Why Insurance Companies Are Leaving Fire Zones

The primary driver of insurer withdrawals from wildfire markets is the dramatic increase in insured losses from western wildfires. The 2017–2018 California wildfire season produced over $24 billion in insured losses — more than the previous decade combined. The 2020 Oregon wildfires caused over $1 billion in insured losses. The 2021 Marshall Fire in Colorado produced over $2 billion in insured losses from a single event. These losses have fundamentally changed how insurers view western wildfire risk.

Rising reinsurance costs have compounded the problem. Insurance companies purchase reinsurance to protect themselves against catastrophic losses. As wildfire losses have increased, reinsurers have raised their rates dramatically — increasing the cost of providing coverage in high-risk areas. In some markets, the cost of reinsurance alone exceeds the premium that regulators allow insurers to charge, making the business economically unviable.

California's regulatory environment has been a particular challenge for insurers. California's Department of Insurance historically limited premium increases, making it difficult for carriers to charge rates that reflect actual wildfire risk. Several major carriers have cited this regulatory constraint as a key reason for their decision to stop writing new policies in California. California has begun reforming its regulatory framework, but the changes have not yet reversed the market withdrawal trend.

The combination of these factors — rising losses, higher reinsurance costs, and regulatory constraints — has made standard market wildfire coverage economically unsustainable for many carriers in the highest-risk areas. The result is a market where surplus lines carriers, specialty wildfire insurers, and state FAIR Plans have become the primary options for millions of western homeowners.