Experts warn of impending crisis in home insurance market — here's what's happening

A major California home insurer has asked state regulators to approve a substantial rate hike, citing inflation and the rising frequency and severity of wildfires and other natural disasters.

What's happening?

CSAA Insurance — an AAA-affiliated insurance provider in Northern and Central California — has requested a 6.9% increase in homeowners' insurance rates. 

The request comes under California's new Sustainable Insurance Strategy, a set of recently passed reforms designed to bring insurers back to the state by changing how companies set their prices.

The San Francisco Chronicle reported that experts expected these reforms to bring rate hikes as insurance companies now use catastrophe risk models, which project future risks such as wildfires and other natural disasters, rather than relying solely on past claims. 

These forward-looking models — combined with the rising cost of reinsurance, or insurance for insurers themselves — are now making rates climb for homeowners. 

But CSAA said it is trying to give homeowners options. In a statement, the company said it will be offering up to a 12.5% premium discount for homeowners who take steps to reduce wildfire risk on their properties. 

The company has also asked regulators to approve discounts for installing water-damage prevention tools, like detection sensors and shut-off devices.

"California families are seeking access to reliable coverage, especially in the face of growing wildfire risks," CSAA executive vice president of personal lines Ryan Vigus said in the statement. 

"By rewarding customers who invest in protecting their homes, we're helping build a stronger future for our communities, and we're investing in the long-term health of California's insurance market."

Why is this rate hike request concerning?

Insurance rates are based on risk, which means every rate increase reflects the rising frequency, severity, and cost of extreme weather and climate-related disasters. 

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Higher premiums aren't just a financial strain for homeowners — they're also a clear indicator of environmental decline, with each hike underscoring the mounting toll of a warming planet.

While home insurance costs are climbing nationwide, some regions are being hit harder than others. In California, insurers have long been pulling out of areas prone to wildfires, floods, and other climate-driven disasters. 

While the Sustainable Insurance Strategy is designed to bring insurers back into the market, it also makes it easier to raise rates. And when premiums rise, more homeowners struggle to afford and obtain policies — especially in already vulnerable areas.

In 2024, analysis from the Federal Reserve, summarized by USA Today, noted that 7% of homeowners reported going without home insurance, with 43% of those respondents saying they could not afford it. 

For those without coverage, a natural disaster can quickly spiral from physical devastation into financial ruin. And for many others, skipping insurance isn't even an option. 

As The Zebra explained, mortgage lenders often require it, forcing families to absorb the cost or risk losing their homes.

What's being done about insurance rates in California?

While the Sustainable Insurance Strategy may be raising premiums, it's also meant to encourage both homeowners and insurers to focus on prevention — and that could help mitigate the impact of climate disasters.

The strategy encourages insurance companies to factor in risk reduction in rates, hopefully incentivizing mitigation for homeowners. 

Homeowners may be more likely to invest in climate-minded home updates — like "home hardening" or prevention-based landscaping in the instance of wildfires — to benefit from a lower rate.

But those updates, no matter how necessary, still come at a cost — and many homeowners don't have the financial ability to make those investments. With insurers like CSAA already requesting nearly 7% rate hikes, higher premiums are on the horizon. 

If you are struggling to afford rising rates, experts recommend comparing policies and shopping around for lower premiums. 

State and federal programs can also help in making climate-minded home upgrades more affordable. Other state-backed initiatives offer financial assistance to those struggling to afford rising premiums.

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