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MortgagePoint ยป Your Trusted Source for Mortgage Banking and Servicing News 52 August 2025 J O U R N A L Default Servicing HOME INSURANCE CRISIS INTENSIFIES T he nation's homeowner's insur- ance market has come under heavy pressure as the number of climate-related events striking the U.S. grows annually. Talks of an overhaul of the Feder- al Emergency Management Agency (FEMA) and the National Flood Insur- ance Program (NFIP) have been met with criticism ever since Department of Homeland Security Secretary Kristi Noem announced in a cabinet meeting that "we're going to eliminate FEMA." With FEMA's role in emergency management, flood mapping, and flood insurance under pressure from the Trump administration, an escalation in climate-related events has homeowners, lenders, and local governments exposed and ill-prepared to deal with any potential climate-related events. While a national issue, California's homeowner's insurance market specifi- cally is under growing financial pressure following January's catastrophic Eaton and Palisades wildfires, which caused an estimated $52.5 billion in economic losses and affected approximately 18,000 structures, including 11,300 homes (90% of which were absolutely destroyed). The fires also claimed 29 lives, making them among the costliest wildfires in U.S. history. According to a study by Harvard's Joint Center for Housing Studies, signs of a deteriorating private insurance market preceded the fires. According to a Federal Insurance Office (FIO) report, private homeowner's insurance nonrenewal rates between 2018 and 2022 in fire-hit ZIP codes like Altadena (91001) and Pacific Palisades (90272) surpassed both California's statewide average (1.3%) and the national average (1.2%), reaching 1.7% and 1.8%, respectively, in 2022. Premiums in these high-risk areas also rose well above inflation during the same period. In Pacific Palisades, the average annual homeowner's insurance premiums climbed 33% above inflation, from $5,025 to $6,689. In Altadena, infla- tion increased 26% from $1,485 to $1,873. As private insurers have pulled back from riskier markets, California's Fair Access to Insurance Requirements (FAIR) Plan, which is the state's insurer of last resort, has seen unprecedented growth. In Pacific Palisades and Altadena alone, FAIR Plan policies more than doubled between 2021 and 2024, growing from 1,184 to 2,388. Following the fires, the FAIR Plan received about 5,000 claims and is now facing an estimated $4 billion in total losses. To remain solvent, the plan will assess $1 billion in emergency fees on its member insurers, marking the first emergency assessment in more than 30 years. Half of those fees can be passed on to consumers (private insurers and policyholders across the state). California's insurance commissioner recently approved a 17% rate increase for State Farm, the largest homeowner's insurer in the state, amid what was de- scribed as a "statewide insurance crisis." As rebuilding begins, policymak- ers face competing pressures: respond quickly to displaced homeowners while improving long-term climate resilience. LA Mayor Karen Bass authorized expedit- ed permitting and limited environmental review to "clear the way to rebuild homes as they were." However, experts emphasize the importance of risk mitigation to ensure future insurability and affordability. Up- grades like fire-resistant roofs, windows, and landscaping can reduce losses and may qualify for insurance discounts. Some states, including California, now require premium discounts for specific home-hardening measures. While the nation is in the midst of fire and hurricane seasons, understand- ing insurance coverage, hazard risks, and mitigation options will be crucial for homeowners navigating the state's evolving insurance landscape. And while many are fortunate enough to still get coverage, many na- tionwide are bracing for premium hikes in the not-too-distant future. State Farm, for example, announced that it is raising home insurance rates by 27% beginning August 15, 2025.