California is in the midst of a home insurance crisis, industry experts say, and a government oversight agency is giving recommendations on rebuilding the market.

A report released this month by the independent government agency Little Hoover Commission outlines more than a dozen recommendations to state leaders.

“The package of changes described in this report will help ensure that the system better serves the homeowners of California,” Commissioner Janna Sidley, who served on the subcommittee that led the study, said in a statement.

The report—sent to Gov. Gavin Newsom and other California leaders this month—lists 11 recommendations for reforming California’s home insurance market, including allowing insurers to use catastrophic modeling to set insurance rates under regulation and public oversight. California is the only state that prohibits insurers from using catastrophic models to set insurance rates, it said.

However, reforms are underway. California Department of Insurance (CDI) Commissioner Ricardo Lara announced on Nov. 14 that the state’s first-ever wildfire catastrophe modeling regulation had been submitted to the Office of Administrative Law for final approval.

The Little Hoover report also recommends requiring insurers to consider risk mitigation efforts by homeowners when underwriting and setting rates, allowing insurers to incorporate reinsurance costs in rate setting, improving the CDI’s website for easier access to insurance information, defining core standards and aligning requirements for mitigating fire risks and maintaining insurability, ensuring Californians have access to all options for homeowners insurance, and expanding programs to help homeowners protect their properties against fires.

California leaders have often recognized the home insurance crisis in recent years. Newsom issued an executive order in September 2023 requesting that the insurance commissioner “take prompt regulatory action to strengthen and stabilize California’s marketplace for homeowners insurance and commercial property insurance.”

The executive order also required the commissioner “to consider whether the recent sudden deterioration of the private insurance market presents facts that support emergency regulatory action.”

In a recent presentation outlining his “Sustainable Insurance Strategy” for the Golden State, Lara noted that in 2022 alone, seven of the top 12 insurance companies in the state have paused or restricted new customers despite rate increases approved or pending with the CDI. Some of these major insurance companies are State Farm, Farmers, Allstate, and United Services Automobile Association (USAA).

The Little Hoover Commission also described the crisis in detail.

“For Californians, home is where memories are made, holidays celebrated, chapters of life revealed, and the most important financial investment of their lives,” Pedro Nava, chair of the Little Hoover Commission, said in a statement. “Too many people are being told their existing insurance won’t be renewed, forcing them to find more expensive alternatives, often for inferior coverage, or even to forgo insurance altogether. This crisis has been brewing for many years and deserved timely attention.”

Nava summarized in his letter to state leaders that insurers expressed eagerness “to maintain business in the state,” but they were frustrated “by what they see as an unfair regulatory framework.”

The Little Hoover Commission’s report also notes that “insurers say they are contending with growing risks and rising costs, largely associated with the ongoing risk of extreme losses resulting from catastrophic wildfires.”

Californians have held about 8.5 million to 8.8 million homeowners insurance policies in recent years, with more than 97 percent underwritten by about 100 private insurance companies, and less than 3 percent under the state FAIR plan, according to the CDI.

The FAIR plan, or California Fair Access to Insurance Requirements plan, is the state’s safety net insurance plan that provides only basic coverage for property losses. More Californians have had to turn to the FAIR plan when they lost their previous insurers. The number of FAIR plan policyholders has more than doubled since 2020.

The CDI has approved many double-digit home insurance rate increases in the past two years, with the latest approval in late October for double-digit rate increases from USAA, one of the top home insurers in California that exclusively serves military and veteran families.

Despite the rate hikes and lack of coverage, the Little Hoover Commission said Californians on average are not paying higher home insurance prices than the national average.

The report found that California’s home insurance costs are low relative to the state’s high housing costs and compared with other states that are at high risk of natural disasters. For example, the average home insurance premium in California in 2021 was $1,403, but it was $2,437 in Florida, $2,259 in Louisiana, and $2,146 in Texas, the report wrote.