Why is home insurance getting more expensive in California?

Finding affordable home insurance in California can be challenging, especially if you live in a higher-risk area. Though the state still enjoys one of the lowest average annual premiums in the U.S., the threat of wildfires, rising construction costs, an increase in severe claims, and other factors have all contributed to rising rates. Some insurers have even stopped renewing California policies, stopped issuing new policies, or pulled out of the state altogether. 

Five reasons why California coverage costs are on the rise

There are several reasons that California home insurance premiums are rising.

Wildfire risks

Wildfire season has been starting earlier in the year, lasting longer, and producing a greater number of fires in recent years due to the effects of climate change. Because of the elevated risk of wildfires in the state, insurance companies are raising premiums in higher-risk regions. 

Some insurers have been scaling back coverage by declining to renew policies or issue new policies in California, and some are pulling out of the state entirely. For the insurers that remain, customers may see stricter terms, reduced coverage, and higher prices. 

Construction and rebuilding costs

Inflation and supply chain issues have dramatically increased the cost to rebuild damaged homes and property. The price of labor, materials, and other costs has gone up, making it more expensive to rebuild homes after a loss. 

This means that claims payouts are higher than they once were, which translates to greater costs for insurers. To make up for higher payouts, some insurers may raise premiums. And to make sure they’re fully covered, homeowners may want to increase their policy’s coverage limits, which also usually raises their premiums. 

Increased claim frequency and severity 

California has seen rising numbers of severe claims, due in part to wildfires and earthquakes that have caused catastrophic losses. In addition, the state has seen a rise in ordinary, non-catastrophic claims. For example, State Farm reported an acceleration in both the average cost of a claim and the average severity of a claim in recent years. 

This reflects a broader trend in the national insurance market, with home insurance becoming more costly and difficult to procure for millions of Americans, according to the U.S. Department of the Treasury. But in ZIP codes with a high risk of substantial weather events or fires,  homeowners are more likely to see higher rates. 

Reinsurance costs

Reinsurance is essentially insurance coverage that insurers take out on their own policies to protect them against catastrophic loss payouts. When the cost of reinsurance goes up, it can lead to higher costs for policyholders. 

Previously, California was the only state that did not allow insurers to factor the cost of reinsurance into premiums. But the state is lifting that requirement in exchange for insurers continuing to offer coverage in higher-risk areas. Opponents of the legislation have warned that the change could lead to 40% to 50% rate hikes for some policyholders. 

FAIR Plan costs 

Another issue for California homeowners is the cost of the state’s FAIR Plan, the market of last resort for homeowners who cannot obtain coverage through the private market. The FAIR plan market is subsidized by taxes and private insurance carriers that pool together resources to pay out claims. FAIR Plan policies often have limited coverage compared to policies purchased through private insurers, and they tend to be more expensive.

California’s FAIR Plan may get more expensive soon, with the group submitting a proposal to increase rates by an average 35.8% in 2026. If the rate hike goes through, it marks the plan’s largest rate hike in at least seven years. While some homeowners could actually see rates decrease, half of FAIR Plan policyholders could see increases between 40% and 55%. It’s also important to note that California’s FAIR Plan only covers fire damage, which means policyholders still need to maintain separate policies for other types of risks.

Other reasons for home insurance rate increases

Several additional factors could cause your specific home insurance policy to get more expensive. 

• Changes to your home’s value. Home improvements, housing costs, and an increase in the cost to rebuild your home can raise your policy rates, especially if you make additions that expand the square footage or make substantial upgrades to your home. 

• Added risk factors. Adding additional risks to your home can cause your rates to go up. For example, if you put in a pool or buy a trampoline for your property, you are required to inform your insurance provider, which can result in higher premiums. 

• Policy adjustments. If you increase your coverage limits, add endorsements to your policy, or lower your deductible, your home insurance will likely cost more. 

• Claims history. Filing a claim within the last ten years can result in higher insurance rates. Multiple claims can cause rates to dramatically increase, or even result in your insurer not renewing your policy. 

• Regulations. Changes to state or local laws can sometimes result in price hikes. For example, if your state passes a law requiring homeowners to carry certain types of coverage and you need to add an endorsement to your existing policy, your premium may increase. 

How California homeowners can reduce costs

While you can’t change the major factors affecting home insurance costs in your state, there are some steps you can take to cut the cost of your specific policy.

• Shop around for the best rate. Prices can vary significantly between insurers. It’s a good idea to get quotes from at least three home insurance companies before you buy a policy. Make sure to compare policies with the same coverage types, coverage limits, and deductibles, to ensure a true 1:1 comparison. 

• Reduce risks in your home. Adding features that reduce the overall risk of your home can help lower your rates. For example, you can install a home security system, add a sprinkler system, put in storm-proof windows, or replace the siding of your home with non-flammable materials like stone or cement. 

• Increase your deductible. The deductible is the amount you pay out of pocket toward repairs when you file a claim, before your insurer steps in to cover the rest. The higher your deductible, the lower your premium. Raising your deductible can help lower your policy rates. 

• Adjust your coverage limits. If your coverage needs have gone down since you purchased your home, you may be able to reduce your coverage to save on insurance. For example, if you have sold or given away many of your valuables, you might not need as much personal property coverage.

No matter where you live in California, it’s not unusual to see home insurance costs go up over time. Taking proactive steps to avoid unnecessary claims and looking for savings opportunities can help you keep your rates as low as possible.