What to Expect with California Property Insurance Rates in 2025
The California property insurance market in 2024 reached a critical juncture, as admitted carriers (those whose rates are regulated by the state of California) significantly reduced their participation, and several others exited the state altogether. This challenging environment is compounded by the rising costs and increasing risks tied to natural disasters, particularly wildfires. The California Department of Insurance’s reforms in December 2024 aimed to address these issues by allowing insurance companies to use advanced computer modeling and incorporate reinsurance costs into their rate-setting processes. The reforms also included a requirement for insurers to continue writing new policies in areas prone to wildfires, which is likely to have a significant impact on the market dynamics.
Moving into 2025, our team was cautiously optimistic that the promised insurance reform would result in increased capacity and stable rates. Unfortunately, the historic fires that burned over 15,000 structures in January of this year only made the problem worse. Carriers who were not collecting enough premium to be profitable before are now paying record-setting claims. Yet, the Department of Insurance continues to drag their feet on reform and allowing carriers to increase their rates to pay for these losses.
Until insurance companies can collect enough premium to pay for current and expected losses, they will not come back into the marketplace. Therefore, we expect most admitted carriers to continue to sit on the sidelines until their rate requests are approved and there is clarity over the new rules, which will probably not be until later this year or possibly early next year. We also expect companies like State Farm to continue to non-renew high-value homes and homes located in wildfire-prone areas.
Homeowners who are currently insured with admitted carriers and who are being offered a renewal will see modest rate increases at renewal (since the rate increases are capped).
Homeowners who are either buying a new home or who are being non-renewed by their current insurance company, will face a much more challenging scenario. New policies will likely be written by non-admitted (excess and surplus) insurers, who typically charge significantly higher rates—often two to five times the cost of expiring policies. Clients should expect to pay $5,000-$10,000 for every $1 million of dwelling coverage and more if their home is located near a canyon or open space.
To make your home more attractive to insurance companies, we recommend working to reduce the risk of water and fire losses. To prevent large water claims from plumbing issues, install an automatic water shut off valve. These devices detect a change in pressure and/or a constant flow of water and automatically turn the main water valve to your home off, preventing large water claims. Almost all insurance companies are now requiring these devices to be installed before they write a new policy.
While water claims are the most common, fire claims cause the most damage. A house that catches on fire is almost always a total loss. Flying embers are the biggest threat, so make your home as fire resistant as possible by eliminating places for embers to land and smolder. Remove all plant material that touches or hangs over your house. Clean out your gutters and remove debris from your roof. Remove any bark mulch or flammable ground cover, including wood piles. Replace your home’s screen-type vents with ember-resistant vents. Contact us if you would like more information about hardening a home.
Lastly, contact the Insurance Commissioner, Ricardo Lara, and copy Governor Gavin Newsom to let him know you expect him to work quickly to solve this problem. It is in his power to do so, and Californians need to know when to expect insurance relief.
