As wildfires rage, California's insurance market is in crisis

In response to questions from WIRED about changes to State Farm's insurance coverage, Sevag A. Sarkissian, the company's California spokesman, pointed to the insurer's previous statements about halting new business and its decision not to renew some policies. “Rate changes are caused by increased costs and risks and are necessary for State Farm General to deliver on the promises the company makes to its customers every day,” Sarkissian said.

“Although we have paused sales of new home insurance policies in California in 2022, we continue to offer coverage to most existing home insurance customers,” Allstate spokesperson Teny Josephbek said in a statement to WIRED. Increased costs also explain Allstate's rate increases, he says. “Higher home values ​​and repair costs combined with more frequent storms are leading to higher payments to help customers recover. Therefore, we need to adjust rates to better reflect the cost of protecting our customers.”

Liberty Mutual did not respond to a request for comment.

Fires are actually becoming more expensive. Climate change is creating conditions that make wildfires worse and extend wildfire season, says Char Miller, a professor of environmental analysis at Pomona College in California and an expert on wildfires in the western U.S. — a view supported by recent studies from the National Oceanic and Atmospheric Administration.

“The drying of the American Southwest since 1980 has led to so much deforestation that too many landscapes are on the verge of explosion,” says Miller. These days, once a fire breaks out, he adds, it can quickly become uncontrollable. “The planet is warming rapidly, increasing desiccation of vegetation and creating nearly impossible conditions for firefighting.”

Forest management in California — including a misguided focus on fire suppression for more than a century — is also responsible for the negative trend in wildfires by allowing flammable materials to accumulate in the state's wild landscapes. Some level of combustion is actually good for California's wild areas because it keeps the amount of combustible materials down.

Californians have also moved to riskier, more fire-prone areas, the so-called Wildland-Urban Interface (WUI). These are spaces where human development meets undeveloped wildland that is overgrown with vegetation ready to burn due to fire suppression.

“There are people going into areas they haven’t been to,” Russell says. “People seeking the American dream are moving further and further away from LA and San Francisco – where land is cheaper but also drier and a bit more exposed,” he says.

Given all of these factors, it's no surprise that the estimated number of structures destroyed by wildfires each year will double over the next three decades.

But fires and migration patterns alone haven't caused insurers to limit their offerings, Russell says. He believes the biggest contributor to the crisis is likely government fire insurance policies and regulations.

In 1988, California voters narrowly approved a ballot measure called Proposition 103, which gave the California Department of Insurance the right to reduce insurance premiums it considered excessive and required insurers to have any rate increases approved before passing them on to them could become customers. This was intended to protect consumers, but as the state faced more and more devastating fires, this ability to keep costs down ultimately pushed the insurance sector down an unsustainable path.