California homeowners hit with 21% insurance hike amid $131 Billion wildfire losses

San Diego, California – Homeowner insurance premiums in California are set to surge by 21 percent in 2025, marking one of the steepest increases in the nation, according to a new report from insurance comparison site Insurify. The Golden State trails only Louisiana in projected rate hikes, with average annual premiums expected to rise from $2,424 in 2024 to $2,930 this year.

Despite California’s long-standing regulations aimed at keeping premiums affordable, the increasing frequency and severity of wildfires—driven by climate change—are pushing the insurance market to a breaking point. These regulations, while limiting cost increases in the past, have also prompted major insurers to scale back coverage or exit the market entirely, particularly in high-risk fire zones.

As a result, many homeowners are left with limited options, turning instead to the state’s insurer of last resort, the California FAIR Plan. The FAIR Plan has ballooned in size and is now one of the largest providers in the state. According to NerdWallet, California homeowners currently pay about $1,335 annually for $300,000 in dwelling coverage—well below the national average of $2,100. However, that gap may soon close as the market shifts to accommodate growing risk.

The January wildfires in Los Angeles County—specifically the Palisades and Eaton fires—accelerated this shift. Many homeowners who had recently lost their insurance coverage due to non-renewals saw their properties destroyed. The total economic impact from these fires is estimated at $131 billion, including $45 billion in insured losses, according to a UCLA study.

In response, the California Department of Insurance (CDI) has begun allowing insurers to use forward-looking climate models, rather than relying solely on historical data, when setting premium rates. This change has already led to preliminary approval for State Farm, California’s largest home insurer, to increase its rates by an average of 22 percent.

To further stabilize the market, a new rule now requires insurers with at least a 10 percent market share in the state to gradually expand coverage in wildfire-prone areas. These carriers must insure 85 percent of homeowners in those zones, increasing their share by 5 percent every two years.

Daniel Lucas, carrier relations manager at Insurify, said the reforms aim to “stabilize the California insurance market” and open the door for more policy options by restoring profitability for insurers.

As insurers face mounting losses, policyholders are likely to shoulder more of the financial burden—both through higher premiums and potential temporary surcharges.