California has been grappling with a severe homeowners insurance crisis for several years, driven primarily by escalating wildfire risks amid climate change, rising rebuilding costs due to inflation, and high reinsurance expenses for insurers. Major companies like State Farm, Allstate, and Farmers have restricted new policies, non-renewed existing ones in high-risk areas, or limited coverage, leaving hundreds of thousands of homeowners reliant on the California’s FAIR Plan – the state’s insurer of last resort. The FAIR Plan offers bare-bones coverage at higher premiums and has grown exponentially, doubling in size in recent years, raising concerns about its sustainability.
The California Insurance Commissioner introduced the Sustainable Insurance Strategy in 2023, with key reforms finalized in late 2024 and taking effect in 2025. These include:
– – Allowing insurers to use forward-looking catastrophe models (incorporating climate projections) when setting rates.
– – Permitting insurers to factor in reinsurance costs.
– – In exchange, requiring insurers to write new policies in “distressed” (high-risk) areas proportional to their statewide market share – specifically, at least 85% of their overall policies must be in these areas to qualify for rate hikes.
– – Designating 662 ZIP codes and entire counties as “distressed” based on criteria like high non-renewal rates and FAIR Plan dependency.
– – Options for smaller insurers or those claiming hardship to increase policies in distressed areas by just 5% year-over-year.
The goal: Provide and incentive for private insurers to return to the market, reduce FAIR Plan reliance, and stabilize availability while approving necessary rate increases.
In a November 1, 2025, investigative article titled “California Promised Insurance Relief, But Delivered Loopholes,” The New York Times (NYT) argued that these reforms have failed to deliver meaningful relief for homeowners in fire-prone areas. Through data analysis (cross-referencing state fire hazard maps, FEMA building data, and Department of Insurance designations), interviews, and document review, the NYT highlighted several loopholes allegedly negotiated by the insurance industry. While intended for high-risk zones, many of the 662 distressed ZIP codes and all 58 counties include large low-risk areas. For example:
– – In over 100 distressed ZIP codes, fewer than one-third of homes are in high/very high fire hazard zones.
– – Some ZIP codes (e.g., urban East Los Angeles) have no homes in high-risk zones despite designation.
– – Insurers can meet the 85% requirement by insuring safer homes within these broad areas, avoiding truly vulnerable foothills.
The NYT quoted Commissioner Lara admitting the state negotiated from a “crisis” position and felt “bullied” by the industry. Experts like former commissioner Dave Jones called it marching toward an “uninsurable future.” The article portrayed the reforms as a windfall for insurers, undermining consumer protections under Proposition 103 (California’s rate-regulation law).
According to the NY Times “In the six months after the deal was announced, California’s three largest insurance groups informed the state of their plans to dump nearly 50,000 existing policies, five times the number filed by those companies in the 20 months preceding the deal. And the new regulations will effectively reward them for doing it. More than a fifth of the nonrenewals – about 11,000 policies in total – were in ZIP codes within or adjacent to areas that would burn in the January fires, the Times analysis found. The vast majority of those were in and around Pacific Palisades, where fire later destroyed more than 6,800 structures.”
“Vast swaths of the designated areas where insurers must write new policies do not in fact overlap with areas that California’s state fire marshal deems to be the most fire-prone, the investigation found, meaning that insurers can load up on coverage in areas the state considers to be safer and still qualify to charge higher rates.”
“And while the regulations were billed as an attempt to get homeowners off the state’s overburdened last-resort insurance program, FAIR, the number of residential FAIR policies has nearly doubled since the new insurance deal was announced, rising to 625,033 from 320,581, the Times review found.”
The APCIA (American Property Casualty Insurance Association), representing major home, auto, and business insurers, issued a press release pushing back strongly against the NYT piece, calling it a “misleading narrative” on California’s insurance market. APCIA argues that the suggestion of insurer control over “distressed” area designations is factually wrong -these are determined independently by the California Department of Insurance (CDI) based on data like non-renewal rates, FAIR Plan enrollment, and risk assessments, not by industry lobbying or input.