The Canary in the Gold Mine

For years, California and Florida have served as indicators of a growing homeowner insurance crisis. Experts suggest this crisis could soon extend to numerous other states across the U.S. These states,prone to disasters,face unique market challenges,witnessing notable premium increases and coverage reductions as insurers grapple with rising costs and escalating catastrophe exposure. This leaves homeowners with limited and often expensive options.

Despite these shared challenges, the approaches taken by California and Florida diverge significantly, offering valuable lessons for the rest of the country. These lessons highlight both effective and ineffective strategies for managing a crisis poised to spread nationally.

Understanding the roots of the Crisis

The homeowner insurance crises in California and florida stem from different origins, yet share a common thread: vulnerability to natural disasters. California faces the threat of wildfires, while Florida contends with hurricanes. This exposure has led to a shrinking pool of available insurers in both states, with many opting to drop policies rather than risk ample payouts that could jeopardize their financial stability.

Homeowners bear the brunt of these market dynamics, facing the difficult choice between exorbitant insurance costs and the risk of financial ruin in the event of a disaster. The stakes are high, and the need for effective solutions is critical.

florida’s Perspective: A “Manmade” crisis?

According to Mark Friedlander, senior director of media relations at the Insurance Details Institute (Triple-I), the Florida homeowner insurance crisis was caused by manmade factors of legal system abuse and claim fraud, not storm losses. Excessive litigation,widespread fraud,and the increasing severity and frequency of natural disasters have collectively driven up insurance premiums in Florida,making it one of the most expensive states for homeowners.

Between 2019 and 2024, homeowner insurance rates in Florida surged by 42.5 percent, according to Florida TaxWatch, as numerous carriers either went out of business or reduced coverage in high-risk areas. This market contraction led to a significant increase in the size of Citizens, the state’s insurer of last resort, which reached a record 1.4 million policies in 2023. This rapid growth raised concerns about the potential need for taxpayer bailouts should Citizens be unable to meet its obligations following a major disaster.

Florida has taken steps to stabilize its insurance market through tort reform measures enacted between 2022 and 2023. These measures aim to curb excessive litigation. Friedlander believes these changes have been instrumental in improving the state’s insurance landscape.

Legislative actions addressed the crisis, resulting in a 40 percent year-over-year decline in new property claim lawsuits in 2024. This has led to market stabilization and lower rates.The Florida Office of Insurance Regulation reported that average home premiums declined by 0.7 percent statewide in the fourth quarter of 2024, the first drop in nearly a decade.
Mark Friedlander, Insurance Information Institute

florida is also actively encouraging new, smaller insurers to enter the market and assume policies from Citizens as part of its depopulation efforts. This strategy aims to reduce the burden on the state-backed insurer and promote a more competitive private market.

Eleven new property insurers have entered the Florida market and major national insurers are growing their market share.State-backed Citizens Property Insurance Corp. has dropped below 850,000 policies because of successful depopulation to a financially healthy private market. Consumers have more choices for obtaining coverage and are seeing better pricing across the board. All signs point to continued stability throughout 2025.
Mark Friedlander, Insurance Information Institute

California’s Regulatory Hurdles

While the escalating risk of wildfires is a primary factor in California’s homeowners insurance crisis, some observers attribute the situation to regulatory failures that have prompted major insurers to withdraw from the state. The California Department of Insurance regulates the insurance industry in the state. Its mission is to protect consumers, foster a healthy insurance market, and enforce laws related to insurance.

Friedlander argues that California’s antiquated regulatory habitat prevents insurers from accurately incorporating climate risk or reinsurance costs into premiums. Proposition 103, a law designed to protect homeowners from sudden rate increases, has inadvertently created artificially low premiums that are not actuarially sound.

Californians are paying artificially low home premiums that are not actuarially sound.This has led to private insurers pulling back on the market and a record level of growth for the California FAIR Plan, the state-backed insurer of last resort.
Mark Friedlander, Insurance information Institute

The FAIR plan, which provides fire insurance to homeowners unable to find coverage in the private market, had a total exposure of $529 billion as of December 2024, a 15.5 percent increase from September 2024 and a staggering 217 percent increase from September 2021.Concerns have been raised about the FAIR Plan’s ability to cover all claims, particularly following the L.A. County fires in January.

To address a shortfall resulting from the Los Angeles fires, the FAIR Plan has implemented a $1 billion assessment on private insurers to cover fire loss claims. While intended to assist wildfire victims, this assessment is likely to be passed on to customers in the form of premium surcharges, further burdening struggling homeowners.

The California Department of Insurance is implementing a Sustainable Insurance Strategy (SIS) to address these challenges. This strategy will allow insurers to use climate risk modeling in their pricing. Friedlander is optimistic about the potential impact of the SIS:

Over the next two years, we are hopeful this will create a roadmap to stability and growth of the private insurance market across the state. Actually, two major california home insurers, Farmers and Mercury, have announced their commitment to grow market share as of SIS.
Mark Friedlander, Insurance Information Institute

Divergent Paths, Shared Challenges

Dr. Martin Weiss, founder and CEO of Weiss Group, an independent rating agency, notes that both states underestimated the impact of converging factors:

Insurance companies and regulators in both states underestimated the cost of damages driven by three powerful forces converging in one time and space: a massive wave of new construction, surging property values, and bigger-than-expected storms, wildfires and more.
Dr. Martin Weiss, weiss Group

Both states established backstops for the industry, Weiss explained.In Florida,they established Citizens Insurance,which operates much like any property insurer except for the fact that it’s run by the state. In California, they created FAIR, which unlike Citizens, is a consortium of private-sector insurance companies.

Jesse Keenan, a professor of sustainable real estate and urban planning at Tulane University, emphasizes that these insurers of last resort were not intended to assume their current prominent roles in the market. Faced with the rapid growth of Citizens and the FAIR Plan, both Florida and California are seeking to attract new insurers, albeit through different strategies.

Keenan highlights Florida’s approach:

Florida has very active depopulation policies—policies associated with getting people off of the state’s insurer of last resort and getting them back into the private market.
Jesse Keenan, Tulane University

However, he cautions that allowing under-capitalized, smaller insurance companies that are not necessarily as stable and reliable as conventional insurance companies of the past to participate in this process has probably been a mistake. California, conversely, is focused on retaining existing insurers and ensuring market access, while avoiding the pitfalls of relying too heavily on the FAIR Plan.

California regulators are exploring ways to enhance market competition without allowing undercapitalized insurers to enter the market. This includes incentivizing homeowners to invest in risk reduction measures at the property level, such as using fire-resistant roofing materials and landscaping, and offering premium reductions for these investments.

Keenan contrasts this with Florida’s approach:

Florida really hasn’t gone that route. They’ve got a different route, which is, again, trying to track these smaller insurance companies, which many of whom have failed in recent years. Which, incidentally speaking, makes the state’s problem even worse, as when it fails, then these insured parties get dumped onto the state.
Jesse Keenan,Tulane University

A Missed Prospect?

Keenan is critical of both states’ approaches,arguing that they have failed to leverage the authority of the state legislature to dictate building standards and land use policies.

I think what both states have failed to do is that they haven’t used the authority of the state Legislature to dictate the terms of not just how we build, but where we build.
Jesse Keenan, Tulane University

While florida implemented the Florida Building Code after Hurricane Andrew in 1992, which has been successful in reducing wind damages, California has lagged behind in updating building codes due to political and industry pressures. Both states have been hesitant to guide local governments in land use and zoning decisions, which Keenan believes is essential for managing risk effectively.

He concludes that a dual approach of updating building codes and shaping land use is necessary, but acknowledges that these decisions are frequently enough unpopular due to the added costs involved.