The devastation caused by recent wildfires in California has left many residents of Los Angeles and its surrounding suburbs wondering how to rebuild once the smoke clears. While the destruction is clearly visible, the financial fallout extends beyond the physical damage—affecting homeowners’ ability to secure or maintain insurance coverage. This issue is not unique to California, as several other states are grappling with similar concerns due to rising disaster-related risks and escalating costs.
While the Palisades Fire and others were raging in California and destruction was broadcasted, many of the homes burning were multimillion dollar mansions or businesses. While they would have historically had insurance options for these losses, many of the homeowner’s lost coverage in the year to eight months prior to the fires. It was these most recent fires that insurance companies cited as a reason to pull out of the state. State Farm, to name one example, pulled out in 2023, non-renewing their clients. In a statement, the company explained that the decision was driven by several factors, including "historic increases in construction costs outpacing inflation rapidly growing catastrophe exposure, and a challenging reinsurance market.” With such high levels of exposure to natural disasters like wildfires, insurers have found it increasingly difficult to provide affordable coverage in high-risk areas.(1)
One of the most common methods for preventing large wildfires—prescribed burns (controlled fires set under specific conditions)—is not permitted in California or is heavily regulated. This restriction creates a dangerous environment where dry brush and other debris build up, providing the perfect fuel for destructive wildfires like the ones that have caused significant damage. It’s considered a natural part of forest or grassland ecosystems, and most states will let them burn if they aren’t impacting life or property. California’s restrictions on these burns were only lifted in an emergency measure by Governor Newsom on March 1st to conduct prescribed burns to help combat the upcoming fire season.
California isn’t the only state facing an insurance carrier exposure from the number of disasters. Florida is facing a similar issue regarding hurricanes. In 2024 alone, Hurricanes Milton and Helene cost the state over $120 Billion in damages combined. These disasters, combined with the increased flooding risk is why insurance carriers such as Farmers are pulling out of the state. Their reasons are similar to why they pulled out of California, the amount of coverage needed to cover potential losses was staggering along with regulation changes and court rulings. When they replied as to the reasoning to the state regulator, they had this to say. "We have advised the Florida Office of Insurance Regulation of our decision to discontinue offering Farmers-branded auto, home and umbrella policies in the state," Farmers spokesman Trevor Chapman said in a prepared statement. "This business decision was necessary to effectively manage risk exposure. Farmers offers insurance through several different brands, and this decision applies only to policies issued through our exclusive agency distribution channel."(2)
In the face of mounting climate issues and more people moving to disaster prone areas, the insurance industry is struggling to keep up. In Florida alone, seven smaller insurance companies went under in 2023, covering damages and other losses. The combination of frequent natural disasters and widespread insurance fraud has resulted in a volatile market. For instance, Florida accounts for just 8% of national property claims but over 75% of property claims lawsuits—many of which are viewed as frivolous. As insurers grapple with these issues, the cost of coverage continues to rise.(3)
One of the biggest problems facing Florida regarding their insurance woes is the concept of assignment of benefits. “An AOB is an agreement that transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the homeowner.”(4) What some contractors did weas they overpriced repairs, especially after said natural disasters, the homeowners sued them, and they get into a costly legal battle.
In response to these issues, the Florida legislature passed Senate Bill 2-A in 2023, which prohibits the assignment of post-loss benefits for residential and commercial property insurance policies issued after January 1, 2023. Homeowners with policies issued before this date are still allowed to use AOBs, but the new law is a step toward reducing fraud and controlling costs.”(5)
The combined impact of frequent natural disasters, rising repair costs, and legal complexities has left many states in a vulnerable position when it comes to securing adequate insurance coverage. As climate change continues to increase the frequency and severity of extreme weather events, the challenges faced by insurers are unlikely to subside. In fact, they may only grow worse.
Insurance companies must find ways to manage their risk exposure without resorting to mass cancellations or price hikes that leave citizens unprotected. States must also consider regulatory changes that balance consumer protection with the realities of an increasingly unstable climate. If these issues are not addressed, homeowners across the country may find themselves without coverage when the next disaster strikes.
The situation in California and Florida is a cautionary tale for the rest of the nation. As more people move to disaster-prone areas, and as the frequency and intensity of natural disasters increase, the risk of coverage lapses could become a widespread issue. The time is now for both the insurance industry and state governments to collaborate on sustainable solutions that ensure residents are not left vulnerable in the face of future catastrophes.