California Lawmakers Push New Fire Insurance Rules After Wildfire Claims Crisis

California is considering a package of bills that would add requirements to home insurance providers, after state leaders criticized the industry's response to the state's devastating wildfires last year.

The state Senate held hearings on three bills generally aimed at improving the consumer experience with fire insurance in California. State Sen. Steve Padilla, a Democrat who chairs the Senate Insurance Committee, said the state has been deluged by complaints from homeowners that their insurance companies are slow to pay out claims.

That continues even 15 months after the Palisades and Altadena fires in January 2025.

"Decades old insurance laws, practices are no longer sufficient to meet the moment," Padilla said at a Senate hearing in Sacramento on Wednesday. "We are attempting to take a lesson from this situation."

Fire insurance reforms

SB-876 would add new requirements for insurers to handle claims more quickly in a declared emergency. It would also increase penalties for violations of fair claims practices. Insurers would need to formulate a "disaster recovery plan" for how to handle major disasters and meet timelines while handing claims.

Two additional bills are pending as well. SB-877 is aimed at speeding the times for insurers to provide documents related to claims. SB-878 requires those insurers to provide compliance data on their payouts, starting in 2028.

Ricardo Lara, California's insurance commissioner, said the wildfires proved the need to reform the claims process, accusing insurers of putting up a "maze of roadblocks" to stonewall claims. But Lara said he has received pushback that the bill package is a market-killer.

Padilla said he would continue to work out some items in the legislation, especially when it comes to the claims processes. There are some nuances in SB-876 that conflict with others and must be worked through.

Fire fallout

The January 2025 fires destroyed 12,000 homes around Los Angeles. They wiped out almost $8.3 billion in home value across Pacific Palisades and Altadena alone, according to a Realtor.com® analysis.

And the economic fallout is ongoing. The fires will cost $4.6 billion to $8.9 billion in lost economic output from 2025 to 2029, according to estimates from L.A.'s economic development group. That leaves some estimates of damage and economic loss at up to $275 billion.

As of January, insurers have paid out $22.4 billion, and fire victims have also seen $6 billion in federal and state dollars and donations. The California Department of Insurance showed a 94% payout rate for 42,121 claims.

State leaders have taken insurers to task since then. Lara reached a settlement agreement with State Farm last month and also pushed forward several reforms and imposed a moratorium on some insurers to remain in the state.

Lara said he has responded to over 2,000 complaints about delays, denials, miscommunications, and disputes about the claims process. He called these a "systematic failure."

Since 2019, 100,000-acre "megafires" and 1-million-acre "gigafires" are a regular occurrence, Lara said. But he said replacement cost models are outdated, and laws around some building code upgrade coverage need updating. Otherwise, homeowners have been hit with unexpected bills, he said.

"California's wildfire reality is now year-round," Lara said. "Fires are larger, faster, and more destructive than ever."

Even President Donald Trump was critical of the insurers, singling out State Farm and others and calling them "horrendous" for not paying out to Californians who'd spent years paying premiums.

Industry opposition

However, the bills aren't without their detractors, which include the Building Industry Association chapter in the state and several insurance-related entities.

Denni Ritter, vice president of the American Property Casualty Insurance Association, said the mandates in the bills are too broad. It's attempting to negotiate with provisions of the legislation, and she said it would work collaboratively to do so. But it fears the scrutiny will "destabilize" the California insurance market.

"We're really concerned about the cumulative and unintended consequences of the remaining provisions," Ritter said. "The reality is these mandates will increase mandates for all Californians, including those in lower-risk areas."

Seren Taylor of the Personal Insurance Federation of California said it also aims to negotiate on provisions of the bills. Premiums could rise 15% to 20%, which is $200 to $300 on average, but that could rise to $1,000 in high-risk areas, based on its analysis.

Insurers worry the speed required in some of the measures open them up to fraud.

"These are not marginal changes," Taylor said during the hearing. "And they will drive sticker shock statewide."

The committee encouraged further conversation on the measures. Lara said he planned to work with the industry.

Sen. Laura Richardson, a Democrat, said she'd support the legislation but was hesitant about the fairness of some of its provisions. She acknowledged the scope of the wildfires that have struck the state in recent years. But she said insurers, too, are in a tough spot when faced with tens of thousands of claims.

"I'm about fairness," she said. "It just seems really not a fair way for us to get to my goal, because we need insurance companies."