Realizing the dream of home ownership comes with a cold reality for millions of people in California: more expensive insurance premiums that cover less. Increasingly, the only option for some homeowners is the California Fair Access to Insurance Requirements (FAIR) Plan, a state-mandated backstop that, until recently, primarily provided coverage in places conventional insurers would not touch due to wildfire risk. A new white paper from Stanford's Climate and Energy Policy Program (CEPP) tracks the insurance "crisis" from wildfire-prone communities to the larger housing market, and outlines the urgent need for policy remedies.
"A new phenomenon is emerging: Californians' dependence on the FAIR Plan is now showing up with mortgages in moderate- and low- wildfire risk zip codes at twice the rate of its overall market share," said report lead author Nam Nguyen , a research fellow at CEPP. "The problem is bigger than most people think, and it's going to get worse before it gets better."
Unpacking the insurance crisis
The paper, the first in a planned series using recently available loan-level data, finds that average California homeowner insurance premiums rose 84% between end of 2020 and March 2026, while average deductibles climbed from $1,813 to $2,553 over the same period. More striking is what the data reveal about the California FAIR Plan. While the plan as of March 2026 covers about 5% of California's single-family homes – up from 1.5% in December 2020 – it backed approximately 6% of new single-family mortgage originations. This is a leading indicator of deeper trouble ahead, according to the researchers.
"More than one in 17 new California home loans is now being written with the most limited, most expensive coverage option as the only available choice," said Michael Wara , CEPP director and co-author of the paper. "Although the most recent data indicates some improvement, unless market fundamentals change, the FAIR Plan's footprint will keep growing, and housing will become even more out of reach for Californians."
The FAIR Plan was created in 1968 as a remedy for past widespread insurance industry discrimination against communities of color. It covers little more than damage from fire, smoke, lightning, and in-home explosions. Nearly half of FAIR Plan customers purchase supplemental policies at additional cost, piecing together coverage that normally came in a single comprehensive policy.
Unintended consequences and possible solutions
The paper traces the crisis to a collision between rapidly escalating wildfire risk, a COVID-era inflation spike and a regulatory framework rooted in Proposition 103, passed in 1988. The law, which originally was aimed at managing a surge in auto insurance premiums, has also prevented home insurers from charging rates that reflect actual and projected risk.
At least partly as a result of these restrictions, seven of the 12 largest home insurers in California had reduced or halted new underwriting in the state by 2022. The financial impact of wildfire risk shifted from high-hazard areas to the broader pool of policyholders across the state. At that point, the California Department of Insurance implemented reforms that, like a course of antibiotics, take time to work. The Stanford researchers also see evidence that a key side-effect of the treatment – aimed at improving availability of insurance is to make it less affordable.
The researchers suggest action on two fronts. First, update state regulations so insurers can set prices that reflect the true cost of covering a home in fire-prone California, including what the insurers pay for financial protection against catastrophic losses, and what computer modeling suggests about future wildfires. Second, invest heavily in reducing wildfire risk through a range of actions, such as prescribed burns to thin overgrown forests and strengthening homes to better resist fires. As the paper's authors put it, the only lasting solution to California's insurance challenges is to "burn down fewer houses."
Author affiliations
Wara is also a senior research scholar at the Stanford Woods Institute for the Environment and senior director for policy at the Sustainability Accelerator within the Stanford Doerr School of Sustainability.
