Fires erupted in Los Angeles, California, on January 7, 2025. The Southern California fires have destroyed over 12,000 homes and businesses, burned 40,000 acres, and are responsible for more than two dozen human lives lost.
With upwards of $250 billion in estimated damages, these wildfires are estimated to be among the most expensive disasters in the country's history.
Reports of insurers leaving the state and canceling policies months before the fires have left homeowners and business owners across the state with questions about their own coverage.
Here are some of the biggest questions about fire insurance in California following the 2025 Southern California wildfires.
Why Did Insurance Companies Cancel California Policies?
California's history of wildfire damage can be costly for insurers. California previously limited the amount that insurance companies could charge customers. During the 2017 and 2018 fire seasons, California's homeowner's insurers paid out more than twice as much in claims and expenses as they collected in premiums. As a result, many insurance companies decided insuring California properties didn't make financial sense. Over the last few years, many insurers canceled or failed to renew policies.
What is the California FAIR Plan?
Many of those in wildfire-prone areas who lost coverage from private insurers turned to CalFAIR for coverage.
The FAIR Plan is available to California residents and businesses in urban and rural areas who cannot obtain insurance through a regular insurance company. CalFAIR rates tend to be higher than the private market and the FAIR plan is often considered a "last resort" for Californians in fire-prone areas that couldn't find coverage elsewhere.
Is Property Insurance Required?
Most lenders require homeowners' insurance if you have a mortgage on your home to protect against structural damage or liability claims if someone is injured on your property. Your lender may also require additional earthquake and flood damage coverage, which generally are separate policies and not covered in your homeowners' insurance policy.
However, there is no law requiring fire insurance or homeowners' coverage on your home if you don't have a mortgage. Homeowners who elected not to carry coverage take the risk of paying out of pocket for property damage, repairs, or replacement costs if their home is damaged by unexpected events.
What's Changing in 2025?
"Californians deserve a reliable insurance market that doesn't retreat from communities most vulnerable to wildfires and climate change," said California Insurance Commissioner Ricardo Lara, who began working with insurers last year to adopt regulatory changes that would allow insurers to move back into the California market.
California insurance companies will have to offer coverage to homeowners in wildfire-prone areas under a new state regulation announced on January 13, 2025. Insurance companies will be legally required to write policies in those areas equivalent to no less than 85% of their statewide market share.
Coverage won't increase to that threshold immediately.
Instead, insurers will be required to increase coverage in wildfire-prone areas by 5% every two years.
California may be working to get insurance companies back into the market, but that means removing the pricing limitations that had previously caused those companies to back out of the state.
"The California insurance market has been very restrictive the last few years because insurance companies were no longer making any profit. They were losing money," said Janet Ruiz, Insurance Information Institute director of strategic communication.
Insurers can now consider climate change and catastrophe modeling when setting their prices, which Ruiz says will allow insurers to continue doing business in the state.
Even before the LA wildfires, insurers said they would be filing for substantial rate increases under the new regulations. Homeowners insurance isn't the only coverage with anticipated rate hikes; even before the wildfires, renters insurance rates were expected to increase in California.
For more information about fire coverage and homeowners' insurance, or to learn about ways you can reduce your overall price of insurance, contact a trusted insurance professional.