California's Home Insurance Crisis: How did we get here and what's being done?

Nestled in the Tahoe National Forest is the Nevada County gold rush-era town of Washington.

“I love the community, I love the river, I love the history,” said Charity Jackson.

Jackson's lived in Washington for 25 years. In 2017, she and her husband bought the historic Washington Hotel, perched above the South Yuba River.

“I don't make a killing; I make a living, and that's okay because I get to work here every day,” Jackson said sitting on the back deck. “Like, this is my job and this is my view.”

But her view is getting harder to afford.

Jackson’s commercial insurer dropped her in late 2019. She says her only remaining option was the California FAIR Plan, the state-mandated, high-cost, bare-bones insurer of last resort, which has become hundreds of thousands of Californians’ only resort.

In the last three years, most of California’s biggest homeowners insurance companies have paused or limited business in the state. They cite the rising risk of wildfires, the high cost of rebuilding homes and state regulations hurting their business.

The result is increasingly unaffordable and unavailable homeowners insurance policies in the regular market, forcing people onto the state-created, privately-run FAIR Plan.

In Sept. 2019, the FAIR Plan had nearly 154,500 dwelling- and about 4,600 commercial policies in force. Less than five years later, those numbers have ballooned to 408,432 and 11,026, respectively.

In 2020, when Jackson switched to the FAIR Plan, her annual premium cost $10,879, more than double what her last insurer charged for commercial property insurance.

“I just call it California unFAIR,” she said.

Then, in 2023, “the total for the renewal was about $33,500, and so I thought it was a mistake when I opened it, and I just cried.”

That’s $33,491 just to insure the hotel for one year against fire damage, with a $1.5 million limit, not including extended coverages like water damage or liability, which she has to purchase separately.

She filed a complaint with the Department of Insurance, which upheld the FAIR Plan’s assessment. In order to pay that 2023 premium, Jackson and her friends held two fundraisers and started a GoFundMe campaign.

Then, in 2024, her FAIR Plan premium rose to $62,558, half of which was a “brush surcharge” for nearby dense forest outside her property line — and outside her control.

“I would maybe hire a person to just be my personal fire person for $62,000 a year or pay my mortgage off if I had that kind of money annually, but I don’t,” Jackson said.

So she opted to go without fire insurance for her business.

“Defaulted to mortgage insurance, which is about $7,000 a year,” Jackson said. “And that's great, because I get to keep my business, but also it's a huge risk, right? Because now I'm completely not covered for any kind of fire that happens.”

She held another fundraiser this summer— only this time it was to buy a sprinkler system and pump to pull water from the river during a wildfire.

Mike Stewart, a veteran firefighter with 35 years of professional experience, is the chief of Washington’s eight-person volunteer fire department.

“I get routine calls from homeowners, ‘Hey, I just got canceled. What do I do?’” he said.

ABC10 asked what he thinks an insurance company sees when it looks at a community like Washington.

“They see high liability,” Stewart said.

Asked whether he thinks that’s fair, he replied, “Well, yes and no. You know, you got to look at what is. They're in business for a reason… when they look at the fact that we're in a high-severity fire area, they're looking at that as a high risk and it realistically is.”

As fewer coverage options are available in the voluntary insurance market, the California FAIR Plan is writing more policies across the state, especially in high-fire areas like Lake Arrowhead and Big Bear. In Nevada County, the FAIR Plan lists Grass Valley, Nevada City and Truckee as three of the top high-exposure areas.

The roots of the current crisis lie in 1988, when 51% of voters passed Proposition 103, to overhaul California’s insurance regulations. That was as car insurance premiums were rapidly rising due to inflation.

Prop 103 made the position of the California Insurance Commissioner an elected one. It requires insurance companies to get permission from the state before raising rates. Insurers must provide data justifying their rate hike, which the Department of Insurance reviews over the course of several months. 

Insurance companies sued to block Prop 103.

“With the passage of 103, we have to throw up our hands. It’s impossible to make a viable business out of it,” said then-Fireman’s Fund Chairman John Byrne.

Political activist, four-time presidential candidate and consumer advocate Ralph Nader championed 103, saying it safeguards consumers from unchecked rate hikes by insurance companies.

“There’s no blocking the will of the people,” Nader said. “[Insurance companies] may delay, they may harass, they may snip away at Proposition 103, but its essential ingredients are going to be upheld.”

Prop 103 survived its legal challenges and continues to govern insurers doing business in the state. 

“However Prop 103 was well-intentioned, the long-term effects have been traumatic and - in some cases - extremely detrimental to the consumers that it was designed to protect,” said insurance expert Karl Susman, of Susman Insurance Agency.

Today, insurance experts say, companies are leaving California - in part - because the rate approval process takes too long — sometimes more than a year — with too much red tape. Subsequently, insurers’ rates can't keep pace with the rising cost of doing business, leading to fewer options and higher prices for consumers.

The Willo Steakhouse, a historic roadside saloon and restaurant, flanks Highway 49 just west of Nevada City, taking on various shapes and names for more than 75 years. 

“We've been voted best steak the last 25 years in a row by the readers of the Union newspaper,” said co-owner Mike Byrne.

He and Nancy Wilson bought the Willo more than 20 years ago. They’re now in the process of selling it, but the new owners will need a new insurance policy. 

“That's the only hold-back right now,” Wilson said.

“Obtaining insurance for a new owner,” Byrne added.

The pair insures the Willo through Farmers Insurance.

“Two years ago, we were paying $9,000 a year. Then last year, $21,000. This year, $37,000,” Wilson said. “Do you know how many dinners you have to sell to make $37,000? It's a lot more than people think.”

Byrne said their insurer told him “they would not honor that policy with a new owner, so new owner would be having to go elsewhere, and there are few – if any – options. They could do California FAIR Plan, but… it's going to be well in excess of probably $37,000.”

“And the coverage will not be near as good,” Wilson added.

The two are at least grateful they haven’t had to go to the FAIR Plan. 

“I'm told that I'm very fortunate, should be happy to write a $37,000 check,” Byrne said with a hearty laugh. “Insurance here in state of California is dysfunctional.”

ABC10 asked them what they’d say to decisionmakers in Sacramento.

“Hey, let's get this done. We're suffering out here,” Byrne said. “Help us, please!”

“Thousands and thousands of people are being affected by this,” Wilson said.

Insurance Commissioner Ricardo Lara has proposed major changes to California’s insurance regulations, which he promises will be in effect by the end of 2024.

Insurance experts are hopeful.

“I think – realistically - we should expect to see companies begin to re-enter the market, getting their toes a little bit wet, maybe in the first quarter,” Susman said.

Jackson remains skeptical. 

“The consumers - yet again - are really reaping the consequences of failures of entities and organizations that were meant to be the gatekeepers of this whole situation,” she said. “PG&E could have done better. The insurance companies could have done better. Our commissioner, as well as other government agencies, could have done better… It seems like we've been very reactive to it, instead of being proactive.”

As insurance companies continue to drop out of California, many suburban homeowners in places like South Sacramento, Folsom and Rocklin have noticed they're getting their policies dropped, even though they don't live in a fire prone area.

Tammie and Brian Sommers say they found the perfect home in Folsom six years ago. They picked Kemper Independence Insurance Company without hesitation for their homeowners insurance. 

Three months before their policy renewal, they received a letter from Kemper saying their policy would not be renewed once it expires. Kemper provided the Sommers with possible next steps, including an option for the California FAIR Plan.

"I went in a little bit of panic mode, you know? (It's) homeowners insurance and everybody should have it," said Brian.

In 2023, the California Department of Insurance said Kemper Insurance issued more than $1.5 million in refunds to California homeowners after the department found the company overcharged policyholders for wildfire risk. Later that summer, Kemper stopped offering home insurance in all states.

Over in the heart of South Sacramento, Gerardo Cabral and his husband are proud to call their place home. The couple chose AmGUARD Insurance Company for their homeowners insurance. 

"We just felt it was nice. It was a good opportunity. The cost was right," said Cabral.

About 10 months before their policy renewal, Cabral received a letter from AmGUARD saying they are no longer writing policies in California. AmGUARD says policies were canceled in 2024 because they no longer rate any insured policies in California due to wildfire risk.

At least seven of the state's property insurers, including bigger companies like Allstate and State Farm, have either dropped out of California or are only offering limited coverage.

"It's a hard market and with non-renewals, with rates going up, it just means our team has to work harder to find homes for our customers, and find the best deal that we can for them at the time," said Tony Bozzuto.

Bozzuto has 20 years of professional experience as an insurance broker. He noticed changes during the COVID-19 pandemic.

"There was a huge supply and demand situation, an issue which caused problems on the insurance side because when they're adjusting claims, when they're having to rebuild homes, repair cars, fix up properties, that supply chain issue caused a lot of problems which resulted in inflation and drove the cost to adjust the claim up," said Bozzuto.

He also blames the California Department of Insurance for its model for how insurance companies predict losses, calling it out of date with the increase in wildfire damage in the state. Insurance companies have turned to drones and satellite imaging to measure risk, resulting in increased rates. Bozzuto says the likelihood of being dropped may be less if homeowners keep their homes up to date.

"That's one thing that companies are now looking at is what brand electrical panel do you have? Because if it's an old one and it's a certain brand, they don't want it," he said.

These families tell ABC10 they have found new policies with new insurance companies, but it comes with a higher cost. This leaves these families wondering how it will impact them and other families in the future.

ABC10 asked Kemper Insurance how many policies were canceled and if they plan on writing in California again. We were directed to an old press release, announcing the company's plan to stop offering home insurance. ABC10 also reached out to AmGUARD, but we never got a response.

California homeowners face an insurance affordability and availability crisis as at least seven of California’s property insurers, including State Farm and Allstate, have either dropped out of California or are only providing limited fire coverage. 

ABC10 To the Point host Alex Bell sat down with nine California congressmembers — four Republicans and five Democrats — asking if it’s time for the federal government to do more.

Five of the nine congressmembers ABC10 spoke with recently introduced bills targeting the home insurance crisis and the issues contributing to it. Here’s a look at what each bill would do.

THE INSURE ACT

Southern California Congressman Adam Schiff representing California's 30th District authored the INSURE Act. The bill focuses on reducing disaster risks through grants, expanding insurance coverage and stabilizing reinsurance - known as insurance for insurance companies - by creating a federal program for insurers.

"Insurance companies can buy reinsurance from the federal government at a reduced price. The federal government doesn't have to earn a profit on it. The prices would be less erratic. That means that insurers would be able to afford to insure California homes at more reasonable prices,” Schiff said.

Some insurers say rising reinsurance prices add to higher costs for consumers. In exchange for helping insurance companies, Schiff said the INSURE Act would require insurers to insure homes for all natural disasters, including wildfires. 

“One of the reasons why I think this is a viable plan, even in a bitterly divided Congress, is this is hitting the red states just as it's hitting the blue states. No one is immune from this,” said Schiff.  

PROVEN FOREST MANAGEMENT ACT

Congressman Tim McClintock believes Schiff's bill would only create additional problems. 

"It takes us in exactly the wrong direction and we can see that because we can see the failures of the Flood Insurance Program over the years," he said.

McClintock represents California's 5th Congressional District, home to Yosemite National Park, the Sierra National Forest and the foothills near Lake Tahoe. McClintock doesn't believe climate change is the issue impacting the insurance market but rather the country's environmental laws. 

"We had healthy and resilient forests and a thriving economy. Those policies were changed in the 1970s by environmental laws such as the National Environmental Policy Act, the Endangered Species Act, that have made the management of our forests endlessly time consuming and ultimately cost prohibitive,” said McClintock.

In 2023, McClintock introduced the Proven Forest Management Act to extend a policy that already exists for the Tahoe basin, streamlining the permitting process for forest thinning projects in the national forest system.

“California has unhealthy forests,” said Congressman John Duarte, who represents parts of the Central Valley in California's 13th District. He also believes thinning the states forests will help.

“We haven't logged them, we haven't thinned them, we haven't actively managed our forests for decades now, and so we're seeing catastrophic wildfires like we've never seen before, greatly due to forest health issues and poor management," he said.

THE SAFE HOME ACT

"If we can give homeowners an incentive to harden their homes, make them more fire resistant, while at the same time giving them financial relief if they choose to do so, I think that's just common sense,” said Congressman Kevin Kiley.

He represents California's 3rd District, home to five national forests and the devastating Caldor Fire. In 2021 the Caldor Fire near Lake Tahoe destroyed more than 1,000 homes and caused $1.2 billion in damages. Kiley says his bill, the SAFE HOME Act, would offer a tax credit to homeowners who protect their property from wildfire, known as home-hardening. Based on income, homeowners could receive a 25% tax credit capped at $25,000 a year.

DISASTER RESILIENCY AND COVERAGE ACT

Congressman Mike Thompson, who represents California's 4th district stretching from Yolo to Sonoma County, authored the Disaster Resiliency and Coverage Act. 

"I believe there are some things we can do at the federal level,” said Thompson. 

The bipartisan bill creates state grant programs for eligible homeowners to receive up to $10,000 for disaster resistant improvements and gives a 30% tax credit for larger property owners and businesses. 

"We found that this program works well. I have experience with it in Alabama, because of hurricanes there...” said Thompson.

The bill would also stop states from taxing payments from state-run disaster resiliency programs and various federal programs.

"That'll be very important to shield people being taxed on damages that were awarded to them for being basically fire victims,” said Congressman Doug LaMalfa, a cosponsor of the Disaster Resiliency and Coverage Act. 

LaMalfa represents California's 1st District, where the Camp Fire killed 85 people, burned 11,000 homes and left $16 billion in damages.

Congressman Josh Harder is another cosponsor of the bill, representing California's 9th District. Harder says it's time for the federal government to step up.

A FIX IS NOT THAT SIMPLE

While all the representatives don't see eye-to-eye on the causes of the crisis and possible solutions, they do agree a fix isn't that simple. 

"In the short term, I think it is going to be the states that are going to be the labs that kind of experiment with different ideas, and I think that's what you're seeing in California,” said Congressman Ami Bera. 

Bera represents California's 6th District, made up of a large part of Sacramento County. He believes Congress needs a proactive approach to address the insurance crisis but says it will take time.

"Not much of anything is happening in Congress these days,” said Congressman John Garamendi, who represents California's 8th Congressional District. 

Garamendi, who was California's first elected insurance commissioner, says he’s advocated for a federal catastrophic insurance program for 25 years "however, that has not yet happened in Congress.” 

Garamendi says the way he sees it, it’s up to the states to make a change first. He believes California's insurance commissioner Ricardo Lara's plan will hand too much power to the industry he’s elected to regulate. 

"It appears to me that power inherent in the office of the insurance commissioner is not used. Now the insurance companies say, 'let us have our way... let us determine the price, let us determine the risk,'” said Garamendi.

In a sit-down interview with ABC10, California Insurance Commissioner Ricardo Lara responded to Garamendi's criticism.

"Well, I think it's really fascinating when you Monday morning quarterback. You know, I wish he would have actually helped because what I'm doing is playing catch up for years of other insurance commissioners not having the courage to make these reforms," said Lara.

Lara also shared more on his strategy to stabilize the insurance market and when Californians can expect relief. Click here for more on the commissioner's interview.

California Insurance Commissioner Ricardo Lara is promoting the biggest overhaul to the state’s insurance market in 35 years, calling it the Sustainable Insurance Strategy. 

Its goals include expediting the state’s rate approval process, which was put in place by Prop 103. It can now take more than a year for companies to get rate approvals. The plan also addresses the ability to use forward-looking catastrophe modeling and getting people off the California FAIR Plan. 

Lara has promised the Sustainable Insurance Strategy would be implemented by the end of 2024. To the Point host Alex Bell sat down with Lara and asked when California can expect to see changes.

“So, with the reforms that we're proposing, I'm very confident that we're going to see some real change coming mid-2025. We're going to see that California is back open for business," said Lara.

ABC10 asked the commissioner what guarantees he has from insurance companies his new plan will bring insurance companies back to California. Lara explained the Department of Insurance feels confident because they’ve worked alongside insurers and consumer groups to craft regulations.

One key component of Lara's strategy is adding forward-looking catastrophe modeling. Right now, insurance companies doing business in California can only use historical data. 

“...Insurance companies are going to be able to use some technology that they've been wanting to use for so long. We are actually one of the only states that prevent insurance companies from being able to forecast these future events," said Lara.

He shared the new technology will help better inform how and where Californians can build.

Another goal of Lara's Sustainable Insurance Strategy is getting people off the California FAIR Plan, the state’s insurer of last resort, which is taking on more and more risk. He explained how the FAIR Plan offers limited coverage at a higher cost. He wants consumers back in the insurance marketplace and details how his plan will require insurance companies to write 85% of their business in the wildland urban interface (WUI). The group Consumer Watchdog says the plan has loopholes, arguing companies could offer less and charge more.

Lara feels once insurance companies come back to California and expand their footprint, “...you're going to create that natural market flow to be able to bring down the cost for everybody.” 

Lara said the Department of Insurance is on track to completely roll out the Sustainable Insurance Strategy by December 2024, and the department will also be ready to accept new rate filings by January 2025.

Click here to read more about California's Sustainable Insurance strategy.

Dropped by your insurance company? Click here for a list of resources.