What’s Changed: Why Insurers Are Coming Back

Insurancecape has been under pressure for years. Rising wildfire risk, regulatory constraints, skyrocketing reinsurance costs, and frequent cancellations have made coverage difficult to obtain or afford. But recent regulatory changes and insurer commitments suggest many carriers are returning, or increasing their presence, in the state. (California Department of Insurance)

Here’s how that return could positively impact the real estate market — and why it matters for homeowners, buyers, developers, and the state at large.

What’s Changed: Why Insurers Are Coming Back

To understand the positive impacts, it helps to know what’s shifting:

• Regulatory reforms: California’s Department of Insurance under Commissioner Lara has pushed the Sustainable Insurance Strategy, which includes allowing catastrophe / wildfire risk modeling in rate setting and encouraging insurers to write more policies in wildfire-prone or “higher-risk” areas. (California Department of Insurance)
• Mandates for coverage in distressed zones: Under the new rules, insurance companies are required to write more policies for homes in wildfire-distressed zones — something that was not required before. (California Department of Insurance)
• Fairer recognition of mitigation efforts: Wildfire catastrophe models are now expected to reflect mitigation — such as defensible space, fire-resistant building materials, community mitigation projects — which should help homeowners who invest in safety to see lower premiums. (California Department of Insurance)
• Carrier commitments: Some insurers (e.g. Mercury Insurance, Allstate, CSAA among others) have made filings or public commitments to expand coverage. (California Department of Insurance)

How Return of Insurers Helps the Real Estate Market

Assuming insurers keep returning and reforms continue, here are likely positive effects on real estate:

1. Increased buyer confidence and broader market access
   One of the biggest obstacles in recent years has been that buyers either can’t find insurance or find that premiums or coverage are so onerous that purchasing a home becomes financially risky. When insurers are available again, especially in higher-risk zones, potential buyers don’t have to worry about insurance being a barrier — or a deal-breaker.
2. More stable insurance costs
   With better risk modeling and recognition of mitigation, rates can become more predictable. Sudden spikes or non-renewals (which have been common) become less likely. Predictability helps both homeowners and investors plan and assess costs better, which strengthens the real estate investment case.
3. Reduced reliance on FAIR Plan or high-cost “last resort” coverage
   The California FAIR Plan (a plan of last resort when private carriers won’t insure in certain areas) has ballooned, especially in high-risk ZIP codes. But FAIR Plan policies are generally more expensive, and provide more limited coverage. Reduced use of FAIR Plan means properties can get full homeowners’ policies, which are more attractive to buyers, lenders, and investors. (Wikipedia)
4. Improved financing and investment flows
   Mortgage lenders require proof of adequate insurance. If insurance is unavailable or too expensive, loans may get denied or the buyer may have trouble qualifying. With more insurers, better options, and more reasonable premiums, financing becomes easier, more deals close, and real estate transactions are less likely to stall.
5. Increased property values in high-risk but formerly under-insured areas
   Homes in wildfire-prone zones or formerly risk-averse areas have seen depressed demand because insurance was such a headache. As insurers return and coverage improves, these areas may see renewed interest, which could boost property values — though with risk, and probably with premium caveats.
6. Encouragement of better building practices and risk mitigation
   Knowing that mitigation efforts will be rewarded (through lower premiums or eligibility for coverage) can motivate builders, developers, local governments, and homeowners to invest in resilient design, fire-resistant materials, defensible space, etc. Over time, that can reduce overall risk, costs, and losses.
7. Healthier market for real estate agents, developers, and builders
   With fewer insurance barriers, fewer canceled policies, fewer surprises, the ecosystem around real estate (realtors, developers, builders) becomes more stable. More predictable insurance helps developers plan new builds (especially in higher-risk zones) and could unlock more construction, easing supply constraints.

Potential Challenges and What to Watch

While the return of insurers is promising, there are caveats. These are issues that could dampen or complicate the positive effects:

• Premium still high in extreme-risk areas: Even with reforms, zones with very high wildfire risk may continue to see elevated premiums, high deductibles, or limited coverage. Not all risk can be mitigated, so costs will still be a factor.
• Insurance “affordability” vs “availability”: Having insurers willing to write policies is part of the solution — but if premiums remain unaffordable for many, the benefit is limited.
• Regulatory friction and legal challenges: There are criticisms of some of the new rules (for instance from advocacy groups) about how rates are reviewed, how much power intervenors have, etc. (CalMatters)
• Climate risk continues to rise: Wildfires, drought, extreme weather are ongoing. If losses escalate much more, the risk burden could again push insurers to exit or raise more rates.
• Lag time: Reforms and insurer returns won’t instantly “fix” the market. It takes time for underwriting changes, rate approvals, filings, compliance, etc. For many homeowners, the stress and backlog of denied renewals/policies still looms.

Key Metrics to Follow & Indicators of Success

To assess whether things are really improving for real estate because of insurers returning, watch these:

• Changes in insurance premiums and renewal rates in wildfire-prone ZIP codes
• Number of homeowners who move off FAIR Plan to standard private insurance
• Number of insurers writing in high-risk areas (and what portion of their book of business that is)
• Property sales volumes in areas that were previously under-insured or unattractive due to insurance issues
• Lending activity — e.g. mortgage approval rates vs declined due to insurance unavailability
• New construction starts in “at-risk” or formerly avoided zones

Bottom Line

The return of insurance companies to California could be a game-changer for the state’s real estate market—opening up previously-risky areas, restoring buyer confidence, improving affordability (or at least reducing some of the hidden costs), and enabling more financing.

But full benefit depends on how well reforms hold up, how much premiums drop or stabilize, how much actual coverage in previously underserved areas increases, and how well mitigation measures are adopted.

For real estate stakeholders—homebuyers, sellers, developers, investors—this is something to watch closely. Better insurance can unlock value, but only if the risk is addressed and affordability followed.

Steve Cardinalli
Real Estate Professional, 01323509
(760) 814-0248
Steve@Cardinalli.com
www.Cardinalli.com
Century 21 Affiliated Fine Homes & Estates
Village Faire in Carlsbad Village
300 Carlsbad Village Dr, 223
Carlsbad, CA 92008

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