Florida vs. California: How Two States Are Facing the Insurance Crisis

Miami Herald

07-04-2025

California and Florida have for years been the canary in the gold mine for a homeowner insurance crisis that experts warn might soon spread to many more states across the country.
The two disaster-prone states, which face different challenges within their own markets, have seen homeowners insurance premiums skyrocket in recent years as carriers dealing with rising costs and growing catastrophe exposure either significantly hiked their rates or cut coverage in the most vulnerable areas, leaving homeowners with limited options.
Despite facing similar challenges, the two states are experimenting with wildly different solutions-once again becoming examples for the rest of the country of the dos and don'ts of a crisis that is expected to spread across the nation.
The homeowners insurance crises in California and Florida have drastically different causes, but they have one element in common: both coastal states are particularly vulnerable to natural disasters, with wildfires in California and hurricanes in Florida.
In both states, the pool of available insurers has shrunk considerably in recent years, as carriers have preferred dropping policies instead of risking paying enormous claims that could easily put them out of business.
Homeowners are ultimately the ones who are suffering the most from these dynamics, finding themselves torn between paying thousands of dollars a year in insurance or "going bare"-risking losing everything should a disaster strike.
According to Mark Friedlander, senior director of media relations at the Insurance Information Institute (Triple-I), the Florida homeowner insurance crisis "was caused by manmade factors of legal system abuse and claim fraud, not storm losses."
In fact, it is a combination of excessive litigation, widespread fraud and the increased risk posed by more severe and more frequent natural disasters that brought up homeowner insurance premiums in Florida in recent years, making the Sunshine State one of the most expensive in the country.
Between 2019 and 2024, as multiple carriers went out of business or decided to either leave the state or cut coverage in some of the most at-risk areas, homeowner insurance rates in Florida rose by a staggering 42.5 percent, according to an analysis by Florida TaxWatch.
As a result of limited availability in the market, the state's insurer of last resort, Citizens, ballooned in size, reaching a record 1.4 million policies in 2023. The sudden boom raised concern among experts and lawmakers worried that Floridians would be forced to bail out the insurer should it find itself unable to pay policyholders' claims after a particularly bad natural disaster.
Florida has in part stabilized its insurance market by introducing sweeping tort reform measures between 2022 and 2023 to prevent out-of-control litigation in the state. Friedlander is among the experts who believe the changes have made a crucial difference for the state's insurance market.
"Legislative actions addressed the crisis, resulting in a 40 percent year-over-year decline in new property claim lawsuits in 2024," he told Newsweek. "This has led to market stabilization and lower rates. The Florida Office of Insurance Regulation reported that average home premiums declined by 0.7 percent statewide in the fourth quarter of 2024, the first drop in nearly a decade."
Florida has also been welcoming new, small insurers into its market, encouraging them to take over Citizens' policies as the company continues its depopulation efforts.
"Eleven new property insurers have entered the Florida market and major national insurers are growing their market share," Friedlander said. "State-backed Citizens Property Insurance Corp. has dropped below 850,000 policies because of successful depopulation to a financially healthy private market.
"Consumers have more choices for obtaining coverage and are seeing better pricing across the board. All signs point to continued stability throughout 2025."
While the growing risk of devastating wildfires is the main driver behind California's homeowners insurance crisis, many have blamed state regulators for creating the conditions that led to the withdrawal of several major insurers from the state.
According to Friedlander, California's "antiquated regulatory environment" prevented property insurers from correctly factoring in "climate risk or reinsurance costs into premiums."
As a result of a law protecting homeowners from sudden rate hikes, Proposition 103, "Californians are paying artificially low home premiums that are not actuarially sound," Friedlander said.
"This has led to private insurers pulling back on the market and a record level of growth for the California FAIR Plan, the state-backed insurer of last resort."
The FAIR Plan, which provides fire insurance to homeowners who cannot find it on the private market, had a total exposure of $529 billion as of December 2024, up 15.5 percent from September 2024 and 217 percent from September 2021.
As in Citizens' case, many have expressed concern that the FAIR Plan might not have enough cash to cover all of its claims-especially after the L.A. County fires in January.
"The FAIR Plan faced a significant shortfall due to the Los Angeles fires and has implemented a $1 billion assessment to private insurers to cover fire loss claims," Friedlander explained.
While the move was made to ensure wildfire victims got the help they need, insurers "will most likely pass along the cost of the assessment to their customers in the form of premium surcharges," Friedlander said, further raising rates for struggling homeowners.
"However, the California Department of Insurance is implementing a Sustainable Insurance Strategy [SIS] that will allow property insurers to use climate risk modeling in their future pricing," he explained.
"Over the next two years, we are hopeful this will create a roadmap to stability and growth of the private insurance market across the state. In fact, two major California home insurers, Farmers and Mercury, have announced their commitment to grow market share because of SIS."
According to Dr. Martin Weiss, founder and CEO of independent rating agency Weiss Group, insurance companies and regulators in both states "underestimated the cost of damages driven by three powerful forces converging in one time and space: a massive wave of new construction, surging property values, and bigger-than-expected storms, wildfires and more."
Both states created "backstops for the industry," he told Newsweek.
"In Florida, they established Citizens Insurance, which operates much like any property insurer except for the fact that it's run by the state," he said. "In California, they created FAIR, which unlike Citizens, is a consortium of private-sector insurance companies."
These two insurers of last resort were not designed to take the outsized role in the market they now have, Jesse Keenan, a professor of sustainable real estate and urban planning at Tulane University, told Newsweek.
Faced with the sudden growth of Citizens and the FAIR Plan, Florida and California are trying to attract new insurers to their markets-though with very different strategies.
"Florida has very active depopulation policies-policies associated with getting people off of the state's insurer of last resort and getting them back into the private market," Keenan explained.
Part of those depopulation efforts has been to allow the participation of "under-capitalized, smaller insurance companies that are not necessarily as stable and reliable as conventional insurance companies of the past," he added. "That's probably been a mistake."
In California's case, regulators are trying to keep insurers in the state, not just attract them, and to ensure that there's access to the marketplace.
However, Keenan said, "they're stuck in a tough game because they don't want to end up like Florida, where Citizens covers most of the wind insurance risk in the state or a big chunk of it. They don't want [the FAIR Plan] to be a primary vehicle [in the market]. They know that it's in fact more risk than the state can really take on, in fiscal stability terms."
What California regulators are trying to do, instead, is think of different ways of adding competition to the market without allowing "an arguably undercapitalized insurance company to enter the market," Keenan said.
"So they're doing things, for instance, in terms of policy, like allowing insured parties, homeowners and property owners to undertake risk reduction investments at a property level, change the tiles on the roof to something fire resistant, change the landscape, all these things that you can do at a properly level that reduce risk, and then get a statutory reduction in premiums for that. It's not a huge reduction, but it's an incentive to get people to reduce risk at a property level."
By contrast, Florida "really hasn't gone that route," Keenan said. "They've got a different route, which is, again, trying to track these smaller insurance companies, which many of whom have failed in recent years. Which, by the way, makes the state's problem even worse, because when it fails, then these insured parties get dumped onto the state."
While Keenan is critical of Florida's approach, he doesn't think California got it right either.
"I think what both states have failed to do is that they haven't used the authority of the state Legislature to dictate the terms of not just how we build, but where we build," he said.
"In both states, it's really local counties and local municipalities that make the decisions about how and where to build. Now, in Florida, they implemented the Florida Building Code after Hurricane Andrew [in 1992], and that was very, very successful in reducing wind damages. And in many ways, Florida has been a national leader in updating building codes."
California, on the other hand, has lagged behind in terms of updating building codes for a lot of different reasons, "mostly the political lobby and the homebuilding industry," Keenan said.
Both states, overall, have been reluctant to tell local governments where they should be driving their growth in terms of land use and zoning decisions, "and ultimately that's what needs to be done to manage a lot of risk," Keenan said.
"It's really a dual process of updating the building codes and shaping land use. Now, neither one of those decisions are particularly popular because it adds costs."
Related Articles
Trump-Stronghold The Villages in Florida Holds Large 'Hands Off!' RallyHow to Watch Florida vs Auburn: Live Stream NCAA Tournament Final Four, TV ChannelInside Trump Policy: The Art of the TariffHow To Buy Final Four Gear: Auburn, Duke, Florida, Houston
2025 NEWSWEEK DIGITAL LLC.