September 9, 2025
California home insurance rates are set to rise 21% in 2025 as wildfires and insurer exits strain availability, prompting new regulations to stabilize the market.
California's homeowners insurance market faces unprecedented challenges in 2025, driven by devastating wildfires, regulatory reforms, and a rapidly evolving risk landscape. The Golden State's insurance crisis has reached a critical juncture, demanding immediate attention from homeowners, policymakers, and industry stakeholders alike.
California's homeowners insurance market is concentrated among a few major insurers, with many companies either scaling back operations or exiting the state entirely. Researchers at Insurify estimate that homeowner insurance premiums are projected to rise by 21 percent throughout 2025, according to Insurify estimates, for a projected average annual premium of $2,930 compared to $2,424 paid by California homeowners in 2024.
The January 2025 Los Angeles wildfires have intensified the market's volatility. CAL FIRE data shows the ongoing Eaton Fire and Palisades Fire are currently the second and third most destructive wildfires, after Camp Fire in 2018. These catastrophic events have prompted emergency responses from both insurers and regulators.
The state has witnessed a systematic retreat by major national insurers over recent years. Many insurers have scaled back the homeowners insurance coverage they offer or are exiting the market entirely. This exodus has left many consumers with reduced options and reports of rising coverage costs, as noted in filings and public rate requests.
State Farm General requested an emergency interim rate hike averaging 22% for homeowners from state officials, citing a "dire" financial situation after destructive Los Angeles wildfires. The company has already received more than 8,700 claims and paid over $1 billion to customers in the wake of the wildfires.
California's wildfire exposure represents one of the most significant challenges facing the homeowners insurance market. High-risk ZIP codes across Northern and Southern California, including areas like Napa, San Bernardino, Lake Tahoe, and foothill communities, face severe coverage limitations.
Insurance carriers operating in California may:
The California FAIR Plan serves as the state's insurer of last resort for wildfire-prone properties. The state Insurance Department approved a request from the provider to impose a special charge and ensure it stays solvent as it covers claims from victims of the Los Angeles County fires. This plan covers fire, smoke, and internal explosions only, requiring homeowners who want broader protection (e.g., liability, theft, water damage) to obtain separate Difference in Conditions (DIC) policies from licensed providers.
The FAIR Plan now has more than 451,000 policies, representing a dramatic expansion as traditional insurers have retreated from high-risk areas. However, this growth has stretched the FAIR Plan's financial capacity, leading to a special charge of $1 billion on insurance companies which will in turn pass the costs along to homeowners.
Standard homeowners insurance policies in California exclude earthquake coverage by default. Homeowners must obtain earthquake insurance through the California Earthquake Authority (CEA) or private insurers. Water damage claims present significant concerns for carriers, with many implementing strict limits or denial policies for long-term leakage issues.
California operates under Proposition 103's prior approval system, requiring all rate increases to be filed with and approved by the California Department of Insurance (CDI). Under existing regulations, insurers have raised rates without guaranteeing coverage or committing to Californians, causing distress for homeowners. That ends now.
Insurance Commissioner Ricardo Lara's Sustainable Insurance Strategy represents a fundamental shift in California's approach to insurance regulation. Today Insurance Commissioner Ricardo Lara enforced his "first of its kind" catastrophe modeling and ratemaking regulation, a central part of his Sustainable Insurance Strategy to increase coverage in wildfire-distressed areas of the state.
The new regulations require:
Starting this Saturday, July 26, 2025, these entities will qualify for new FAIR Plan coverage with a total aggregate limit of $100 million per location. This expanded coverage will expire in 2028 as the private market recovers.
Given California's challenging insurance landscape, homeowners need strategic approaches to secure adequate coverage while managing costs. For mortgage servicers and their customers facing these market pressures, partnering with specialized insurance solutions becomes important.
Covered aims to support mortgage servicers with warm transfer options designed to streamline workflows and enhance service interactions. Our licensed agents are familiar with California's evolving insurance challenges, helping consumers navigate available options including FAIR Plan coverage, understanding wildfire mitigation benefits, and exploring coverage alternatives in this restricted market. This partnership model can support servicers as they work to meet customer insurance needs in high-risk markets like California. Learn more about Covered's services.
Sources: Insurify, various state insurance data, Bankrate state comparisons, Oregon insurance market analysis
California's premiums show significant variation, with traditional rates historically below the national average but projected increases pushing costs above neighboring states in many regions.
California's regulatory framework heavily restricts ZIP code-based pricing models. Carriers cannot utilize certain risk scores for climate or fire unless properly filed and approved with the CDI. New catastrophe modeling regulations now allow insurers to incorporate forward-looking risk assessments, representing a significant departure from historical loss-based pricing.
Post-disaster moratoriums on non-renewals may apply in fire-declared areas for one year under California Insurance Code §675.1, as demonstrated by the recent Los Angeles wildfire response.
The California homeowners insurance market faces continued volatility through 2025 and beyond. Climate change is upending the way that homes are insured in the United States, with California serving as a leading indicator for challenges facing other disaster-prone states.
With the regulatory changes they were granted, insurers were supposed to start making insurance more available. But with the LA fires, they may pull back on the amount of home, business and insurance they write. This uncertainty underscores the importance of proactive insurance planning and risk mitigation.
The path forward requires collaboration between regulators, insurers, and homeowners to create a sustainable insurance ecosystem capable of managing California's evolving risk profile while maintaining coverage accessibility and affordability.
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*Savings claim based upon averaging actual anonymized savings data for dwelling-only insurance rates paid (from July 2023 - June 2024) by customers of two of Covered’s largest mortgage industry partners across twenty-seven (27) US states. Bundles and non-dwelling insurance coverages were excluded.
† Net Promoter Score (“NPS”)® calculation averages post-purchase customer satisfaction surveys from 9/24/2024 - 2/28/2025. NPS® is a market research metric measuring customer satisfaction with a scoring calculation that incorporates both detractor and promoter customer feedback.
Quotes are presented solely for your convenience. Savings may vary. Rates are subject to change based upon the specific coverage you select and other factors that apply to your situation. CA License #0M81402, doing business as Cubbard Insurance Solutions in California.
