California Home Insurance Costs Moderate but Set to Rise with Climate Risk Reforms

A recent UC Berkeley report highlights that California's median home insurance premium, about $1,200 annually in 2023, remains moderate compared to states facing frequent hurricanes and tornadoes such as Florida and Louisiana, where premiums often exceed $1,700. However, the report underscores that low-income homeowners in California experience a disproportionate burden, paying approximately 3% of their income on insurance, which signals growing affordability challenges as premiums rise. Recent wildfire-related losses have pushed insurers to increase rates significantly and reduce coverage availability across the state. California's historical regulatory framework had constrained insurers from fully reflecting climate risk in their pricing, leading to insurers withdrawing from the market or tightening underwriting, particularly in high fire-risk zones. In response, California regulators approved reforms allowing insurers to use climate risk modeling to justify rate adjustments, a first for the state, aiming to attract more insurer participation and broaden coverage in vulnerable areas. These reforms are expected to drive premium increases but also intend to reduce reliance on California's FAIR Plan, a high-cost insurer of last resort that has seen policy counts nearly double recently. Despite insurer commitments to expand wildfire-prone area coverage, consumer advocates question the potential for meaningful access improvements, fearing steep premium hikes without guaranteed insurer participation. The report also reveals that uninsured rates are higher among homeowners without mortgages, particularly in rural and fire-risk regions like the Sierra foothills, where uninsured rates exceed 20%, while Bay Area rates range from 10% to 20%. The findings present critical implications for market stability, regulatory policy, and consumer protection as climate-related risks continue to reshape California's home insurance landscape. Ongoing monitoring of insurer behavior, rate impacts, and access to affordable coverage for low-income and high-risk homeowners will be essential for stakeholders.