California’s home insurance crisis: What it means for advisors

California’s home insurance crisis unfolded gradually over the past decade, starting with catastrophic wildfire seasons in 2017 to 2018 that caused massive losses and exposed how quickly risk was increasing.

Over the next few years, insurers faced rising pressures from more frequent fires, surging construction and rebuilding costs, and higher reinsurance prices, while state rules limited their ability to raise premiums or use forward‑looking risk models.

By 2022 to 2023, this mismatch hit a breaking point: major insurers began pausing or limiting new policies and cutting back in high-risk areas, reducing the private market and making it harder for homeowners to find coverage.

“Over the past few years, the conversation in California has broadened from ‘rates are rising’ to ‘capacity is shrinking,’ explained Robert Pritula, national placement and solutions leader at Marsh McLennan Agency.

How the insurance crisis escalated

“Since then, the situation has worsened into a full availability crisis, with widespread policy non-renewals and rapid growth of the state’s FAIR Plan, the insurer of last resort, as more homeowners are pushed out of the private market,” said Natalie Balyasny, a licensed California broker at World Insurance.

Large recent wildfires, including those in January 2025, have reinforced these pressures by generating billions in new claims, while regulators have only recently begun updating rules to stabilize the system.

Today, the result is a structurally strained market where insurance is increasingly expensive, harder to obtain, and in some areas, dependent on state-backed coverage rather than private insurers.

The growing role of the California FAIR plan

When it was created in 1968, the California FAIR Plan had good intentions.

“However, the ‘carrier of last resort’ has become the primary option for homeowners in the state,” explained Mike Lynch, private client services director, west region, at Marsh McLennan Agency.

Most policyholders turn to the FAIR Plan because they have no other options and too many of them use it as a means to save money.

“This may sound counterintuitive, but it is often the reality when comparing FAIR Plan rates with those in the non-admitted market,” Lynch said.

The plan was never designed to function this way at scale, and its expansion reflects the reality of the California insurance market.  It has exploded in size over the past five years from approximately 270,000 policies in 2020 to closer to 700,000 today.

There are also significant coverage limitations of a FAIR Plan policy and its ability to handle claims was challenged during the Palisades and Eaton Fires.

“We will not use the FAIR Plan unless we have no other options, not only because that is what is required of us, but because our clients deserve better,” Lynch explained.

The FAIR Plan recently announced that it is raising rates 29.1% for certain homeowners starting Oct. 15. Rates will be highest for those in high-risk, fire-prone areas.

Steps advisors can take to support homeowners

For homeowners, the crisis has shifted insurance from a routine cost to a major risk factor that can determine whether they can afford, keep, or sell a home at all.

For advisors, it has transformed the role from facilitators of coverage to crisis navigators. They now require more time, expertise, and client management in an increasingly constrained and unpredictable market.

To support their homeowner clients, advisors must be honest and clearly explain that securing home insurance in high-risk areas is more difficult and expensive right now.

“Make it clear that it’s not their fault, but a broader market issue,” Balyasny explained.

Also, encourage clients to start shopping early (ideally 120 to 180 days before renewal), stay flexible, and make resiliency upgrades to safeguard their long-term insurability.

Simple steps can help clients reduce risk, such as removing flammable plants, keeping shrubs thinned and separated by a distance of at least twice their height, and upgrading older roofs and electrical systems.

According to Pritula, carriers are looking to partner with clients who are willing to be part of the solution.

“They value those who are serious about mitigation and actively preventing losses,” Pritula added.

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Anna Baluch is a finance reporter and writer with more than a decade of experience. Contact her at anna.baluch@innfeedback.com