Why Are Insurance Companies Leaving California? What You Need to Know
Over the past couple of years, you might’ve noticed a concerning trend: major insurance companies are pulling out of California, or significantly scaling back their operations. If you’re a homeowner — or looking to become one — you’ve probably already felt the pinch. Maybe you’ve gotten a non-renewal notice in the mail, or your premiums have jumped sky-high. So what’s really going on? Why are insurance companies leaving the Golden State, and what does this mean for everyday people?
Let’s break it down.
Who’s Leaving and Why?
Several big-name insurers have already made headlines for exiting California’s property insurance market. Names like State Farm, Allstate, and Farmers have either stopped issuing new home insurance policies or severely limited their offerings in the state. Some smaller companies have followed suit.
Their reasons? It’s a combo of rising risk, rising costs, and complicated regulations. Here are the key issues:
1. Wildfires and Climate Change
California has always had its fair share of natural disasters, but in the last decade, wildfires have become more frequent, more destructive, and more expensive. Entire communities have been devastated, and the cost to rebuild — both physically and financially — is massive.
From the insurance company’s point of view, it’s simple math: if they’re paying out billions every year due to fires, they need to either raise premiums dramatically or stop offering coverage altogether.
2. Outdated Pricing Rules
Here’s where things get even trickier. In California, insurance rates are tightly regulated by the state’s Department of Insurance. Companies must get approval to raise rates — and that process can take months or even years.
Plus, the state doesn’t allow insurers to use future climate risk modeling when setting prices. They can only use historical data. So even though everyone agrees that wildfire risk is rising, companies can’t fully factor that into their rates. That leaves insurers feeling like they’re stuck — and in many cases, they’d rather bow out than operate at a loss.
3. The Cost of Rebuilding Has Skyrocketed
Between inflation, supply chain issues, and labor shortages, the cost of rebuilding a home after a disaster has gone through the roof. Lumber, roofing materials, and skilled labor are all significantly more expensive than they were just a few years ago. That means insurance payouts have to be bigger — and insurers want to collect more in premiums to keep up.
4. It’s Not Just Fires — It’s Fraud and Lawsuits Too
California is also known for a high rate of insurance-related litigation. Fraudulent claims, contractor disputes, and drawn-out lawsuits all drive up the cost of doing business. While these issues might fly under the radar for most homeowners, they absolutely affect the decision-making process for insurance companies.
So What Can You Do as a Homeowner or Buyer?
It’s a tough time, but not hopeless. Here are a few things you can do if you’re worried about your insurance options:
✅ Shop Around
Some insurers are still writing policies in California — they just may not be the ones you’re used to. Work with an independent insurance agent who can access multiple carriers.
✅ Look Into the FAIR Plan
California’s FAIR Plan is a last-resort insurance program backed by the state. It’s designed to offer basic fire insurance for people who can’t get coverage elsewhere. It’s not perfect — it’s limited and often expensive — but it’s better than nothing.
✅ Bundle When You Can
Some companies are still writing policies if you bundle your home and auto insurance. That’s worth asking about.
✅ Stay Proactive With Fire Safety
Creating a defensible space around your property, using fire-resistant materials, and having an evacuation plan in place can not only keep you safer, but in some cases, help you qualify for better insurance terms.
What About the Future?
California regulators are working on reforms. There’s growing pressure to modernize the state’s insurance rules and allow companies to better account for climate risk. That could eventually bring insurers back into the state. But those changes take time — and in the meantime, it’s going to be a bumpy ride.
For homeowners, buyers, and real estate professionals, it’s important to stay informed, work with knowledgeable insurance and mortgage pros, and always have a backup plan.
Bottom Line
The insurance shake-up in California is a serious issue — not just for people who live in fire-prone areas, but for everyone trying to protect their most valuable asset. While there’s no quick fix, being informed and proactive can help you navigate the challenges ahead. And who knows? With the right policy changes, we might see the tide start to turn in the coming years.
