REDUCING RISK TODAY WILL FIX CALIFORNIA'S INSURANCE CRISIS FOR FUTURE GENERATIONS

The following information was released by the Environmental Defense Fund (EDF):

California's homeowner's insurance market has come under significant strain as growing wildfire risk drives more frequent and costly insurance claims. The impacts of rising wildfire risk have led insurers to raise premiums, limit coverage, and withdraw from high-risk areas, making insurance harder to find and less affordable.

Insurance is the single most important tool to help households rebuild and recover after a disaster. Insurance helps households recover and recover more quickly, making it essential to building financial resilience in a changing climate. Insurance also underpins the rest of the economy, particularly real estate. It is required for your mortgage when you buy a home. When insurance is harder to find and less affordable there are spillover impacts into the housing market and direct impacts on the ability of communities and households to recover after a disaster.

Between 2025 and 2022 California insurance premiums in high-risk areas rose by 80%. Additionally, as more insurers reduce coverage in high-risk areas, more and more Californians are turning to the state's insurer of last resort, the CA FAIR Plan, for coverage. From 2019 to 2025, the CA FAIR Plan grew by more than 200%. In recent years, the California Department of Insurance has taken important steps to stabilize the market through the Sustainable Insurance Strategy (SIS) and continuing to advance the SIS remains an important north star for the state's future. But, unless steps are taken to reduce the underlying risk, costs will continue to grow and coverage will become harder and harder to find through the private market.

EDF's work on insurance continues to demonstrate that the only long-term solution to improve insurance access and affordability is through risk reduction. Home hardening and defensible space can reduce the vulnerability of an individual property, community-scale mitigation can limit ember and structure-to-structure spread, and landscape treatments can alter a fire's behavior before it reaches a neighborhood. Coordinated investment in risk reduction across these scales homes, communities, landscapes is necessary to meaningfully reduce risk and improve insurability. By helping to reduce future claims, risk reduction can pave the way for insurers to offer more coverage and reduce costs to policyholders.

Deepen the link between risk reduction and insurance costs

Safer homes and communities should also be more insurable homes and communities. When mitigation reduces losses, that reduction should be reflected in insurance availability and cost. Too often, however, homeowners and communities invest in wildfire risk reduction without seeing a clear improvement in insurance cost or availability of coverage. And, despite the importance of risk reduction too often insurance underwriting and pricing fail to consistently recognize the full range of home and community mitigation measures.

The California Department of Insurance, as part of the SIS, has taken the important step of requiring insurers to consider a variety of wildfire mitigation strategies in their pricing, including home hardening and defensible space, as well as offering community-wide discounts for those in a Firewise USA Community. The SIS mandate, however, does not establish specific discounts for these activities and research shows that mitigation is unevenly rewarded from insurer to insurer. There also remains limited transparency for policyholders about what discounts are available and how they may impact their insurance costs.

This uncertainty makes it difficult for households and communities to prioritize mitigation actions and have confidence those investments will both risk reduction and improve insurance outcomes. The SB 254 report rightly calls for a tighter, more reliable connection between risk reduction and insurance.

Californians need more definition around which property- and community-scale actions qualify, how their effectiveness will be verified, and their associated discounts. To help communities better plan and prioritize mitigation investments that reduce risk and improve insurability, the California Department of Insurance must consider ways to ensure insurers consistently, predictably, and transparently recognize mitigation known to reduce wildfire losses. Deepening this connection is a win-win for insurers and Californian homeowners because it can ensure that mitigation reduces damages and insurance costs.

Leverage insurance tools to help households invest in wildfire mitigation post-disaster

Insurance should recognize mitigation before a disaster, but it can also help households reduce future risk during the rebuilding process. After a wildfire, the rebuilding process is an important opportunity to make homes more resilient to future disasters. But too often post-disaster rebuilding just replaces the exact structure that was there before the disaster, perpetuating future losses and further straining the insurance market.

The SB 254 report proposes Build-Back-Better insurance endorsements, an idea researched and supported by EDF, as a way to help households cover the costs of wildfire-resistant materials and increase their likelihood of rebuilding to this more resilient standard. A Build-Back-Better endorsement provides additional funding as a part of the claims process to help policyholders with the costs associated rebuilding to wildfire resilient standards. Endorsements are a commonly used tool by insurers to provide additional coverage not included in standard insurance policies. And Build-Back-Better endorsements already being used in other parts of the country to support extreme weather retrofits such as the installation of hurricane-safe roofs. Given the effectiveness of driving change and lowering insurance losses, some states now require insurers to offer endorsements to all policyholders. But, these do not yet exist for wildfire. California could be a leader in advancing this solution for wildfire by requiring insurers to offer Build-Back-Better endorsements that provide additional money at the time of the claim to cover some wildfire-related home hardening activities that are also eligible for premium discounts.

Deploying this solution could lower future losses, improve insurability, and lower insurance costs for homeowners.

Overhauling California's insurance market requires careful design to minimize risk and stabilize the market

The SB 254 report includes some deeply problematic concepts that could jeopardize any hopes of a stable more affordable insurance market in California. Bold and creative solutions are going to be essential as we take steps to stabilize the California insurance market. But, any overhaul should be carefully evaluated to minimize future problems or create new undue burdens are residents and the state.

In particular, the SB 254 report contemplates pulling wildfire out of homeowners insurance and placing it into a state-backed insurance program. Insurance works best when risks are diversified. Concentrating a risk doesn't shrink it, and as the report notes, putting wildfire into its own insurance program could result in higher costs for policyholders and more expensive reinsurance. Such a program would not be cheap, the SB 254 report's own analysis estimates that a state-sponsored wildfire insurer could require up to $25 billion in capital.

Addressing gaps and affordability in California's homeowners insurance market driven by growing wildfire risk is a must, but we should reflect on the cautionary tales from other single-hazard insurance programs. Both the federal National Flood Insurance Program the main source of flood insurance for Americansand the California Earthquake Authority face significant challenges around debt and policy uptake. It remains extremely challenging to design this type of state-backed insurance program in a way that avoids mounting debt and the political pressures that prevent insurance from being offered at a cost that reflects the actual risk. And, even when actuarial pricing is possible, without diversification of the risks, the price tag can quickly become cost-prohibitive for policyholders. We also continue to see low-enrollment in many of these similar programs, with households often confused or unaware they are required to purchase a separate policy. Without careful design and consumer outreach, instead of filling a gap, it can leave people without the coverage they need to meaningfully recover after a disaster.

Another idea that needs to be considered carefully is eliminating insurance subrogation as this step could threaten the stability and affordability of homeowner's insurance. This is a process where insurance companies can seek reimbursement for claims paid from utilities if the utilities are at-fault for a wildfire. Eliminating subrogation could reduce some of the financial burdens placed on utilities, but as the SB 254 report indicates it could cost the insurance industry billions of dollars. It's likely this would translate into more expensive policies and limited coverage, imposing greater insurance affordability and access issues for Californians.

Building Californians' wildfire resilience and insurability is best done through investment in mitigation. For those that may continue to struggle with the cost of insurance, piloting a targeted means-tested assistance program could help address affordability challenges. We must avoid the pitfall of creating a program meant to improve protection that instead raises costs and leaves families exposed when the next major wildfire hits.

Addressing the state's insurance crisis will not happen overnight. California has already taken important steps through the SIS and other actions to improve coverage and affordability of insurance for Californians. Continuing to advance the SIS is imperative, but it must be paired with investment in mitigation and improved transparency and clarity around the risk reduction that is reflected within insurance costs. By reducing expected wildfire losses, California can build a more stable insurance market, that expands access to affordable coverage, and helps communities become safer and more resilient.