What California Homeowners Need to Know About the 2025 Insurance Crisis

The fees hitting your bill right now, what’s coming next, and what you can actually do about it

By Nathan Sewell | LA Building Inspections & Compliance | December 2025

If you own property in California—whether it’s your home, a rental, or a condo—you’ve probably noticed your insurance costs climbing. Maybe you’ve gotten a non-renewal notice. Maybe you’ve been pushed onto the FAIR Plan. Maybe you’re just bracing for what’s next.

Here’s the reality: California’s homeowners insurance market is in the middle of a genuine crisis, and the January 2025 Los Angeles wildfires made everything worse. But there’s also movement happening—regulatory reforms, insurers returning to the market, and concrete steps you can take to protect yourself.

This is what’s actually happening, what it means for you, and what you can do about it.

What Just Happened: The January 2025 Wildfires Changed Everything

The Palisades and Eaton fires in January 2025 weren’t just devastating for the communities affected—they sent shockwaves through California’s already fragile insurance market.

State Farm, California’s largest home insurer with over 1 million homeowner policies, called it the costliest disaster in company history. As of mid-November 2025, they’ve paid out over $5 billion on more than 13,500 claims from the January fires alone—and they expect total payouts to reach $6-7 billion.

That kind of loss doesn’t stay on an insurer’s balance sheet. It flows through to policyholders. Here’s how.

State Farm’s Emergency Rate Increase

In May 2025, Insurance Commissioner Ricardo Lara approved something that had never happened before in California: an emergency interim rate increase for State Farm.

The details: State Farm received approval for a 17% emergency rate increase on homeowners policies, effective June 1, 2025. In exchange, State Farm agreed to receive a $400 million capital infusion from its parent company and to halt mass non-renewals through the end of 2025.

But that wasn’t the end. Just one week after the emergency approval, State Farm filed for an additional 11% increase, which would take effect in 2026 if approved. They also requested significantly higher rates for renters and condo owners.

The pattern is clear: rates are going up, and they’re not done going up.

The Credit Downgrade

In August 2025, S&P Global lowered State Farm General’s financial strength rating from A+ to A- with a stable outlook. That’s a significant drop for the state’s largest insurer.

The A- rating still meets Fannie Mae and Freddie Mac mortgage guidelines, so it won’t affect your ability to get a mortgage with State Farm coverage. But it signals real financial stress—and explains why the company is pushing hard for rate increases.

What’s Happening Right Now: The Fees You’re About to See

Beyond rate increases, there’s another charge hitting California homeowners starting this month: the FAIR Plan assessment surcharge.

The $1 Billion FAIR Plan Assessment

The California FAIR Plan is the state’s “insurer of last resort”—the option for homeowners who can’t get coverage anywhere else, usually because they’re in a high-risk wildfire area. After the January 2025 fires, the FAIR Plan faced massive claims it couldn’t cover on its own.

Commissioner Lara approved a $1 billion assessment on all insurers operating in California, based on their market share. State Farm’s bill alone was over $165 million.

Here’s the catch: insurers can pass up to 50% of that assessment back to their policyholders. And they are.

What you’ll see on your bill:

State Farm homeowners: Average fee of $57.70 total, charged at 1.13% of your premium over two renewal periods. Surcharges started December 1, 2025.

Farmers homeowners: Average fee of $51.60 total, charged at 1.02% over two years. Starts January 21, 2026.

CSAA homeowners: Average fee of $57.60 total, charged at 1.17% over two years. Started December 1, 2025.

Allstate homeowners: Average fee of $48.80 total, charged at 1.02% over two years.

These fees are separate from any rate increases. They’re specifically to cover the FAIR Plan bailout after the January fires.

The FAIR Plan’s Own Rate Increase Request

If you’re already on the FAIR Plan, there’s more coming.

In late September 2025, the FAIR Plan submitted a request for a 35.8% average rate increase. If approved, the new rates would take effect at your next renewal after April 1, 2026.

The impact varies dramatically by location and risk level. About 80% of the FAIR Plan’s 550,000+ policyholders would see increases. Half of all customers would see hikes between 40% and 55%. A small number—four policyholders—would see increases over 300%.

On the other side, about 97,000 policyholders in lower-risk areas (including parts of Alameda County and the South Bay) would actually see rate decreases.

The Department of Insurance hasn’t approved this yet—they’re reviewing it now. But if you’re on the FAIR Plan in a high-risk area, budget accordingly.

Signs of Hope: Insurers Are Starting to Return

It’s not all bad news. Commissioner Lara’s Sustainable Insurance Strategy—the biggest overhaul of California insurance regulations in 35 years—is starting to show results.

What the Sustainable Insurance Strategy Actually Does

The strategy addresses several things insurers have complained about for years. It allows insurers to use forward-looking catastrophe modeling (instead of just historical data) to set rates. It lets them factor in reinsurance costs. And it speeds up the rate approval process.

But here’s the key trade-off: insurers who use these new tools must commit to writing policies in wildfire-distressed areas. Specifically, they must write at least 85% of their statewide market share in areas the Department has designated as “distressed.”

For the first time, California is requiring insurers to actually provide coverage—not just raise rates and leave.

Who’s Coming Back

Five major insurers have announced commitments to stay and grow in California under the new framework: Mercury (the 3rd largest homeowners insurer in the state), CSAA (5th largest), USAA (7th largest), Pacific Specialty (13th largest), and California Casualty (30th largest).

And in late November 2025, Farmers—the second-largest home insurer in California—announced it’s eliminating its cap on new homeowners policies, effective immediately. Farmers had been limiting new policies to 9,500 per month. That cap is now gone.

Farmers also said it plans to begin marketing directly to about 300,000 consumers in distressed areas starting in early 2026.

This is a meaningful shift. For the past two years, the trend has been insurers leaving California or restricting coverage. Now some are coming back—with commitments to write in high-risk areas.

What You Can Actually Do About It

You can’t control the insurance market. But you can take steps to protect yourself and improve your options.

1. Fire Hardening Matters More Than Ever

Under the new regulations, catastrophe models must account for mitigation efforts by homeowners and communities. That means the work you do to make your property more fire-resistant can actually affect your rates and your ability to get coverage.

Commissioner Lara’s “Safer from Wildfires” program introduced the nation’s first mandatory wildfire safety discounts. Insurers are required to give you credit for documented mitigation work.

Key fire hardening measures:

Class A fire-rated roofing (this is one of the most impactful upgrades)

Ember-resistant vents and eave protection

Defensible space—cleared vegetation within 100 feet of structures

Fire-resistant siding and decking materials

Enclosed or screened under-deck areas

Document everything. Keep photos, receipts, and contractor records. When you apply for coverage or fight a non-renewal, this documentation matters.

2. Shop Before You Need To

Don’t wait for a non-renewal notice. Start shopping 60-90 days before your renewal date.

With Farmers lifting its cap and other insurers returning to the market, there may be options that weren’t available six months ago. Ask your neighbors who’s insuring their homes. Work with an independent agent who represents multiple carriers.

If you get a non-renewal notice, contact your insurer immediately and ask why. Sometimes it’s fixable—a maintenance issue, a roof that needs replacement, or brush that needs clearing.

3. Understand the FAIR Plan

If you can’t find coverage on the private market, the FAIR Plan exists for you. It’s not ideal—it’s more expensive and only covers fire and a few other perils—but it’s coverage.

You’ll need a separate “Difference in Conditions” (DIC) policy to cover everything else (theft, liability, water damage, etc.). Together, FAIR Plan plus DIC typically costs more than a standard homeowners policy, but it’s better than being uninsured.

The FAIR Plan has also expanded coverage options recently—including higher limits for commercial properties, HOAs, and farm buildings. If you were told the FAIR Plan couldn’t cover your property before, it may be worth checking again.

4. Get Your Property Documented

This is where my work comes in. Insurers are scrutinizing properties more carefully. Having professional documentation of your property’s condition—especially fire hardening measures—can make a difference when you’re applying for coverage or disputing a non-renewal.

A property inspection can document your roof class and condition, vent types and ember protection, defensible space and vegetation management, structural condition and maintenance, and compliance with current building codes.

If you’re buying a property, this is especially important. You need to know—before you close—whether you can actually insure it.

The Bottom Line

California’s insurance market is broken, but it’s being rebuilt. The January 2025 fires accelerated a crisis that was already building. Now we’re in the messy middle—rates are up, surcharges are hitting bills, and the FAIR Plan is asking for a 35% increase.

But insurers are also returning. The regulatory framework is changing. And there are concrete steps you can take to improve your position.

Fire hardening your property, documenting your mitigation efforts, shopping proactively, and understanding your options—these things matter more now than they ever have.

If you need help understanding where your property stands—what fire risks exist, what mitigation measures make sense, or what documentation would support an insurance application—I’m happy to talk through it.

Nathan Sewell

LA Building Inspections & Compliance

Certified home inspector with an architecture background, specializing in property condition assessments, RHHP compliance, and documentation for LA County homeowners and landlords.

(626) 214-5929 | nathan@larentalinspections.com

Serving all of Los Angeles County