California’s insurance market is collapsing under the weight of regulatory overreach, not just climate concerns—leaving homeowners stranded without coverage and sparking a fierce legislative push for reform.
At a Glance
- California’s homeowners insurance crisis is driven by restrictive regulations like Proposition 103
- Major insurers including State Farm are raising rates up to 17% or exiting the market entirely
- Assemblyman Carl DeMaio has proposed AB 567 to cap rate hikes and overhaul state wildfire policy
- The plan would reallocate $1 billion annually from climate funds to fuel management programs
- Analysts argue free market pricing would improve safety and limit risky development zones
Sacramento’s Regulatory Firestorm
While state officials blame climate change for California’s spiraling insurance costs, critics say the real culprit is outdated regulation. Proposition 103, enacted in 1988, severely limits how insurers can assess and price wildfire risk. This has forced companies to operate at a loss—or pull out of the state entirely.
State Farm recently announced a 17% premium increase after wildfires ravaged parts of Los Angeles, citing the need to offset mounting risk in an inflexible market. “This insurance market crisis is downstream of California’s cumbersome, voter-approved insurance regulations,” wrote Reason’s Christian Britschgi, arguing that the system punishes insurers for using real-time risk models.
Watch a report: Inside California’s Home Insurance Crisis.
Reforming With “Cap and Cut”
To address the crisis, Assemblyman Carl DeMaio has introduced the CA Insurance Reform and Rate Stabilization Initiative, or AB 567. The bill would cap annual rate hikes at 7% for four years while shifting state climate funds to cover wildfire mitigation—without raising taxes.
“California homeowners should not be forced to pay for the gross negligence of state politicians who have created this insurance crisis with their insane and costly regulations,” DeMaio said. His proposal includes $1 billion annually for fuel reduction and suspends environmental rules that currently block brush clearing—measures that could significantly reduce fire risk.
Market Solutions, Political Resistance
Economists argue the best fix is allowing insurers to price policies based on actual catastrophe models. Such pricing would naturally discourage development in high-risk zones while encouraging homeowners to invest in fire-hardening improvements.
But that approach conflicts with California’s top-down housing and climate agendas. The state’s urban housing restrictions are pushing new construction into fire-prone areas, exacerbating the very risks officials claim to be managing.
As the insurance exodus accelerates and premiums skyrocket, the state faces a harsh truth: until Sacramento reins in its own policies, Californians will continue to pay the price—literally.
