California’s increasing vulnerability to extreme weather. Insurers have hiked premiums and declined to renew policies.
The industry says state regulations prevented insurers from raising prices to a level that reflects increased risk. The insurance department estimates 1.5 million properties are in wildfire-distressed areas.
With California residents increasingly unable to buy insurance, the FAIR plan has taken on new importance. The nonprofit plan, created by the state and operated by an association of all major insurers in California, is financed by policyholder premiums. But the state authorizes it to assess insurers and their policyholders if it can’t fully pay claims.
In December, Lara completed a suite of regulations meant to entice private insurers back into the market and take customers off the FAIR plan.
The rules let insurers account for future climate risk in their pricing, which they were previously barred from doing.
Insurers also can charge policyholders for some costs of reinsurance, which insurance companies buy to pay claims after catastrophic events. Reinsurance costs have been rising as reinsurance companies adjust to increased natural disasters around the world.
Insurers that ask for rate increases under these rules must issue more policies in wildfire-distressed areas.
This year, five private insurers have done so. The filings, pending review by the insurance department, have been cited by Lara and Newsom as evidence that their strategy is working.
Seren Taylor, vice president for the Personal Insurance Federation of California, said the new rules will work.
“It shouldn’t be surprising that the FAIR Plan hasn’t turned around yet,” said Taylor, whose organization represents large insurers, in an email. “This will take some time. Cannot unwind a problem of this magnitude and complexity in two weeks.”
The FAIR plan itself says the new regulations enabled it to reduce a proposed rate hike averaging 80 percent to a request for the insurance department to approve raising rates by an average 36 percent.
California’s longstanding regulations require insurers such as the FAIR plan to set rates based on historic losses, which recently have been astronomical.
A new policy by Lara that lets insurers set rates based on projected future losses — and exclude the astronomical recent losses from their calculations — enabled the FAIR plan to request a 36-percent rate hike, an insurance department spokesperson said.
GOP state Sen. Marie Alvarado-Gil, who represents a group of rural counties on California’s eastern flank, called the increase “outrageous” and urged Lara to reject the request.
In an Oct. 17 letter to Lara, Alvarado-Gil said the rate hike “would be a devastating blow for the high fire-risk communities in my district and across rural California where private insurers have fled and left us utterly dependent on the FAIR plan.”
Florida insurance market has stabilized
California’s FAIR plan is frequently compared to the plan in Florida, where hurricane damage and other factors made Florida Citizens Property Insurance Corp. the state’s largest property insurer.
Florida Citizens’ policy count has plummeted to 570,000 from a peak of 1.4 million policies in September 2023, which state officials credit to pro-industry legislation that restricted lawsuits against insurers.
“Florida’s private insurance market has stabilized,” said Mark Friedlander, a spokesperson for the industry-funded Insurance Information Institute, by e-mail.
Friedlander called Lara’s plan “a step in the right direction” and said the institute expects California’s FAIR plan to devolve more policies to the private market and find its own exposure “reduced to a manageable level.”
In Texas, a rapidly growing state-chartered insurer decided recently to freeze its rates to help policyholders. But the freeze required the insurer to reduce its claims-paying reserves by $2.5 billion, which increases the likelihood that the insurer will have to assess policyholders statewide.
Louisiana has distributed tens of millions of dollars of grants to homeowners for projects that strengthen their roofs against hurricanes — and reduce insurance premiums.
Michael Pappas, a professor at the University of Colorado Law School who researches insurance, agreed that the Florida market is strengthening. But he said Citizens continues to offer subsidized insurance in high-risk areas — reflecting the trade-offs that states are having to make.
“States have to balance how much do we want risk to be reflected in prices, versus how much do we want to really take care of people as they go through this tough financial transition?” Pappas said in an interview. “States are still figuring out how to walk that line.”
