California home insurance rates could rise - here’s why

Homeowners across California have been faced with cancellations and non-renewals of home insurance policies in recent years, particularly in wildfire-prone areas. Policies were being cancelled because the insurers couldn't afford to cover the risk of wildfires, and they weren't allowed to raise rates to match the risk.

Now, California regulators have finally approved the use of forward-looking catastrophe models to determine fair and sustainable insurance rates, reports Kate Galbraith at the Chronicle reports. Until now, California required that insurance rates were based only on prior disaster data, without considering for changing risks due to climate change.

Rates will now be based on factors like location, terrain, building materials, and defensible space. That means some customers could see higher premiums, some could see reductions, and others may see no change

The Context

Most states already permit insurers to use catastrophe modeling to price for extreme weather events; California’s adoption brings it in line with national best practices on risk assessment. At the same time, the California FAIR Plan—the insurer of last resort that only covers wildfire damage—has seen its policy counts spike as carriers pull back from high-risk ZIP codes, underscoring homeowners’ limited options and the broader affordability challenge.

The GrowSF Take

Nobody likes paying more for insurance, but having no insurance is even worse. These changes allow the insurance market to start functioning properly again, which is ultimately a good thing for homeowners and for all Californians--even if it's more expensive.

Allowing insurers to properly price risk can help disincentivize building in wildfire-prone areas and encourage homeowners to take steps to mitigate their risk, such as creating defensible space around their homes. This is a critical step in ensuring that California's housing stock remains resilient in the face of climate change and other risks.