Why Home Insurance Is Getting Harder to Find in California and Florida—and What Could Improve the Outlook
A widening insurance problem, not a one-off headline
When two of the largest property and casualty insurers in the United States—State Farm and Allstate—confirmed they would stop issuing new home insurance policies in California, the announcement landed as a jolt for many homeowners. But it also fit a pattern that residents of hurricane- and flood-prone states, including Florida, have been watching unfold for years: insurers retreating from markets where the likelihood and cost of catastrophic claims are rising.
From the perspective of disaster risk research, the central issue is not whether insurance will eventually become unavailable or unaffordable in places exposed to wildfires, hurricanes, floods, and related damage. It is when that tipping point arrives, and how communities and policymakers respond before the costs and disruptions become even harder to manage.
Why insurers pull back after major disasters
Insurance markets are built to absorb many routine losses while staying profitable because most policyholders do not experience a major disaster in any given year. The challenge is that when catastrophes do hit, the losses can be enormous and concentrated—large numbers of claims arriving at once, often in the same region.
The modern pattern of insurer concern in high-risk U.S. markets is often traced to Hurricane Andrew, which produced unprecedented insured losses of about US$16 billion in Florida in 1992. Since then, repeated multibillion-dollar disasters have driven several insurers into insolvency and pushed many others to reconsider how much risk they are willing to carry in particular states or regions.
Insurance as risk transfer—and the role of reinsurance
At its core, insurance is a mechanism for transferring risk. A homeowner pays premiums to shift the financial burden of expensive repairs to an insurer if the home is damaged by a covered event such as a fire or thunderstorm. The system works as long as the insurer can collect enough in premiums across many policyholders to cover claims, operating costs, and a margin for profit.
But insurers themselves also seek protection against extreme losses. They do this by purchasing reinsurance—effectively insurance for insurers. Reinsurance helps companies manage the possibility that a single event, or a cluster of events, triggers claims so large that they threaten the insurer’s financial stability.
In recent years, reinsurance has become significantly more expensive, reflecting costly disasters around the world. Risk-adjusted property-catastrophe prices rose 33% on average at the June 1, 2023 renewals, following a 25% rise in 2022, according to analysis by reinsurance broker Howden Tiger. Those increases matter because they raise insurers’ costs and can limit how much risk insurers can offload.
When reinsurance becomes too costly—or insufficiently available—insurers can end up “holding the risk.” That means they are more exposed to paying claims directly when disasters strike. In extreme cases, a large enough catastrophe can put an insurer out of business. In other cases, insurers may decide to reduce exposure by limiting new policies or leaving a state altogether, as has been seen in California, Louisiana, and other places facing high hazard risk.
Why companies reassess portfolios instead of “gambling”
Property and casualty insurance is a data-driven business. Insurers use sophisticated climate and risk modeling to forecast future hazards, including the likelihood a property will be damaged by wildfire or other natural events. When models and loss experience indicate that potential claims could exceed what the company is prepared to accept, insurers typically respond by reevaluating their portfolios—the mix of insurance products they offer—and the prices they charge.
State Farm cited “catastrophe exposure” when it ended new high-risk personal and commercial property and casualty policies in California. In practical terms, catastrophe exposure refers to the chance that costly claims could exceed the level of risk the company considers acceptable.
Why California stands out—even among wildfire-prone states
A natural question is why a company would stop issuing new policies in California but not make the same move in other wildfire-prone states such as Colorado or Arizona. Without access to insurers’ internal exposure data, any explanation is necessarily speculative. Insurers generally do not publicly disclose the detailed calculations behind their exposure, which depends on how many policies they hold in a state, how many are located in higher-risk areas such as the wildland-urban interface, and the insured value of those properties.
Still, several factors described by risk researchers help explain why California can present a uniquely difficult mix. State Farm pointed to increasing wildfire risk and rising home construction prices. Beyond that, the state’s insurance regulations can affect how quickly and how much insurers can adjust premiums, whether and when they can cancel policies, and what levels of coverage they must provide.
Regulatory constraints have been raised by insurers as part of the challenge. For example, Chubb’s chief executive cited restrictions that left the company unable to charge “an adequate price for the risk” as part of the reason it decided in 2022 not to renew policies for expensive homes in high-risk areas of California.
California also has a distinctive “efficient proximate cause” rule. Under that framework, property insurers can be required to cover post-fire flooding impacts such as mudslides. In practice, rainy winters—like 2023’s—can trigger destructive mudslides in burn areas, adding another layer of potential claims tied to wildfire events.
What happens when insurance is unavailable or unaffordable
When insurers pull back from a community, the immediate effect is straightforward: residents and businesses that cannot obtain property and casualty insurance are left holding their own risk. If a disaster strikes, they bear the losses directly.
The broader consequences can be long-lasting. People and businesses without insurance tend to recover more slowly after disasters. Uninsured residents may rely on donations, loans, or federal individual assistance. But federal individual assistance is limited: it is generally available only for catastrophic disasters and is designed to cover immediate needs rather than fully restoring a household’s losses.
Insurers of last resort: a growing backstop with real costs
To keep coverage available when private insurers retreat, states including California, Florida, Louisiana, and Texas have created public or private insurance options of last resort. These programs can provide access to coverage, but premiums are generally very expensive.
These arrangements also shift risk. When residents buy coverage through a state-backed option, they are effectively transferring risk to the state—meaning taxpayers can end up holding the risk directly or indirectly because state insurance programs are supported by public funds.
California’s privately insured FAIR Plan, which has existed since 1968, illustrates the growth in last-resort coverage demand. The plan wrote close to 270,000 policies in 2021, nearly double the number in 2018.
Flood insurance provides another example of risk shifting at the national level. Anyone purchasing flood insurance through the National Flood Insurance Program (NFIP), established in 1968, is transferring risk to federal taxpayers. The NFIP currently insures almost $1.3 trillion in value across 5 million policies.
Political pressure, limited resources
In the near term, disaster risk experts expect that insurance pools and federal- and state-run insurers of last resort will add more policies as private market capacity tightens. Legislators may also attempt to incentivize insurers to return. However, there is a fundamental constraint: while political willingness to support expanded backstops may exist, the financial resources to sustain them may not.
The NFIP offers a cautionary example of the difficulty of balancing exposure while keeping premiums affordable. The program is more than $20 billion in debt. Texas has also resorted to charging insurers operating in the state to help cover the costs of its program.
Development patterns that keep adding risk
Even as the risk of properties becoming uninsurable grows, communities continue to permit development in areas known to face major hazards—floodplains, coastlines, and the wildfire-prone wildland-urban interface. In addition, inadequate building codes can allow construction of homes that cannot withstand severe weather. Over time, these decisions place more residents—and more valuable property—in harm’s way, increasing the potential scale of losses when disasters occur.
As climate change continues to increase the frequency and severity of natural hazards, the underlying exposure problem becomes harder to ignore. The question for states and communities is how to reduce risk in ways that make insurance more viable over the long run, rather than relying primarily on expensive backstops after private insurers retreat.
Steps that can reduce risk and improve insurability
Disaster risk research points to several actions that states and local communities can take to lower risk tied to property—measures that can make losses less likely and potentially reduce pressure on insurance markets over time.
Make smarter land-use choices. Limiting development in high-risk areas can reduce the number of people and assets placed in harm’s way, particularly in floodplains, coastal zones, and the wildland-urban interface.
Adopt more stringent building codes and safety standards. Stronger state and local requirements can improve how well homes withstand severe weather and other hazards, reducing damage when events occur.
Price risk into home sales. Options include an insurance contingency that allows a buyer to withdraw if they cannot secure insurance, or lowering assessed property values for real estate in high-risk areas—steps that can discourage risky development decisions.
Require comprehensive risk disclosures. Disclosures that cover present and future risks, along with historic claims associated with a property, can better inform buyers about what they are taking on.
Make risk information accessible and understandable. Research indicates many people struggle to grasp the likelihood of being affected by a catastrophic event. Better tools and clearer communication can help residents interpret risk in ways that resonate and support informed decisions.
Support relocation in the highest-risk areas. Buyouts and managed retreat can help residents move away from repeated-loss locations and return land to nature or to public uses such as parks.
The underlying trade-off: who holds the risk
Across California, Florida, and other high-hazard states, the insurance debate often centers on premiums and availability. But beneath that is a more basic question: who ultimately holds the risk when disaster strikes?
In a functioning private market, insurers hold much of that risk, supported by reinsurance. When private insurers cannot charge what they view as an adequate price for the risk—or cannot transfer enough risk to reinsurers—companies reduce exposure. The burden then shifts to households, businesses, state backstops, and federal programs. That shift can keep coverage technically available, but it does not eliminate risk; it reallocates it, often toward taxpayers and toward people least able to absorb sudden losses.
Reducing exposure through land-use decisions, stronger building standards, clearer disclosure, and—where necessary—relocation is not a quick fix. Yet these steps address the structural drivers that make insurance markets brittle in the first place. Without them, the trend of shrinking private coverage and growing last-resort programs is likely to continue, and the question of “when” insurance becomes unaffordable or unavailable in the highest-risk areas will keep moving closer.