As of March 5, 2025, the California Department of Insurance has paid out more than $12 billion in claims related to the devastating January wildfires — but the recovery is just beginning. Insured losses from the Palisades and Eaton fires alone are estimated between $25 billion and $39 billion, meaning payouts so far represent only a fraction of what’s expected.

And that’s just the insurance side. While Gov. Gavin Newsom has signed an executive order to fast-track rebuilding, suspending certain permitting and review requirements, restoring what was lost could still take years. Compounding things, proposed tariffs from the Trump administration on key trading partners like Canada, China and Mexico — three of the largest suppliers of U.S. building materials — are pushing construction costs higher than anticipated.

Here’s what California homeowners need to know now and what challenges may lie ahead. 

What’s happened in California since the wildfires? 

Fire losses spark FAIR Plan assessment 

The California insurance industry is standing on shaky ground following the wildfires. The FAIR Plan, the state-run but privately supported insurance option of last resort, made an assessment, meaning it needed extra cash to cover the influx of claims. The FAIR Plan has been in a tough financial spot for some time. Last March, FAIR Plan president Victoria Roach told the California Assembly Insurance Committee that the plan was “one event away from a large assessment.” Since then, the FAIR Plan’s exposure grew exponentially, rising by 217 percent from September 2021 to December 2024. 

Previously, insurance companies were solely responsible for assessment payments, but under the Sustainable Insurance Strategy, California homeowners will have to chip in, too. Californians across the state — not just those who were affected by the wildfires — are on the hook for about $500 million total, which rounds out to around $60 per household. 

Looking ahead

While $60 isn’t a major expense for most households, it may not end there. The FAIR Plan ran through its reserves and reinsurance tiers within the first month of 2025 — well ahead of wildfire season in late spring. California legislators are aware of the issue and are working to give the FAIR Plan a wider safety net. The FAIR Plan Stabilization Act (AB 226) is pending approval in the state senate. If passed, it would allow for the FAIR Plan to access bonds and a line of credit from the California Infrastructure and Economic Development Bank when it needs money.

AB 226 stabilizes the FAIR Plan by allowing bonds to spread costs over time, preventing sudden insurer assessments that could spike premiums or bankrupt small companies. This urgent fix protects homeowners and safeguards our insurance market from catastrophic failure.

— Lisa Calderon
Assemblymember and Co-author of AB 226

One thing is for sure: There are too many homes insured on the FAIR Plan, and its growth isn’t sustainable. However, with shrinking coverage availability, many homeowners — even those in low-risk areas — have no other options than California’s insurer of last resort. 

State Farm requests emergency home insurance rate hike 

State Farm, the largest insurance company in California, is in trouble. The insurance giant requested an emergency rate increase, claiming it needs the extra money to avoid a “dire” financial situation. A three-day public hearing before an administrative law judge concluded on April 10. The final decision is still pending the approval of Judge Karl-Fredric Seligman. If approved, a 17 percent home insurance rate hike would go into effect June 1, on top of other pre-approved rate increases for home insurance.

Looking ahead

When home insurance companies lose money, they often look to recoup it elsewhere — for example, by raising premiums in other states or by making other insurance lines more expensive. In addition to seeking approval to raise home insurance rates, State Farm has also requested a 39 percent increase for its umbrella policies and 15 percent for renters insurance. As the largest insurer in the state, State Farm’s next steps could blaze a trail other insurance companies will follow, making an already tough property insurance market even more challenging. 

Will he, won’t he? Trump tariffs 

President Donald Trump’s “Liberation Day” tariffs sent the stock market tumbling and the insurance industry into a tailspin. Import tariffs on vehicles and parts will directly impact the cost of auto insurance, but the home insurance industry wasn’t spared, either. Much of how home insurance is priced depends on what it costs to rebuild a home after it’s destroyed. When those costs go up, generally home insurance costs increase in tandem. In 2024, nearly 72 percent of imported sawmill and wood products came from Canada, which could soon see a 250 percent tariff on lumber. 

Looking ahead

On April 9, Trump announced a 90-day pause on non-retaliating countries. At the time of writing, it’s unclear whether the tariffs will take effect and just how much they could impact building costs. Gov. Newsom said he would “fight back” against the Trump administration tariffs, stating “California is not Washington, D.C.” The governor’s office announced it will create its own “strategic” alliances with its trade partners in an attempt to shield Californians from potential price hikes. 

The future of home insurance in California 

At the end of 2024, it seemed like the California home insurance market was poised for recovery. Insurance companies were finally granted permission to use forward-looking catastrophe modeling when setting rates — something the industry sought for years. Insurers claimed that California’s strict regulatory environment prevented accurate pricing, which kept home insurance rates artificially low. If an insurance company isn’t making a profit somewhere, it can pull out of that market. 

“We’ll never totally know exactly the extent to which [the Sustainable Insurance Strategy] would have worked to enhance the insurance access issues,” Jordan Haedtler, policy advisor for the Insurance Fairness Project, told Bankrate. “The Los Angeles wildfires were such a massive event that they have really thrown the insurance market into further turmoil.” 

When it comes to insurer profitability in California, Haedtler says the issue is more complex. Insurers usually measure profit in terms of a loss ratio, which compares the dollars received in premiums to the dollars paid out in claims — but this alone doesn’t tell the full story. Insurance companies act like massive institutional investors, says Haedtler. “Data from the NAIC that was released last year showed that in 2024, property insurance company profits were up 800 percent, largely because of investment income.” 

An unstable investing environment could push the insurance industry deeper into the unknown. For the time being, Haedtler expects both home and auto insurance to continue rising “at really unsustainable rates.”