California’s insurance crisis prompts solution-minded legislation

Last month, the Center for Climate Integrity released a report entitled “Premiums on Fire.” The report purports to show how property and fire insurance customers are footing the bill for climate crisis as large insurers like State Farm raise their rates on homeowners.

“State Farm, the state’s largest private insurance carrier, asked the California insurance commissioner for an emergency 22% average rate increase for homeowner insurance policies across the state,” the report’s executive summary explains. “A 21.8% increase was approved in March 2025 pending a hearing where State Farm must show data to support the rate hike.”

The results of this proposed rate increase — which follows years of rising insurance premiums — may mean steep increases in insurance rates for property owners. According to CCI data, should State Farm’s provisional interim emergency rate increases go through at a hearing scheduled next Tuesday, the average State Farm policyholder in California could be forced to pay $841 more for homeowners insurance in 2025 than they did in 2023, a 45% increase over that two-year period.

In the Humboldt Bay area, the CCI predicts that rates will increase $600 to $800.

Those increases, however, only tell part of the story because while policyholders might be footing the bill for climate disaster according to the CCI, insurers are also losing out due to increased claims and payouts surrounding climate-related emergencies such as the Palisades, Eaton and Hughes fires in Southern California.

Insurers feeling squeezed

This February, in a letter to California Insurance Commissioner Ricardo Lara, State Farm explained that the company was already struggling to pay an increasing number of claims throughout the state when fires in Los Angeles County hit.

“As the company’s surplus continued to decline in 2024, the need had only become more urgent,” the insurer’s letter, signed by president and CEO Dan Krause, stated. “Then the Los Angeles fires hit. We have paid $1.75 billion so far on around 9,500 claims filed and expect to ultimately issue approximately $7.6 billion in total claim payments.”

The letter continues: “Our initial estimate of the net reduction in State Farm general’s surplus, which stood at $1.04 billion at the end of 2024, is approximately $400 million due to the impact of these fires. And the other trends that led to declining surplus before the fires — by over $300 million during 2024 — have not gone away.”

An aerial view of Altadena, Calif., is depicted. Natural disasters associated with climate change like the Eaton Fire have left insurers struggling to stay solvent while homeowners and fire insurance premiums have skyrocketed throughout California. (Photo by Mario Tama/Getty Images)

Lara had initially rejected State Farm’s petition for an emergency rate increase in February, asking the insurer for more information on its finances. But on March 14, presented with evidence of State Farms’ declining financial position and hoping to curb non-renewals as State Farm sought to manage its risk in the California market, Lara approved the increase.

“The role of Insurance Commissioner involves balancing a stable and sustainable insurance market that serves consumers with effective oversight. To ensure long-term choices for Californians, I had to make an unprecedented decision in the short term,” Lara said in a press release. “State Farm claims it is committed to its California customers and aims to restore financial stability. I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers. The facts will be revealed in an open, transparent hearing.”

The insurance crisis

“In the last several years, we’ve seen insurance companies ask for rate increases,” Janet Ruiz, director of strategic communications for the Insurance Information Institute, told the Times-Standard. Ruiz said that many of the state’s recent insurance increases addressed artificially low rates associated with the passage of Proposition 103 in the late-1980s.

“California’s No. 20 in the nation on the average cost annually for an insurance homeowners insurance policy … California is less expensive than … the other 19 states above it and lower than the national average,” Ruiz said.

Ruiz noted that the confluence of steeply rising construction costs, artificially low premiums, and climate change-related disasters such as wildfires have left the state’s insurance providers particularly vulnerable to large-scale payouts. It’s also left policyholders susceptible to non-renewal and lapses in coverage as companies attempt to defray risk by not taking on too many policies in high-risk areas.

“All these things have come into play to make it more expensive to rebuild, and yet we weren’t charging what we would call adequate premiums,” she explained. “(Also), no one insurer wants to insure all the properties in any one given area. You spread your risk, and then if you have losses or big wildfires like we’ve seen, then you’re paying a certain amount of policies, and you prepared and planned for that.”

Solutions

“The Department of Insurance (CDI) has been working on the Sustainable Insurance Strategy for the last couple of years, and it’s going to be implemented this year and next, and that is structured to bring more companies back into the market in California, being able to write more insurance,” Ruiz said, noting that reports of insurers “leaving” the California market have been misleading, because insurers are remaining in the market but are unwilling to write new policy because of increased risk and the high cost of payouts.

According to the CDI, that Sustainable Insurance Strategy represents “the most significant insurance reform since Proposition 103 was passed in 1988.” Billed as “a comprehensive initiative aimed at modernizing the state’s insurance market,” the Sustainable Insurance Strategy aims to “ensure accessible insurance for all Californians, create a resilient insurance marketplace and protect consumers and communities from the adverse impacts of climate change,” according to the CDI.

The strategy outlines new risk assessment tools which will allow the insurance commissioner and companies to base rates on forward-thinking prediction models, new binding agreements with insurance providers and provisions to increase transparency among other reforms.

Another proposed solution to alleviate rising insurance costs is a legislative package proposed by a coalition of state senators, including President Pro Tem Mike McGuire (D-Healdsburg), that expands on an earlier package of post-wildfire reform bills called the “Golden State Commitment.”

“We have been sounding the alarm on the pending insurance crisis for years and it has become unsustainable,” said McGuire, in a press release. “This is why California is making historic investments … and the Senate is doubling down on commonsense, effective measures that protect consumers, harden communities, hold insurers accountable and ensure the market returns to stable ground.”

Solutions proposed in that package include the creation of an Insurance Community Hardening Commission to standardize and implement wildfire mitigation practices in at-risk areas and establishing the nation’s first public catastrophic model for wildfires, as well as expanding non-renewal moratoriums to small businesses and multi-family properties.

Taking climate change contributors to task

SB 222 is a bill that seeks to address underlying causes of wildfires and thereby reduce cost to insurers while also allowing individuals and insurers to recoup losses by suing contributors to climate change.

The unique bill takes as its model legislation introduced in the 20th century with regard to tobacco lobbying — essentially allowing parties harmed by climate change related disasters to sue fossil fuel companies in the same way health care companies and affected parties could sue cigarette companies.

“It’s not actually a new concept. It’s born out of … the way we saw tobacco companies deceive the public about the harm to our health that their product was causing,” EnviroVoters’ Deputy Campaigns Director Matt Abularach-Macias told the Times-Standard. “Medical insurance companies then were able to sue the tobacco companies for their deception and the damages that had caused them to have increased costs in their insurance system.”

That bill, authored by State Senator Scott Wiener (D-San Francisco) and cosponsored by California Environmental Voters (EnviroVoters), the Center for Climate Integrity and Extreme Weather Survivors, is currently making its way through committee proceedings in the state legislature.

Though the bill may have an immediate effect on the fossil fuel industry, insurance industry experts that the Times-Standard spoke to are skeptical that the bill will make an enormous dent in premiums. And Ruiz noted that some large insurers may even have a conflict of interest because they insure fossil fuel producers as well as homeowners.

The Times-Standard attempted to contact State Farm for this story; they were unable to comment. Senator Scott Wiener’s office could not be reached for comment at the time of publication.

Robert Schaulis can be reached at 707-441-0585.

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