• State Farm wants to hike insurance premiums in California to help pay for LA wildfire damage.
• Insurance affordability has deteriorated with intensifying disasters and home-repair inflation.
• This hurts housing affordability and long-term property values.

The aftermath of the Los Angeles wildfires could exacerbate a mounting challenge for California homeowners: ever-higher insurance costs.

California's largest home insurance provider, State Farm, has asked state regulators for emergency permission to raise homeowners' rates by an average of 22%, starting May 1, to avert a "dire situation" for the company's finances following the fires, according to a Monday letter to the state's insurance commissioner. The company also asked to raise premiums for renters and condo owners by 15% and by 38% for landlords.

State Farm said it had fielded more than 8,700 claims related to the LA wildfires and paid out about $1 billion as of Saturday but expected to spend far more. The fires destroyed some of the city's priciest real estate, including in the Pacific Palisades, as well as Malibu's. They're set to be the costliest in US history. The company says wildfire payouts are placing "very significant pressure" on its ability to pay claims.

Some analysts estimate the damage could total between $250 and $275 billion, a bill that will be split among local and federal governments, insurers, and residents. But the full cost won't be clear for years.

State Farm said its finances were already strained from previous years' losses, leading one rating agency to downgrade it.

"Insurance will cost more for customers in California going forward because the risk is greater in California," the company said in the letter, adding that an emergency rate hike is "essential to more closely align costs and risk" and allow the company to rebuild capital.

A spokesperson for State Farm pointed Business Insider to its letter when asked for comment.

Intensifying home insurance market instability

California has long faced home insurance issues spurred by surging costs from more frequent and intense disasters coupled with rising home-repair costs and inflation. Since 2022, major insurance companies — including State Farm, Allstate, and Farmers Insurance — have either stopped writing new policies in the state, pulled back coverage, or in some cases, dropped tens of thousands of property owners.

State Farm in May 2023 stopped writing new homeowners policies in California. The following March, the company dropped about 29,000 homeowners in the state — including nearly 70% of policies in Pacific Palisades, where January's blazes caused some of the worst losses. That nonrenewal process is ongoing but was recently paused in Los Angeles County due to the wildfires. As of February 1, State Farm said it has more than one million homeowners policies in California.

State Farm said its finances had taken a hit over the nine-year period ending in 2024. During that period, the company paid out $1.26 in claims and expenses for every $1 collected in premiums. Its after-tax net losses totaled $2.8 billion. State Farm said its financial position will be further weakened by the LA wildfires.

State regulators last August approved Allstate's request to hike home insurance premiums by an average of 34%. State Farm said it filed for a 30% rate increase for homeowners policies last June, which is still pending. That would be on top of rate increases State Farm got approved in 2023, including a 6.9% bump in January and a 20% bump that took effect in March.

Ripple effects on housing across the country

The rising cost of insurance and the growing cancellations of private insurance policies are compounding housing affordability issues across the country.

A Senate Budget Committee investigation found that private insurers' nonrenewals spiked threefold in more than 200 counties between 2018 and 2023. Homeowners who are denied private insurance can often opt for their state's insurer of last resort, though these policies tend to offer more restricted coverage and higher premiums.

Rising insurance costs hurt homeowners and potential homebuyers alike, as well as renters who face increased costs passed along by their landlords. Some retired homeowners and others on fixed incomes are already struggling to deal with rising premiums, which, combined with rising property taxes, add up to more than mortgage payments for a growing number of homeowners.

Rising insurance costs are also expected to hurt property values in the longer term. A recent study from the research firm First Street found that a combination of rising home insurance premiums and falling demand, particularly in areas hardest hit by climate change, will erase almost $1.5 trillion in US real estate values by 2055. The report found that 40% of property-value losses will occur in communities it calls "climate abandonment areas," which are the most at risk of out-migration and insurance premium spikes.

This trend is particuarly alarming given that Americans are increasingly moving into parts of the country most vulnerable to extreme weather. In 2023, tens of thousands more people moved into the most flood—and fire-prone areas of the US rather than out of them, the real estate company Redfin reported.

Have you been impacted by rising insurance premiums or lost your coverage? Reach out to these reporters at [email protected] and [email protected].

• As LA looks to rebuild, it remains vulnerable to future wildfires.
• Solutions include fire-resistant building materials and designs, higher-density housing, and relocating residents.
• But rebuilding communities will have to contend with a housing shortage and political pressure.

LA's wildfires have displaced thousands of residents, and the city's leaders will have to decide how to rebuild in places where blazes are becoming more frequent and intense.

Experts in fire mitigation and climate science say LA should use this as an opportunity to design more resilient communities, given the growing risks of urban sprawl at the foothills of mountains and homes tucked into steep canyons that are vulnerable to fire.

They suggest relocating people out of areas most likely to burn, using more fire-resistant materials, establishing bigger buffer zones around homes and neighborhoods free of flammable vegetation and materials, and building more densely in safer areas.

But as the rebuilding effort begins to take shape, orders from city and state officials suggest they may not be taking that advice. LA Mayor Karen Bass issued an executive order on January 13 clearing the way to "rebuild homes as they were."

The order states that to be eligible for an expedited permitting process, a home must be rebuilt at the same location as it was before burning down and can't be converted from single-family to multi-family. A home also can't expand its footprint by more than 10%. The directives could leave those rebuilt homes just as vulnerable to the next fire.

Detailed below are some of the approaches experts said could help LA rebuild more safely.

Moving people to safer places

For decades, Americans have been moving into communities nestled next to and within forests and hills. A 2022 study published in Nature found that 45% of California's homes lie in those areas, more than in any other state.

Michael Wara, director of the climate and energy policy program at the Stanford Woods Institute for the Environment, said incentivizing people to move out of those risky areas and into safer zones — or managed retreat — is one of the most aggressive policies to mitigate the risk of wildfires and other disasters. The idea is "largely theoretical" in places like Pacific Palisades and Aldatena, he added, in part because they had vibrant economies.

To date, managed retreat programs have mostly focused on residents in a few flood-prone areas, including on Staten Island following Hurricane Sandy. In Alaska and on the Gulf Coast, communities disappearing due to melting permafrost and erosion and rising sea levels, respectively, were relocated.

A California program last year offered up to $350,000 in forgivable loans to people who were displaced by fires in 2018 and 2020 to move out of high-hazard areas, and the funds were quickly depleted.

Managed retreat is often "politically toxic," Stephen Smith, executive director of the Center for Building in North America, said. Asking longtime residents and homeowners to leave their properties and communities — or even just redesign them — is challenging and expensive. Some researchers also warned that buyouts in wildfire-prone areas could make the problem worse if abandoned lots become piles of kindling.

An alternative strategy is building more housing in safer parts of the city. Most of the greater LA area is dominated by very low-density, single-family detached houses. Restrictive zoning that prohibited multifamily buildings helped encourage residential sprawl.

But in recent years, California has passed a slew of laws designed to make it easier to build more dense housing. A new state law legalizing duplexes and lot-splitting in single-family neighborhoods across California could help boost density in single-family neighborhoods in LA further from the most fire-prone wilderness areas.

Making homes and neighborhoods more fire-resistant

LA officials should be considering community-wide plans for hardening homes and managing vegetation in yards and surrounding hillsides, said Erica Fischer, an associate professor at Oregon State University College of Engineering who studies fire resilience.

That's because fires can easily jump from one house to the next, both from embers carried by high-speed winds or radiant heat that ignites materials — two factors that caused the Palisades and Eaton fires to spread so fast.

"A lot of this comes down to not rebuilding quickly, taking the time to really make a community-wide plan, and then enforcing and enacting that plan," she said. "But that costs money and is daunting."

In 2008, California passed some of the strictest building codes in the country for homes in moderate-to-high-risk wildfire zones. They mandate fire-resistant materials for roofs, siding, and windows. Vents must have screens that shield embers from entering the home. So-called "defensible space" rules require homeowners to remove flammable materials like trees and shrubs starting 30 feet from the edge of buildings. The state fire agency, CalFire, also has the authority to fine homeowners who don't follow the rules.

However, older homes account for a large portion of those in LA County and weren't built to those strict codes, which added to the devastation.

Zach Seidl, a spokesperson for Bass, said in an email that the mayor wants to rebuild the Palisades to be more resilient but didn't say what measures she was considering. Seidl noted that current building codes are safer than decades ago and pointed to Bass' strategy to tackle LA's affordable housing crisis, which the mayor said has spurred more than 400,000 new housing units across the city.

A spokesperson for CalFire told Business Insider that since 2020, the agency has funded nearly $20 million in wildfire prevention grants to neighborhoods and homeowners and reduced fuels on more than 1,300 acres in LA County.

Smith said much of the risk stems from the combustible materials — namely wood framing — most American single-family homes are built with. "An urban fire is fueled by the actual structures, and we build our structures out of fuel in America," Smith said.

That makes the US an outlier, he added. Many countries have evolved to rely mainly on concrete, which is less likely to catch fire. The abundance of wood construction in the US is a result of both tradition and the lower cost of wood.

But the need to quickly rebuild might mean taking the path of least resistance

If the rebuilding efforts after other recent fires in California are any indication, homes in the Pacific Palisades, Altadena, and elsewhere in LA will be rebuilt in more fire-resistant ways, but communities won't be designed is a drastically different manner.

LA's booming economy and acute housing shortage intensify the need for a quick recovery. Rebuilding what previously existed is often the path of least resistance after disasters, as it's easier to obtain the necessary permits and homeowners may be cost-limited by inadequate insurance payouts and rising construction costs.

"This is no time for urban planning exercising. That'll delay it by 15 years. We need people back in their houses," Steve Soboroff, a real estate developer and former police commissioner tasked with managing the city's rebuilding efforts, said at a news conference.

Wara said LA officials' plans are setting people up for another disaster. He noted that Pacific Palisades and Altadena — which saw some of the worst damage — were laid out decades ago without wildfires in mind. Winding roads head toward the coast and in the direction of the powerful Santa Ana winds that blow flames from east to west into densely populated towns.

Climate change is only making catastrophic wildfires more likely, Wara added."

In 2023, LA saw record rainfall and abundant vegetation. Then last year, during a scorching hot summer, it quickly dried up, setting the stage for the current wildfires. A recent study by UCLA found that rising global temperatures are making this kind of "whiplash" between rain and drought more common.

After a disaster like the fires in LA, there's enormous pressure on political leaders to rebuild affected communities as quickly as possible. And that crunch — and the elevated costs that come with surging demand for construction resources — might not leave time for rethinking how the rebuilding happens to better protect communities going forward.

"You would think this would be an opportunity to harden the properties, to maybe not build on some lots that were immediately in the wildland interface. But what we see time and time again is the political realities going in exactly the opposite direction," Ben Metcalf, a housing policy researcher at the University of California, Berkeley, told Business Insider.

Ultimately, the affected communities will likely be built back to look much as they did before the fires. "We're left with the same strategy we've got, just a little beefier," Smith said.

• Homeowners are increasingly being dropped by their private home insurers.
• Regions with the highest nonrenewal rates are most prone to wildfires, hurricanes, and other disasters.
• A new Senate report warns of economic risks as climate change destabilizes insurance markets.

Homeowners across the country are increasingly facing a stark new reality: they're losing their home insurance.

The share of home insurance policies from large insurers that weren't renewed increased last year in 46 states, a report released Wednesday by the Senate Budget Committee found. The increasing frequency and intensity of disasters like wildfires, hurricanes, and flooding and the rising cost of rebuilding have pushed many insurers to drop customers or hike premiums. This has left thousands of homeowners scrambling to find new insurance policies or joining the growing ranks of those going without insurance.

More than 200 counties saw their non-renewal rates spike threefold between 2018 and 2023. Counties in Northern California and South Florida saw among the highest rates of nonrenewals. Coastal counties in Massachusetts, Mississippi, and North Carolina also saw dropped policies soar. Manhattan ranks 20th, with rates of dropped policies rising from 1.25% in 2018 to 4.11% in 2023.

The national scale of home insurance nonrenewals was previously unknown because insurance companies are regulated at the state level. The National Association of Insurance Commissioners said not all states collect granular data about the availability and affordability of coverage in some areas. The association in March announced an effort with state insurance regulators to try to fill the gap.

Senate Budget Committee Chairman Sheldon Whitehouse launched his own investigation into the homeowners' insurance market last year. He received nonrenewal data from 23 companies accounting for about two-thirds of the market. In testimony on Wednesday, Whitehouse said he demanded nonrenewal data because experts suggested policies being dropped were an early warning sign of market destabilization. He also said they correlated with higher premiums.

The American Property Casualty Insurance Association, a lobbying group representing insurance companies, said nonrenewal data doesn't provide "relevant information" on climate risks. Many factors, including a state's litigation and regulatory environment, factor into nonrenewal decisions, the association said.

The association added that more costly weather disasters, combined with inflation and overbuilding in climate-risk regions, are making insurance less affordable for many Americans.

Home insurance premiums are rising in many regions across the country. The National Bureau of Economic Research recently reported that average home insurance premiums spiked by 13%, adjusted for inflation, between 2020 and 2023.

Most mortgage lenders require homeowners to purchase insurance, and some require additional insurance for specific disasters, including flooding. Insurers refusing to offer coverage can hurt home values because homes that can't be insured in the private market are less desirable to potential buyers.

The Senate Budget report warned that the insurance crisis will get worse as the climate crisis fuels more frequent and destructive disasters, including hurricanes, wildfires, and flooding. A destabilized insurance market could "trigger cascading economy-wide financial upheaval," the report said.

"The failure to deal with climate change isn't just driving up the cost of homeowners' insurance, it's making it harder for families to even find homeowners' insurance, and that makes it harder to get a mortgage," Whitehouse said in a statement to Business Insider. "When the pool of buyers is limited to only those who can pay cash, it cuts off pathways to homeownership—particularly for first-time homebuyers—and risks cascading into a crash in property values that trashes the entire economy."

Have you been dropped by your home insurance company or are you facing a steep premium increase? Email these reporters to share your story: [email protected] and [email protected].

• Elon Musk says he wants to eliminate the Consumer Financial Protection Bureau.
• The CFPB was created after the 2008 crisis to protect consumers from financial abuses.
• The CFPB has recouped billions for consumers but has long faced political and legal challenges.

In his efforts to cut government costs, Elon Musk has thrown his support behind slashing a federal office created in the wake of the Great Recession to regulate financial services used by Americans.

"Delete CFPB," Musk wrote on X early Wednesday of the Consumer Financial Protection Bureau. "There are too many duplicative regulatory agencies."

Musk, along with Vivek Ramaswamy, has been tasked with heading up the Trump-created Department of Government Efficiency, or DOGE, and finding ways to reduce spending and streamline bureaucracy within the federal government. The unofficial advisors have floated "deleting" entire agencies, laying off staff, and enforcing return-to-office mandates.

When reached for comment, a spokesperson for Trump's transition team said she had nothing to add to Musk's statement.

While it's unclear how DOGE and the incoming Trump Administration would abolish agencies, if it does, the CFPB could be on the chopping block. Here's a look at its purpose, employee makeup, and political controversies.

Why it was created

The CFPB was created by Congress as part of the 2010 Dodd-Frank Act. The law aimed to strengthen oversight of Wall Street after its risky mortgage lending practices caused the global financial crisis. The CFPB has a broad mandate to protect Americans from deceptive or abusive practices by US financial firms. The agency investigates consumer complaints related to credit cards, loans, bank accounts, and debt collection and enforces consumer protection laws.

Democratic Sen. Elizabeth Warren, a professor at Harvard Law School, originally proposed the agency in 2007. In 2010, President Barack Obama appointed Warren to head the CFPB's steering committee to help establish it.

"The time for hiding tricks and traps in the fine print is over," Warren said during a White House ceremony that year. "This new bureau is based on the simple idea that if the playing field is level and families can see what's going on, they will have better tools to make better choices."

How many people it employs

As of March 2024, the CFPB employed just under 1,700 people, earning an average of about $184,000 a year, according to the Office of Personnel Management. The Bureau's 2024 financial report broke that workforce into six groups; about 43% of CFPB's employees work in the supervision and enforcement of financial institutions, 18% in operations supporting the Bureau's other initiatives, and 14% in research, monitoring, and regulations.

What it has accomplished

Since its founding, the CFPB has recouped $19.6 billion for consumers through direct compensation, canceled debt, and reduced loan principals.

The agency has also issued $5 billion in civil penalties against banks, credit unions, debt collectors, payday lenders, for-profit colleges, and other financial services companies. That money is deposited into a victims' relief fund, with nearly 200 million people eligible for relief.

Some of CFPB's most high-profile enforcement actions have been against Bank of America and Wells Fargo. The agency in 2023 accused Bank of America of harming hundreds of thousands of customers by charging illegal fees, withholding credit card cash and reward points, and enrolling them in credit card accounts without their knowledge. Bank of America agreed to pay $250 million. In 2022, Wells Fargo agreed to pay $3.7 billion — a record sum — after a CFPB investigation alleged the bank mismanaged auto loans, mortgages, and deposit accounts, causing some customers to lose their vehicles and homes.

Last week, the agency finalized a rule expanding its oversight to big tech companies like Apple, Google, and Venmo, which offer digital wallets and payment apps and process some 13 billion transactions a year. Earlier this year, the CFPB also limited credit card late fees to $8 a month, compared to the average $32 fee charged by issuers in 2022.

Political controversy

Democrats designed the CFPB to have political independence by funding it through the Federal Reserve rather than While Democrats argue that the CFPB's independence is crucial to its efficacy, Republicans say the agency's funding source and governing structure make it unaccountable to the public and encourage regulatory overreach.

Since its founding, the CFPB has faced legal challenges from Republicans and the banking industry, who've taken issue with a slew of agency policies, including those regulating credit card late fees and those making it easier for consumers to switch between banks.

In May 2024, the Supreme Court rejected a constitutional challenge to the agency's funding structure, reversing a lower court decision in a 7-2 ruling. The high court's decision — authored by Justice Clarence Thomas, a conservative — has bolstered the agency but likely won't shield it from ongoing criticism and legal attacks.

Not everything the agency does has courted controversy. Recently, the agency won praise from Republicans for a new rule that would allow consumers to have more control over how their financial data is used by banks and other financial firms.