By Ryan Kirby, General Counsel of Insurance Office of America (Guest Contributor)
With wildfire losses in Southern California now topping $53 billion, the ripple effects across the state's already fragile insurance industry are undeniable. Property insurance premiums are expected to rise significantly across all of California, with availability options and challenges likely to persist or worsen as extreme weather and disasters seem to increase annually around the world. For property owners, the rising cost of insurance in fire-prone regions could remain elevated for years—if not decades.
Such alarming news ironically comes on the heels of recent changes to California's Proposition 103, a decades-old state law that had prevented insurers from using modern catastrophe models and reinsurance rates to determine property owner premiums. In less apocalyptic times—back in 2024—Insurance Commissioner Ricardo Lara announced regulatory reforms designed to stem the mass exodus of insurance carriers out of California, allowing insurers to use parametric and probabilistic models to determine risk and risk severity—and, crucially, also permitting rate increases.
But even these new regulations (and Lara’s very own words: the "final step") came before the devastating 2025 Los Angeles fires—which will likely become the most expensive disaster in state history with over 65,000 acres burned and staggering structural losses of over 18,000 units, many in ultra-high-value areas like the Pacific Palisades.
A core issue in the aftermath relates to one of the most basic principles of insurance: risk transfer. Property owners, not wanting to assume a risk because it could ruin them, pay a smaller amount of money annually (the premium) into a pool in order to be protected from major peril and catastrophic loss. This works based upon the law of large numbers: if a large enough number of people also pay premiums, capital reserves will accrue, and if (or when) catastrophe strikes, those reserves will pay for justified claims. But what happens when large numbers of people all live, work and shop in a fire zone, and that very fire zone keeps going up in flames, year after year? The model begins to break down, and eventually carriers will want out—even with rate hikes.
Commissioner Lara faced an impossible balancing act: protect consumers from skyrocketing costs while letting rates run free in order to keep enough insurers in the market to offer coverage at all. Sensing that a carrier exodus was worse than higher rates, the new regulatory concessions—dubbed the "final step"—seemed to arrive just in time. In 2024, State Farm sought 30%-52% increases across product lines, while Allstate (which had already stopped issuing new California homeowners insurance policies altogether in 2022), sought a minimum 34% rate increase for their remaining 350,000 policyholders in the state. Did they know something others didn’t, or was it just corporate greed? Tastes great, less filling?
In the wake of the 2025 fires, and less than one year from Lara’s “final step”, some experts now warn California premiums might trend towards Florida's hurricane-prone rates. But like post-Hurricane Andrew Florida, a shift in building standards may follow. Fire resistant buildings and materials—concrete, brick, ember-resistant vents—these structures overwhelmingly survived their dated, wood-frame counterparts in California. Hence there’s a growing demand within the insurance industry for a deeper understanding of the structural qualities of buildings and property survivability in high-risk areas. Traditional climate modeling can tap into independent structure data to locate the likelihood that a property will survive disaster. This real-world data is not insignificant, and insurance companies are no doubt taking note of how this impacts risk assessment and insurance costs.
Interestingly, findings from the wildfires now show the effect of fire-resilient communities; the more survivable structures built in a particular area, the less destruction from the ember casts. If a neighboring property’s sustainability inherently benefits the adjacent properties, this information could potentially reshape how carriers approach risk pooling and pricing. Picture a canyon comprised entirely of modern homes built with fire resistant materials, compared to a canyon with only half of the homes—or none—built to those standards. Which is more likely to endure high winds and harmful ember casts? Which would be more eligible for lower insurance rates?
As a first step, and perhaps for much needed optics, the State of California initially approved a one-year moratorium preventing homeowners insurance cancelations and non-renewals for residents affected by the 2025 wildfires. But within the last few weeks (May of 2025), and with much less optics, Commissioner Lara approved for State Farm an emergency 17% hike in its homeowner rates, saying: “I expect State Farm to provide the highest level of service to its California customers and to fulfill its promises.” Notably, this will give State Farm interim rate hikes of 15% for its condo and renters insurance and 38% for its landlord rental-dwelling insurance.
Perhaps this is a necessary evil where premiums and policies are forced to align with the emerging, and proven, risks? Perhaps it will keep more insurance companies from leaving California altogether? But it also seems to be a reality check for the California FAIR Plan, the state-run insurer of last resort, which has seen a surge in enrollments amid dwindling reserves. The math isn’t hard to understand.
Ultimately, this crisis underscores a new insurance reality: in high-risk zones, better building materials means better insurability, which could be one of the few remaining paths to better policies, and lower rates in California. The long rebuild ahead will no doubt be modeled around the structural data of what worked in such extreme conditions—but so will the insurance around it. In light of overwhelming market conditions and rising costs, policyholders and insurers may find themselves aligned on one principle: resilience isn't optional; it's the only way forward.