One measure, Senate Bill 876, would establish accelerated timelines for insurers to pay the cash value of both damaged property and associated replacement costs in the event of an emergency. Residential property insurance policies would have to offer at least 50% extra replacement coverage beyond the policy’s stated limit. To increase transparency, written cost estimates for replacement coverage, additional living expenses that may be covered, and disaster response plans would have to be provided to customers.
Lawmakers’ desire to hasten claims processing, ensure that Californian homeowners are paid out, and clarify insurer’s responsibility in the event of emergencies is understandable.
However, expanded coverage requirements and accelerated payment mandates put additional pressure on insurers that may lead to higher premiums. Following the introduction in 2024 of a similar rule mandating expanded coverage in high-risk areas, insurers were permitted to pass on reinsurance costs to consumers, and industry experts warned that premiums could rise by up to 40%.
Californians may view payment delays as unjust but validating losses and calculating valuations of lost property take time. Mistakes borne from overly ambitious timelines raise the specter of costly and lengthy litigation, which would only exacerbate the very problem lawmakers are seeking to avoid.
Insurers would ideally respond to increased regulatory costs by raising rates, but Proposition 103, passed by voters in 1988, set price controls within the insurance market making it tougher for insurers to accurately communicate risk to homeowners through higher premiums. In so doing, Prop 103 set California on a path towards a state-directed insurance system. After all, why would private insurers offer policies to California customers for high-risk properties that would generate losses in the event a claim needed to be paid out?
Homeowners who can’t find private insurance are covered by the California Fair Access to Insurance Requirements (FAIR) Plan, a state-mandated association of private insurers which provides limited protection for properties the market has declined to insure. Over the past 10 years, the FAIR Plan has quadrupled the number of properties it covers, from 141,391 in 2015 to 555,868 in March 2025.
Prior to last year’s wildfires, the number of properties covered by the FAIR Plan in the Pacific Palisades and Altadena increased by over 100%. Critics fear that expanding the number of high-risk properties covered under the FAIR Plan without allowing premiums to rise accordingly would lead to a huge funding shortage should California experience ferocious wildfires again. Taxpayers and ratepayers would be left footing the bill.
Unsurprisingly, in the aftermath of last year’s wildfires, a $1 billion assessment on private insurers was triggered after the FAIR Plan reported running out of funds, the first assessment on insurers in over 30 years.
Not only are assessments likely to balloon as more high-risk homes are covered under the FAIR Plan, but they will be compounded by another new bill introduced this year, Assembly Bill 1680. The measure would overhaul the FAIR Plan itself by requiring the Plan to offer broader coverage options, imposing staffing mandates, and increasing penalties for compliance failures. These additional costs make it more likely that after the next natural disaster, the FAIR Plan will face a shortfall and rely upon private insurers to make up for the deficit.
Assessments are ostensibly levied on insurers, but as Rex Frazier of the Personal Insurance Federation of California pointed out during PRI’s recent 2026 Sacramento Conference, “insurance companies turn around and collect money from low and moderate risk consumers.”
State Farm, California’s largest home insurer, received approval from the State to implement “supplemental fees” on homeowner policies to help recoup the $165M assessment they were required to contribute. Even if insurers choose not to hike their premiums directly, they may instead restrict insurance eligibility, forego policy renewals, increase deductibles, or tighten underwriting rules to cut costs, all of which serve to restrict consumer choice.
Worse still, because insurers’ assessment contributions are proportional to their market share, insurers who see natural disasters on the horizon are disincentivized from underwriting more policies.
When insurers respond to suppressed risk signals by restricting underwriting, more properties flow into the FAIR Plan, losses and assessments grow during natural disasters, and rising system-wide costs further discourage private market participation.
SB876 and AB1680 are still in their infancy, and there is ample time yet for lawmakers to address the deficiencies in the measures. The best remedy, however, would be to simply remove political constraints on insurance rates.
Critics may fear that allowing markets to set prices would exponentially increase insurance rates for properties in wildfire-prone areas. However, effective wildfire management policies which mitigate the material and financial damage caused by wildfires would decrease premiums by decreasing the risk associated with those properties.
A free-market approach paired with smart public policy would allow the private insurance market to naturally set premiums that accurately reflect risk, while ensuring that premiums themselves don’t skyrocket.
If California is brave enough to pursue this course of action, it may be able to escape the vicious cycle it’s stuck in and create a stable home insurance market.
Nikhil Agarwal is a Pacific Research Institute policy associate.