Amid the ongoing fires in Los Angeles, our thoughts are with those experiencing unimaginable loss and hardship, those who have lost homes, businesses, personal belongings, and stability. We are grateful to the firefighters who continue to protect Angelenos from further loss and to the first responders who have come to their aid.
California's climate has always been a tale of extremes. But as climate change accelerates, the state's “weather whiplash” is becoming more severe, fueling fires in Southern California and flash flood warnings in Northern California. This growing climate volatility is already rapidly transforming our cities — whether through disasters or preemptive changes in policy and planning.
The choices California makes today in land use policies and rebuilding practices will influence its ability to adapt to the new normal. Luckily, policymakers know many of the solutions and have begun to implement them. One of the most influential tools for recovering from disasters and directing adaptations to hazards is insurance. California’s evolving climate crisis underscores the urgent need for an innovative approach to home insurance and risk mitigation.
LA Fires Spark Concerns about Worsening Home Insurance Crisis
After two unusually wet years, the lush grassy hills surrounding Los Angeles dried out during an exceptionally hot and dry summer, creating fuel for wildfire. The infamous Santa Ana winds blew through with gusts of 70–100 miles per hour, creating the perfect conditions for the Palisades, Eaton, Hurst, and Kenneth fires to spread uncontrollably. In addition to the loss of lives, the economic damages from the fires have been estimated at more than $135 billion, making them one of the most expensive natural disasters in U.S. history. But no dollar figure can reflect the immense personal loss and trauma that many are experiencing due to destroyed homes and personal belongings and fractured community ties.
Between 2019 and 2024, more than 100,000 Californians lost their home insurance. State Farm alone dropped coverage for about 72,000 homes in 2024. Insurance companies cite unmanageable losses from wildfires and outdated regulations as the reasons for these nonrenewals. When homeowners are faced with nonrenewal or high premiums, they may be unable to get a mortgage (fire insurance is typically required by lenders), and their property values can fall. Crashing property values were the catalyst for the 2008 financial crisis. Many experts, including the U.S. Senate Budget Committee, fear that a climate-driven crash of the home insurance market is in our future.
On January 9, Insurance Commissioner Ricardo Lara issued a mandatory one-year moratorium on insurance nonrenewals and cancellations for homeowners affected by the fires in Los Angeles. Additionally, Lara asked insurance companies to pause cancellations in progress before the fires started.
California Pursues Insurance Reforms
The Los Angeles-area fires come at a moment of major insurance reform in California. In the last five years, the California Department of Insurance (CDI), the agency tasked with regulating insurance companies, approving insurance rates, and protecting consumers, has implemented several regulatory changes to address the home insurance crisis, including allowing insurers to use advanced catastrophic risk models to set premiums and expanding California Fair Access to Insurance Requirements (FAIR) Plan coverage. The FAIR Plan is a state-mandated, industry-funded insurance program administered by the CDI.
In December 2024, Commissioner Lara announced a new regulation that requires insurers to increase coverage in wildfire-prone areas by 5% annually until 85% of these areas have coverage. To incentivize compliance, the state will allow insurers to pass reinsurance costs — essentially insurance for insurers —on to consumers. This practice could raise premiums, but it’s already common in other states. These regulatory changes represent California’s largest insurance reforms since the 1990s. There’s no doubt these reforms are needed.
California's efforts to stabilize the insurance market through regulatory changes and the expansion of the FAIR Plan are a step in the right direction, but they are not enough to address the fundamental issue of our high exposure to hazard risks. As the County of Los Angeles navigates these challenges, a robust and affordable insurance industry will be critical to an equitable recovery plan. However, reforms in home insurance will succeed only if implemented in tandem with smart land use decisions, improved building codes, mandatory retrofits that reduce wildfire risk, and other adaptation actions that lower local hazard exposure.
The National Flood Insurance Program Offers Insights
One precedent for government-provided hazard insurance is the National Flood Insurance Program (NFIP). Backed by the Federal Emergency Management Agency, the NFIP was established in 1968 in response to major flood events around the country, causing substantial losses that private insurers were unwilling to cover due to the high risk. In addition to reducing the financial impact of floods on affected communities, the NFIP was intended to promote sound land use planning and to encourage communities to adopt floodplain management strategies.
Although the NFIP has been an important insurance tool for property owners, it has struggled with financial instability due to accumulated debt from major disasters, underpriced premiums that fail to reflect actual flood risks, and outdated flood maps, which lead to inaccurate risk assessments. The program also grapples with repeated losses from rebuilding in flood-prone areas.
The California FAIR Plan, like the NFIP, is designed to provide basic insurance coverage for homeowners and businesses in high-risk areas where traditional insurers have pulled out due to unsustainable losses. The FAIR Plan offers limited coverage, primarily focused on fire, and generally excludes broader protections like personal liability and theft. Originally intended as a last-resort option, the FAIR Plan has seen a significant increase in policyholders as major insurers withdraw from wildfire-prone regions. As of January 2024, 350,000 Californians were on the FAIR Plan. In July 2024, State Farm dropped around 1,600 policies in the Pacific Palisades. Now, one in seven homes in the Palisades are covered by the FAIR plan, four times more than in 2024.
The FAIR Plan faces some of the same challenges as the NFIP. As the FAIR Plan increasingly becomes the insurer of “first resort” in wildfire-prone areas, some worry that it will become unsustainable. Others worry that new reforms allowing for catastrophic modeling will drive up already expensive premiums by overstating risk (the reverse of the issue faced by the NFIP). Lessons from the NFIP, such as the importance of motivating risk reduction efforts, provide guidance for addressing our current home insurance crisis, while revealing the complexities of managing large-scale insurance programs in the face of mounting natural disasters.
Three Recommendations to Guide Recovery and Rebuilding After Disasters
In 2020, SPUR published Safety First, a report that examined the Bay Area’s hazard exposure and that provided 12 policy recommendations for improving data and information gathering, codes and standards, community planning, and funding for resilience. As local and state officials race to remove barriers to rebuilding homes in neighborhoods with severe fire damage, SPUR offers three recommendations from Safety First to help inform recovery and rebuilding in the wake of this disaster:
- Change zoning codes to prevent further development in high-hazard areas that are significantly vulnerable to fire, liquefaction, and sea level rise, with priority consideration in those areas where multiple hazards overlap. Ensure no net loss of planned housing by accommodating new development in low-hazard urbanized areas. Block sprawling single-family development in hillside areas that are both hard to defend and hard to evacuate. If high-value properties are rebuilt in high-hazard areas, insurance premiums will continue to rise across California, further reducing affordability and accessibility.
- Ensure that insurance for fire, earthquake, and flood hazards remains available and affordable for residents and businesses. Ensure that state insurance regulations encourage and appropriately price the benefits garnered by resilient land use and retrofit practices and by new construction with improved building codes. Affordable insurance premiums should not be obtained by undervaluing risk. Premiums must accurately reflect risk, making risk mitigation the key to increasing affordability.
- Develop a regional or state buyout program for properties repeatedly damaged by wildfire, flooding, or other climate impacts. Voluntary buyout programs use public funds to remove buildings from areas with a history of natural disasters, thereby reducing future property damage and promoting public safety. As buyout programs become more politically feasible, it will be critical to identify and address equity concerns. For example, government buyout programs may be more financially feasible in low-income neighborhoods where property values are lower and funding for adaptation is more limited. However, buyout programs can create an equity gap if high-income neighborhoods get to adapt in place, while lower-income neighborhoods must relocate.
SPUR works at the intersection of housing, planning, transit, good government, and sustainability and resilience. Although our work focuses on the Bay Area, we know that the future of Los Angeles County and its residents is intimately connected to that of our region. In addition to fires’ impacts on the insurance industry, the loss of housing may well intensify our state’s housing affordability and homelessness crisis. SPUR will continue to remain engaged in work that supports disaster resilience and recovery across the state.