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The recent California wildfires have displaced thousands of residents and spurred a massive housing crisis in Los Angeles County. But the impact points to a larger — and unquestionably disturbing — trend.
As extreme weather events increase in both frequency and severity, a growing number of insurers are pulling out of disaster-prone regions. That could make homeownership less attainable in the future.
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Federal Reserve Chair Jerome Powell recently testified before the Senate Banking Committee and was asked about the availability of mortgages in states like California. His response?
“Those banks and insurance companies are pulling out of areas, coastal areas and … areas where there are a lot of fires,” Powell told the committee. “So what that’s going to mean is if you fast-forward 10 or 15 years, there are going to be regions of the country where you can’t get a mortgage.”
It’s common practice for mortgage lenders to require borrowers to have homeowners insurance in place before giving out loans. But the requirement to carry homeowners insurance doesn’t end there.
You’re typically required to maintain homeowners insurance while you’re in the process of paying off your mortgage. If your insurance is canceled, your mortgage lender will typically be notified. If you don’t then find replacement insurance, your lender could compel you to use insurance it procures for you, known as force-placed insurance.
The problem, though, is that this type of insurance is generally more expensive than the insurance you might find on your own. So it’s not a great option.
And that assumes it even is an option. If your mortgage lender can’t procure insurance for you, you risk having your mortgage go into default, leading to foreclosure.
But with more insurance companies pulling out of disaster-prone states, homeowners’ options for coverage are getting whittled down.
The New York Times reports that in Florida, nonrenewals more than doubled in 2022 after massive insurer losses from Hurricane Ian. Florida has the highest nonrenewal rates in the U.S.
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In Louisiana, nonrenewal rates were the second-highest in the country in 2023. The state’s low-lying coast makes it prone to hurricane damage.
Texas, too, has seen fluctuating nonrenewal rates. And in 2024, Progressive became the fifth major insurer to end or limit coverage within the state.
In California, nonrenewal rates soared in 2023, particularly in wildfire-prone regions. Even before the early 2025 wildfires, a number of large insurers abandoned California, including Allstate, the Hartford, and State Farm.
Of course, some of this is understandable. Insurers had, as of early February, paid almost $7 billion in claims in response to the Los Angeles. wildfires. And Hurricane Ian’s price tag for insurers was projected to be a whopping $63 billion.
So there comes a point when homeowners insurance companies either need to pull out or start charging exorbitant rates. And it’s unclear as to which is the better scenario.
If your homeowners insurance is cancelled, it’s important to find out why. If it’s due to a specific issue with your home, there may be steps you can take to remedy it. But if it’s part of a broad pullback at the county or state level, your options may be more limited.
You could, of course, shop for replacement insurance. But you may not have many affordable options.
In that situation, your best bet may be a FAIR Plan. Short for Fair Access to Insurance Requirements, FAIR programs are state-run and provide insurance coverage for homeowners who can’t get it the conventional way due to being in a high-risk area.
The problem, though, is that FAIR plans can be pretty basic, offering only coverage for dwelling and personal property. This means you may not be able to get loss of use or liability coverage through a FAIR plan.
Worse yet, FAIR plans commonly only insure homes at their cash value, as opposed to their replacement cost value — meaning, the amount of money it would take to rebuild. Such is the situation a good number of Los Angeles wildfire victims are in now, where they’re entitled to some payout from their insurance, but not enough to rebuild the properties they’ve lost.
That’s why it’s extremely important to research insurance coverage options before buying a home. And if you find that your options are limited, consider it a red flag.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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