5 California Insurers Agree to Stay in State After Recent Reforms

Over the last year, we’ve seen many headlines about insurers leaving California. Amidst this exodus, five insurers have committed to staying.

According to the California Department of Insurance, five major insurers have announced plans to “stay and grow in the state.”
The five insurers include Mercury Insurance, USAA, CSAA, California Casualty, and Pacific Specialty, accounting for three of California’s top seven largest homeowners insurance providers.

California’s largest homeowners insurance company, State Farm, was not involved in the commitment. State Farm made headlines in 2024 for cancelling 72,000 fire insurance policies across the state, just months before another round of devastating wildfires. State Farm has since attempted to raise rates 20% to 30% or more, citing continued losses across the Golden State.

Farmers, Liberty Mutual, Allstate, American Family, and Travelers are other major insurers that did not make a similar commitment to California. All five are among the top 10 largest homeowners insurance companies in California, according to the Insurance Information Institute.

Insurers have cited numerous reasons for leaving California, including wildfire risks, rising costs, and state regulations.

Statewide Reforms Encouraged Insurers to Come Back

In a statement at a Clinton Global Initiative event, California Governor Gavin Newsom claimed state reforms enticed insurers to reinvest in California.

As reported by CBS News:

We had to address the capital needs of these companies and we also had to address the fact that California, and you wouldn’t know this, is among the most affordable insurance markets in the country because the voters initiated a framework on regulation that denied significant rate increases.

To raise rates significantly, insurers in California must argue their case to the California Department of Insurance. If they can’t justify a rate increase, the insurer can’t raise rates.

Despite risks and high home values, California has relatively affordable homeowners insurance premiums. According to Bankrate, the average homeowner in California pays around $1,632 per year for coverage, or around $800 less than the average American homeowner. California ranks among the top 20 cheapest states in America for homeowners insurance.

So why did insurers come back? Which changes encouraged them to consider the potential for profits in the California marketplace? Newsom cited a series of reforms under the state’s Sustainable Insurance Strategy.

California’s Sustainable Insurance Strategy unveiled a series of changes that are friendly to insurers while still protecting California policyholders. Those changes include:

• Insurers can now use catastrophe modeling to accurately calculate risk and set rates. Catastrophe modeling uses advanced algorithms to analyze risk based on history, climate trends, and other information and data.
• In exchange for using catastrophe modeling, insurers must agree to expand coverage in areas with high wildfire risk. Many of these communities have faced dwindling choices and higher premiums in recent years as insurers struggle to accurately quantify risk.
• The five insurers have all requested rate changes of 6.9%.

California Department of Insurance Commissioner Ricardo Lara believes he’s seeing signs of improvement in the state after years of negative headlines. The 2024 cancellations and early 2025 Los Angeles wildfires cast a pall over the state’s insurance industry. The recent Sustainable Insurance Strategy initiative could paint the state’s property and casualty industry in a more favorable light.

Lara has also proposed a series of his own changes to fix the intervenor process. Critics describe California’s intervenor process as “broken” and the worst in the nation. Under California’s intervenor system, any member of the public can challenge an insurer’s rate request. Lara’s changes would purportedly make it easier for insurers to raise rates by changing the intervenor system.

Overall, California homeowners can expect to pay higher homeowners insurance rates in the future. However, the changes should improve accessibility – particularly in communities with high fire risk – while giving homeowners more choices.