Southern Californians have watched insurance costs climb, coverage options shrink, and claim disputes multiply in recent years, and much of what people believe about why is simply wrong.
As wildfire risk grows alongside a warming climate, understanding how the insurance market actually works matters more than ever. Whether a family can rebuild after a disaster — or a neighborhood can recover at all — often hinges on the health of that market. And insurance shapes daily life well beyond catastrophe: where people can afford to live, how communities take shape, whether commuters can legally get behind the wheel.
With voters set to choose a new state insurance commissioner in November, it’s worth separating fact from fiction on some of the most persistent misconceptions about insurance in California.
Myth: Only homeowners and the wealthy need to worry about insurance troubles.
Fact: Nearly everyone has a stake in this, including renters, landlords, small business owners and anyone who gets behind the wheel.
Roughly 44% of Californians rent rather than own, according to U.S. Census figures. But landlords have absorbed rising insurance costs of their own, and some have told CalMatters they’ve passed those expenses on to tenants through higher rent.
California doesn’t require renters to carry their own insurance policies, though some landlords do. Still, consumer advocates urge tenants to get coverage anyway, since it can mean the difference between recovering quickly after a fire and being left with nothing.
The squeeze extends to affordable housing providers as well, threatening the supply of low-cost units the state desperately needs. Some nonprofit housing operators say mainstream insurers have pulled back from covering commercial and multifamily properties, forcing them toward “non-admitted” insurers — companies not licensed or backstopped by the state. Others have dipped into reserve funds to keep up with premium hikes, unable to pass those costs to tenants because affordable-housing rules cap what they can charge.
“If organizations have to come out of pocket to cover premiums, it’s just not sustainable,” said Erich Nakano, director of special projects for the Little Tokyo Service Center, a Los Angeles nonprofit that owns more than 1,000 affordable units across the region.
Auto insurance isn’t spared either — California ranks among the priciest states in the country for car coverage, according to industry data, driven partly by climate-related disaster risk and the rising cost of vehicle repairs. And unlike homeowners without a mortgage or renters who can opt out of coverage, every driver in the state is legally obligated to carry auto insurance.
Myth: California’s insurance mess is entirely the fault of state lawmakers and regulators.
Fact: States across the country are grappling with soaring costs and vanishing coverage as climate-driven disasters — hurricanes in Florida, tornadoes in Texas — grow more frequent and destructive.
Proposition 103, the 1988 ballot measure that governs California’s insurance regulation, often takes the blame from critics who argue the state over-regulates the industry and should loosen its grip on the free market.
But that argument doesn’t hold up well when you look elsewhere. Florida, which regulates far more loosely, has the highest average homeowners insurance premiums in the nation, according to the Insurance Information Institute, an industry trade group. California, by contrast, sits somewhere in the middle nationally — in part because Prop. 103 requires state approval before insurers can raise rates.
Frustration over slow claims processing and denials has landed squarely on Insurance Commissioner Ricardo Lara, whose term ends this year. Survivors of last year’s deadly Los Angeles County fires have called for his resignation, blaming him for the industry’s shortcomings.
But insurance experts caution there’s no quick fix. “[Fire survivors] have the right to be angry about the impact of industry trends on them,” said Amy Bach, executive director of the consumer advocacy group United Policyholders. Still, she noted, the insurance commissioner’s authority over how insurers operate — including staffing decisions on claims — is limited by law.
That said, Lara’s department did find that State Farm, California’s largest insurer, violated state law in how it handled claims from the L.A.-area fires. A hearing before an administrative law judge, not yet scheduled, will determine what penalties, if any, the department’s findings will trigger.
Myth: Insurance companies are struggling financially.
Fact: The industry posted record profits last year, and executive pay hasn’t suffered either.
When insurers began pulling back from the California market a few years ago, they argued that state regulators were too slow to approve the rate increases needed to keep pace with growing wildfire risk. In response, Lara introduced new rules meant to speed up rate reviews and let insurers factor in catastrophe modeling and reinsurance costs when setting prices — changes that have contributed to rising premiums statewide, mirroring trends nationally.
Even so, the industry had a banner year. U.S. insurers collected $68.7 billion in premiums last year, up sharply from $25.3 billion in 2024, according to the National Association of Insurance Commissioners. Insurers’ overall financial reserves swelled to a record $1.27 trillion, according to an analysis by the consumer advocacy group Public Citizen.
Much of that windfall came from lower nationwide losses tied to extreme weather compared to the year before — the major exception being the Los Angeles-area fires, which caused roughly $37.5 billion in damage and were described by regulators as among “the costliest fires in world history.”
Meanwhile, executives at the country’s 10 largest insurance companies collected a combined $134 million in compensation in 2024, Public Citizen found. A separate analysis by the Consumer Federation of America showed that CEO pay rose in step with rising auto and home insurance premiums that same year.
Myth: The FAIR Plan is a state-run insurance program.
Fact: It’s actually operated by a consortium of private insurance companies that do business in California.
The FAIR Plan exists by law to provide fire insurance to property owners who can’t get coverage anywhere else. Every insurer licensed to sell policies in California is required to participate, and the plan’s board is staffed by industry representatives. Its inner workings remain largely hidden from public view. The state’s insurance department has taken legal action against the FAIR Plan multiple times, most recently over allegations that it denied legitimate smoke-damage claims stemming from the L.A. fires.
As of March, the FAIR Plan carried more than 684,000 policies — nearly 663,000 residential and over 21,000 commercial — a jump of more than 152% since 2023.
Growth in enrollment has slowed somewhat since late last year, but the sheer volume of policies underscores a market that remains far from stable. FAIR Plan customers, notably, often end up paying more for less: The plan covers fire damage only, meaning policyholders must still purchase separate coverage for everything else.
Original source: CalMatters
