Insurance, in ordinary times, is the least discussed line item in a household budget. The Los Angeles fires changed that. Suddenly the questions arrived from every direction: why did the insurers leave California, why is my premium climbing when I have never filed a claim, what happens next. The questions deserve real answers, because the California situation is not a local anomaly. It is a preview.
The retreat of admitted carriers from California followed a simple arithmetic. Rate adequacy in the admitted market is regulated: an insurer must justify its prices to the Department of Insurance using historical loss data. When wildfire losses rendered historical data an unreliable guide to future exposure, and when regulators declined to approve rates reflecting modeled catastrophe risk or reinsurance costs, the rational carrier response was to stop writing. This was not caprice. An insurer that cannot charge an adequate premium is not providing security; it is accumulating obligations it may not be able to pay.
Three consequences follow for homeowners everywhere. First, availability is now as important as price. A policy that exists at a good rate is worth more than a theoretical policy at a better one. Second, non-admitted and surplus-lines markets, once marginal in personal lines, are absorbing risks the admitted market declines. These carriers are legitimate and often well-capitalized, but they operate outside state guaranty funds and with less rate oversight, which shifts analytical burden onto the broker and the insured. Third, premiums will continue to reprice toward modeled risk rather than historical experience. A homeowner with a clean loss record is not being punished; the risk itself is being repriced.
There is a quieter point underneath the market mechanics. Insurance works best when it stays boring, which is another way of saying that the system functions when premiums quietly match risks and claims quietly get paid. Public attention arrives precisely when that matching fails. The households best positioned for the next decade are those that treat insurance as risk management rather than a utility bill: reviewing valuations, maintaining defensible space and updated systems, and keeping a relationship with a broker who tracks which carriers are still writing, and where, before the renewal notice makes the question urgent.
This article is adapted from Nathan’s original LinkedIn post, published January 20, 2025. Read the original post on LinkedIn →