Viewpoint: After 3 Years of Retreat, Insurance Capacity Is Returning to California

For the first time in three years, capacity is returning to the California homeowners insurance market.

The clearest evidence is in the residual market. In the second quarter, the California FAIR Plan added roughly 12,000 residential policies, the fifth consecutive quarter of declining additions. At the peak in early 2025, the FAIR Plan was adding more than 54,000 policies in a single quarter. On the commercial side, the number of policies in force has declined for two straight quarters. Those are the leading indicators the industry has been waiting for.

Nine insurers, including six of California’s 10 largest home insurance groups, have now committed to expand under California Commissioner Ricardo Lara’s Sustainable Insurance Strategy. Travelers joined in April. Farmers removed its policy cap in November 2025. Mercury committed to write 38,000 new policies, including in distressed areas. CSAA won approval to begin quoting FAIR Plan policyholders in Northern California and added a three-year renewal guarantee for homeowners earning the IBHS Wildfire Prepared Home designation.

Those commitments are showing up in policy counts, not just press releases.

After three years of pullback, the trend seems to be finally turning. The harder question is whether the carriers coming back this time will do it differently enough to stay. The rest of the catastrophe-exposed industry should be watching.

The pullback had been building for years. Major carriers had paused or restricted new homeowners business in California well before January 2025, after a decade of wildfire losses kept exceeding what their risk views had priced for.

The Eaton and Palisades fires took 31 lives, destroyed nearly 16,000 structures, and produced roughly $40 billion in insured losses, the most expensive wildfire event in industry history. These were urban conflagration events, with fire spreading structure to structure through dense residential neighborhoods. The risk being modeled did not match the risk arriving, and that gap is why capacity left. Carriers cannot stay in a market they cannot see clearly.

The retreat itself follows a familiar pattern. Capacity floods into a market until a large catastrophe reveals that the industry’s view of risk was wrong, and carriers pull back. The state’s residual market absorbs the load and premiums rise. Eventually capacity returns, often with the same view of risk that failed before, and the cycle restarts. California, Florida, Louisiana, and Texas have all lived some version of this story. What is different about California is that the industry is trying to break the cycle this time.

Related: California Lawmakers File Wildfire Plan, Without Newsom Asks

I spend much of my time with the executives running these California books. The phrase I hear most often is some version of the same sentence: “We can’t say no to California.” California is the fourth-largest insurance market in the world, and it sits at the center of any national homeowners portfolio, so carriers cannot walk away from it permanently. But almost every executive who says those words follows them with a second sentence: they want to do it right this time.

Doing it right is harder than it sounds, and the biggest challenge is regulatory.

Over the past 12 months, the median California homeowners rate filing took 197 days to approve. That is the second slowest in the country, behind only New York at 220 days. All (100%) of filings received objections from the California Department of Insurance. The most common objection is a granular, line-by-line reconciliation of the Prior Approval Rate Application, Rate Template, and Standard Exhibits, with each cell required to trace back to a documented data source and a prior approved filing. Reviewers challenge experience credibility, on-level factors, catastrophe-model disclosures and internal consistency between exhibits.

California’s regime is meticulous by design. That is why the reforms underway matter more than they look from the outside.

The CDI deserves credit for what has happened inside that framework. Lara’s Sustainable Insurance Strategy is the most significant modernization of California’s rate regulation since Proposition 103, and the CDI carried it forward while managing the largest wildfire loss in the industry’s history. For the first time, the department is allowing forward-looking catastrophe models to inform the catastrophe load in rate filings, in exchange for commitments to write in distressed areas. The first wildfire models approved under that framework went through in 2025.

The reforms will take time. California filings will still take months, reinsurance partners will still scrutinize portfolios, and wildfire seasons will still come. The patient is recovering, not cured.

Related: California Rivals Have Starkly Different Plans to Remake Home Insurance

There is one more variable. California elects a new governor and a new insurance commissioner in November. Lara, the architect of the Sustainable Insurance Strategy, is term-limited, and whether his successor maintains the course toward stability is an open question. The outgoing governor, widely expected to run for president in two years, has his own reasons to want this recovery to hold. A failed insurance market in his home state would follow him onto the national stage. The incentives point toward continuity, but incentives are not guarantees.

But the recovery is real, and the lesson is bigger than California. The risk views the industry has used for the last two decades were built for a different climate and a different built environment. They did not see Eaton and Palisades coming. They will not see the next event in the next state coming either, unless the tools change.

Five quarters of data say the pullback in California is ending. The carriers moving first are doing it with sharper instruments and a steadier hand than the industry had the last time around. Whoever takes office in January will inherit a patient that is finally out of the ER, and the job now is to keep it out. Every other state facing mounting catastrophe exposure should be watching how California does it.

Toth is founder and CEO of ZestyAI, a provider of property-level data, predictive AI models and agentic AI automation. Before founding ZestyAI, he was a senior vice president of Worldwide Sales at C3.ai, and general manager at SunEdison. He began his career at McKinsey & Company.