Finance
California’s homeowners insurance industry faces rough road ahead as wildfires continue
The wildfires in California have led to an unprecedented insurance crisis. (iStock )
The California wildfires have brought widespread disaster to communities in Southern California. It’s also contributed to a serious insurance crisis happening in the state. Many insurers have pulled out of the state or have paused coverage.
AIG left the state in 2022, while Chubb and Allstate limited their coverage options in the last few years. An even larger blow, State Farm pulled their 72,000 policies in 2024.
“It often takes [admitted carriers] a long time to adjust, so their only options are to try to turn things around or gradually pull out, which is where the E&S market steps in,” Christopher Hatt, managing director of Lloyd’s facilities and US personal lines at Novatae Risk Group said.
California’s FAIR Plan, a last-resort insurer, faces uncertainty as well, adding to the significant insurance challenges the state is currently facing. The FAIR Plan distributes losses among the state’s insurers, based on market share.
The claims expected to come due to the wildfires are simply beyond insurers’ capacity. Property and casualty companies are expected to pay billions of dollars in claims due to the damage done by the wildfires.
Back in 2018, the Camp Fire cost $10 billion, the Woolsey Fire caused $4.2 billion in back. The Los Angeles fires will likely cost more than both fires, coming in as one of the most expensive wildfires to date.
If you need a new insurer, head to Credible to get a better understanding of the different types of home insurance coverage available to you. You can get quotes for free from Credible’s partners.
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Homeowners insurance costs expected to rise in and out of wildfire-prone areas
Homeowners insurance across the country is still rising, and 2025 isn’t expected to be any better for homeowners. Premiums may climb by as much as 15%, on average, with states like California seeing even higher hikes due to more frequent natural disasters plaguing the area.
Insurers are passing their significant losses off to homeowners. In the first half of 2024, insurer losses hit $62 billion. Losses are expected to be even greater this year, which means higher premiums for homeowners as insurers attempt to recover.
Specialty insurance, like wind and flood insurance, is expected to be even more expensive in the coming year. Rate hikes of 20% or more are predicted due to updated FEMA flood maps and a significant rise in natural disasters.
Homeowners are concerned about what these rate hikes will mean for their bottom lines. With housing prices still up and homeowners insurance costs due to rise, the housing market is growing more and more expensive. Two-in-three insured homeowners blame weather-related events for their increased insurance premiums, according to Fannie Mae.
In an attempt to address the insurance crisis, California Insurance Commissioner, Ricardo Lara, has announced his Sustainable Insurance Strategy. This regulation aims to stabilize the insurance market in California while simultaneously addressing the growing risks of wildfires. Under the plan, insurance providers would increase coverage in high-risk areas, ensuring all Californians get the insurance they need.
“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change,” said Commissioner Lara. “This is a historic moment for California. My Sustainable Insurance Strategy is focused on addressing the challenges we face today and building a resilient insurance market for the future. With input from thousands of residents throughout California, this reform balances protecting consumers with the need to strengthen our market against climate risks.”
Lara’s plans have been met with some criticism, however. Consumer Watchdog, a California-based advocacy group, has pointed out that these new rules will likely mean substantial rate hikes, up to 50%.
Having enough insurance is vital. Having the appropriate insurance coverage is just as important. To ensure your insurance is suitable for your circumstances, visit Credible to check out plans, providers and costs.
80% OF AMERICANS ARE DEALING WITH A COST OF LIVING CREEP
Relief options for those impacted by the California wildfires
There are a variety of relief options for anyone who has been impacted by the wildfires in California. Freddie Mac and Fannie Mae have forbearance programs that give homeowners mortgage relief up to 12 months without incurring late fees or penalties.
“The number one priority for those affected by the destruction of these ongoing wildfires is to reach safety,” Mike Reynolds, Freddie Mac’s single-family vice president and head of servicing, said. “Once out of harm’s way, we encourage homeowners in these affected areas to contact their mortgage servicer to learn about relief options. Freddie Mac and our partners stand ready to provide immediate assistance and aid in the recovery of families and individuals.”
Freddie Mac and Fannie Mae relief options are available to any homeowner with Freddie Mac or Fannie Mae mortgages who have been impacted by an eligible disaster. Foreclosures and other legal proceedings are also subject to a 12-month forbearance.
Other federal funding is also available now that President Biden has issued a major disaster declaration in California. There’s a 90-day moratorium on foreclosures insured by the Federal Housing Administration (FHA).
Anyone who had their home destroyed in the fires may qualify for HUD’s section 203(h) program that provides FHA insurance to disaster victims. HUD housing counselors are also available to assist anyone impacted. Find a HUD-approved housing counseling agency online or use our telephone look-up tool by calling (800) 569-4287.
Comparing multiple insurance quotes can potentially save you hundreds of dollars per year. And, it’s so easy to get a free quote in minutes through Credible’s partners here.
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U.S. Federal Reserve Chair Jerome Powell testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress,” at Capitol Hill in Washington, U.S., Feb. 11, 2025.
Craig Hudson | Reuters
The popular narrative among Federal Reserve policymakers these days is that policy is “well-positioned” to adjust to any upside or downside risks ahead. However, it might be more accurate to say that policy is stuck in position.
With an abundance of unknowns swirling through the economy and the halls of Washington, the only gear the central bank really can be in these days is neutral as it begins what could be a long wait for certainty on what’s actually ahead.
“In recent weeks, we’ve heard not only enthusiasm — particularly from banks, about possible shifts in tax and regulatory policies — but also widespread apprehension about future trade and immigration policy,” Atlanta Fed President Raphael Bostic said in a blog post. “These crosscurrents inject still more complexity into policymaking.”
Bostic’s comments came during an active week for what is known on Wall Street as “Fedspeak,” or the chatter that happens between policy meetings from Chair Jerome Powell, central bank governors and regional presidents.
Officials who have spoken frequently described policy as “well-positioned” — the language is now a staple of post-meeting statements. But increasingly, they are expressing caution about the volatility coming from President Donald Trump’s aggressive trade and economic agenda, as well as other factors that could influence policy.
“Uncertainty” is an increasingly common theme. In fact, Bostic titled his Thursday blog post “Uncertainty Calls for Caution, Humility in Policymaking.” A day earlier, the rate-setting Federal Open Market Committee released minutes from the Jan. 28-29 meeting, with a dozen references to the uncertain climate in the document.
The minutes specifically cited “elevated uncertainty regarding the scope, timing, and potential economic effects of possible changes to trade, immigration, fiscal, and regulatory policies.”
Uncertainty factors into the Fed’s decision making in two ways: the impact that it has on the employment picture, which has been relatively stable, and inflation, which has been easing but could rise again as consumers and business leaders get spooked about the impact tariffs could have on prices.
Missing the target
The Fed targets inflation at 2%, a goal that has remained elusive for going on four years.
“Right now, I see the risks of inflation staying above target as skewed to the upside,” St. Louis Fed President Alberto Musalem told reporters Thursday. “My baseline scenario is one where inflation continues to converge towards 2%, providing monetary policy remains modestly restrictive, and that will take time. I think there is a potential for inflation to remain high and activity to slow. … That’s an alternative scenario, not a baseline scenario, but I’m attentive to it.”
The operative in Musalem’s comment is that policy holds at “modestly restrictive,” which is where he considers the current level of the fed funds rate between 4.25%-4.5%. Bostic was a little less explicit on feeling the need to keep rates on hold, but emphasized that “this is no time for complacency” and noted that “additional threats to price stability may emerge.”
Chicago Federal Reserve President Austan Goolsbee, thought to be among the least hawkish FOMC members when it comes to inflation, was more measured in his assessment of tariffs and did not offer commentary in separate appearances, including one on CNBC, on where he thinks rates should go.
“If you’re just thinking about tariffs, it depends how many countries are they going to apply to, and how big are they going to be, and the more it looks like a Covid-sized shock, the more nervous you should be,” Goolsbee said.
Many risks ahead
More broadly, though, the January minutes indicated a Fed highly attuned to potential shocks and not interested in testing the waters with any further interest rate moves. The meeting summary pointedly noted that committee members want “further progress on inflation before making additional adjustments to the target range for the federal funds rate.”
There’s also more than just tariffs and inflation to worry about.
The minutes characterized the risks to financial stability as “notable,” specifically in the area of leverage and the level of long-duration debt that banks are holding.
Prominent economist Mark Zandi — not normally an alarmist — said in a panel discussion presented by the Peter G. Peterson Foundation that he worries about dangers to the $46.2 trillion U.S. bond market.
“In my view, the biggest risk is that we see a major sell off in the bond market,” said Zandi, the chief economist at Moody’s Analytics. “The bond market feels incredibly fragile to me. The plumbing is broken. The primary dealers aren’t keeping up with the amount of debt outstanding.”
“There’s just so many things coming together that I think there’s a very significant threat that at some point over the next 12 months, we see a major sell-off in the bond market,” he added.
In this climate, he said, there’s scant chance for the Fed to cut rates — though markets are pricing in the potential for a half percentage point in reductions by the end of the year.
That’s wishful thinking considering tariffs and other intangibles hanging over the Fed’s head, Zandi said.
“I just don’t see the Fed cutting interest rates here until you get a better feel about inflation coming back to target,” he said. “The economy came into 2025 in a pretty good spot. Feels like it’s performing well. Should be able to weather a lot of storms. But it feels like there’s a lot of storms coming.”
Walmart stock may be a steal.
Former Walmart U.S. CEO Bill Simon contends the retailer’s stock sell-off tied to a slowing profit growth forecast and tariff fears is creating a major opportunity for investors.
“I absolutely thought their guidance was pretty strong given the fact that… nobody knows what’s going to happen with tariffs,” he told CNBC’s “Fast Money” on Thursday, the day Walmart reported fiscal fourth-quarter results.
But even if U.S. tariffs against Canada and Mexico move forward, Simon predicts “nothing” should happen to Walmart.
“Ultimately, the consumer decides whether there’s a tariff or not,” said Simon. “There’s a tariff on avocados from Mexico. Do you have guacamole with your chips or do you have salsa and queso where there is no tariff?”
Plus, Simon, who’s now on the Darden Restaurants board and is the chairman at Hanesbrands, sees Walmart as a nimble retailer.
“The big guys, Walmart, Costco, Target, Amazon… have the supply and the sourcing capability to mitigate tariffs by redirecting the product – bringing it in from different places [and] developing their own private labels,” said Simon. “Those guys will figure out tariffs.”
Walmart shares just saw their worst weekly performance since May 2022 — tumbling almost 9%. The stock price fell more than 6% on its earnings day alone. It was the stock’s worst daily performance since November 2023.
Simon thinks the sell-off is bizarre.
“I thought if you hit your numbers and did well and beat your earnings, things would usually go well for you in the market. But little do we know. You got to have some magic dust,” he said. “I don’t know how you could have done much better for the quarter.”
It’s a departure from his stance last May on “Fast Money” when he warned affluent consumers were creating a “bubble” at Walmart. It came with Walmart shares hitting record highs. He noted historical trends pointed to an eventual shift back to service from convenience and price.
But now Simon thinks the economic and geopolitical backdrop is so unprecedented, higher-income consumers may shop at Walmart permanently.
“If you liked that story yesterday before the earnings release, you should love it today because it’s… cheaper,” said Simon.
Walmart stock is now down 10% from its all-time high hit on Feb. 14. However, it’s still up about 64% over the past 52 weeks.
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