Insurance Crisis Hits Home: Council Considers Asking Governor to Declare State of Emergency

Amid California’s deepening property insurance crisis, Pasadena City leaders will vote Monday on a resolution urging Gov. Gavin Newsom to declare a state of emergency as residents and businesses struggle to find affordable coverage in a rapidly shrinking market. 

The resolution proposal comes 36 years after California voters enacted Proposition 103, which established consumer protections to keep insurance rates fair and affordable. 

Today, those protections face unprecedented challenges as major insurers have dramatically reduced their presence in California. 

Seven of the state’s largest property insurers — State Farm, Allstate, Farmers, USAA, Travelers, Nationwide, and Chubb — have limited new policies in the state. Two of these carriers, representing over 27 percent of the admitted insurance market, announced in 2023 they would stop issuing new homeowners and commercial property insurance policies entirely. 

Several others, representing more than 36 percent of the market, announced plans to limit new policy origination. 

“Access to property insurance is essential to homeowners to protect what is for many their largest and most important asset, and is necessary for homebuyers to secure a mortgage for a home that can build generational wealth,” the proposed Pasadena resolution states, highlighting concerns that the insurance shortage could freeze real estate transactions and worsen California’s housing crisis, particularly impacting young families and those on fixed incomes. 

Analysts say the crisis has already disrupted housing development, affecting construction projects, homeowners associations, and the development of affordable housing options, including accessory dwelling units. Some homebuyers have been unable to complete purchases due to lack of insurance availability, while larger businesses struggle to maintain coverage. 

The market disruption has forced many property owners to turn to the California Fair Access to Insurance Requirements Plan, the state’s “insurer of last resort.” 

However, Pasadena officials note that Fair Access to Insurance Requirements Plan premiums are “in many cases, multiple times their previous rates and that are unaffordable,” forcing some residents to consider selling their homes or businesses.

Over the past five years, the steadily increasing enrollment in the Fair Access to Insurance Requirements Plan has threatened the stability of this state-established risk pool. 

Recent data shows the severity of the situation, with homeowners insurance transactions in California’s surplus lines market jumping 70 percent in 2024 compared to the previous year. Major carriers have sought substantial rate increases, with Allstate receiving approval for a 34.1 percent average increase affecting over 350,000 policyholders starting in November 2024. 

The resolution calls for several specific actions, including: 

• Expanding coverage choices for consumers, particularly in underserved areas 
• Improving the efficiency, speed, and transparency of the state’s rate approval process 
• Maintaining long-term availability of property insurance coverage 
• Ensuring the solvency of the Fair Access to Insurance Requirements Plan while reducing its market share
• Tailoring the rate approval process to consider all factors necessary to promote a robust, competitive insurance marketplace 

California Insurance Commissioner Ricardo Lara announced a “Sustainable Insurance Strategy” in 2023 to stabilize the market through regulatory reforms. The reforms include expediting the rate approval process, allowing insurers to use forward-looking catastrophe modeling, modernizing the Fair Access to Insurance Requirements Plan, and permitting insurers to factor reinsurance costs into rates.

But City officials warn that “it may take years for these regulations to impact the market,” especially if faced with legal challenges. 

The proposed resolution notes that despite extensive work by the State of California, local government agencies, nonprofit organizations, and homeowners to improve fire resistance and reduce wildfire risk, many residents and businesses continue to report policy cancellations or significantly higher premiums. 

If approved, the resolution would authorize Pasadena Mayor Victor Gordo to work with City staff and state legislative advocates to communicate these concerns to state officials, pushing for immediate action to address what local leaders see as an emerging crisis threatening both homeownership and business operations in California. 

The resolution was put forth by Councilmember Tyron Hampton. 

The vote comes as State Farm has separately applied for a 30 percent rate increase for homeowners policies, 52 percent for renters, and 36 percent for condo coverage, highlighting the ongoing market instability. 

The reforms introduced by Commissioner Lara are expected to be fully implemented by the end of 2024, with hopes of market stabilization by mid-2025.