California faces severe homeowners insurance crisis as major insurers withdraw

The U.S. Senate Committee on Banking, Housing, and Urban Affairs convened on May 1, 2025, to examine the current state of property casualty insurance markets and the impact of mitigation policies. The meeting highlighted significant challenges faced by the insurance sector, particularly in the context of rising costs and regulatory hurdles.

The discussion began with an overview of the stresses in the property casualty insurance markets over recent years. In 2022, insurance capital contracted by over $73 billion, leading to a historic downgrade by AM Best, which shifted the profitability outlook for personal auto and property insurance from stable to negative for the first time. By 2023, cumulative underwriting losses for insurers peaked at $59 billion. Although personal auto insurance was upgraded back to stable in 2024, business liability and homeowners insurance continued to face negative profitability outlooks.

A key point raised was the alarming trend in homeowners insurance. According to the National Association of Insurance Commissioners (NAIC), insurers paid out $1.11 in claims and expenses for every dollar collected in 2023. This situation was exacerbated by record inflation, particularly in building materials, and the increasing costs associated with constructing homes in disaster-prone areas. Over the past decade, natural catastrophe losses have roughly doubled, while the cost to replace properties has more than doubled as well.

The committee also focused on the stark differences in insurance market conditions across states, with California identified as facing the most severe property insurance crisis. The state’s unique regulatory environment, which requires prior approval for rate increases, has hindered insurers' ability to adjust to rising risks, particularly in areas prone to wildfires. California's homeowners insurers reported a 15% net underwriting loss over the last decade, leading to a negative return on net worth. The state’s insurance commissioner warned that without sufficient capital and reserves, insurers would be unable to write policies in high-risk areas.

In response to these challenges, California has expanded its residual market, known as the fair plan, which has nearly tripled in size since the end of the 2019 wildfire season. However, industry experts cautioned that this residual market poses significant risks, with concerns that it could become unsustainable.

The meeting concluded with a call for regulatory reforms to address these pressing issues, as both the insurance commissioner and the governor of California continue to seek solutions. The committee emphasized the need for a balanced approach that ensures insurers can operate sustainably while providing necessary coverage to consumers in high-risk areas.