The Stark Choice Between Deregulation and Debt

Florida and California, two large, heavily populated states highly vulnerable to natural hazards, offer a stark comparison in policy response to the same climate-driven insurance crisis,. Florida, facing hurricane and flooding exposure, has aggressively deregulated its market, eliminating state rate control. Conversely, California, primarily battling wildfire risk, maintained rate regulation but eventually conceded massive rate hikes justified by catastrophe models,.

Neither approach has proven sustainable in the face of escalating risk. Florida’s home insurance premiums are now four times the national average,. California, after experiencing catastrophic losses up to $40 billion from the January 2025 Los Angeles wildfires, faced a collapse of its residual market that required a bailout,,,.

When the Market Cannot Outrun Physical Risk

Simply increasing prices or reducing regulatory oversight is an insufficient response to a crisis fundamentally driven by increasing physical risk,. Both deregulation and forced premium hikes, unaccompanied by structural mitigation or risk-reduction mandates, function merely as temporary “stopgaps” against the inevitable climb toward an uninsurable future,,.

Deregulation and Market Retreat in Florida

Florida’s crisis stems from its geography—a low-lying peninsula highly vulnerable to accelerating sea-level rise and worsening hurricanes,,. Following the massive insured losses inflicted by Hurricane Andrew in 1992, numerous insurers exited the state.

In response, Florida deregulated its market, eliminating rate control and creating mechanisms like the Florida Hurricane Catastrophe Fund (FHCF) to stabilize the market through cheaper state-backed reinsurance,,. Crucially, Florida restructured its system to make all state policyholders—not just homeowners—responsible for covering deficits in the state-run insurer of last resort, Citizens Property Insurance Corporation,,. This socializes risk, effectively imposing a “hurricane tax” on the entire population.

Despite this deregulatory effort, 15 private insurers declared insolvency after 2020, and the core instability remains. Citizens, which peaked at 1.5 million policies in 2023, is required to maintain rates that are “not competitive” with the private market and employs aggressive depopulation strategies to force policies back to private carriers,,. This strategy aims to reduce Citizens’ risk exposure, but it results in only the absolute riskiest properties remaining in Citizens, deepening the adverse selection of the residual market.

Policy Paralysis in the Golden State

California faces extreme exposure to wildfires, illustrated by the January 2025 Los Angeles fires, which destroyed over 16,000 structures,. Climate change made this disaster, which resulted in estimated insured losses of $40 billion, 35% more likely,,.

In response to rapidly rising losses and exposure, major national insurers like State Farm ceased writing new policies in California,. This retreat resulted in a substantial upward trend in insurer-initiated nonrenewals from 2015–2021. The state’s insurer of last resort, the California FAIR Plan, subsequently tripled in size, reaching over 610,000 policies by June 2025,,.

To encourage insurers to return, California implemented major policy changes: approving the use of forward-looking probabilistic catastrophe models and allowing insurers to factor unregulated reinsurance costs into rates, contingent on commitments to increase underwriting in high-risk areas,,,. However, State Farm received a 17% emergency rate hike approval in May 2025 yet still stated it would not be able to write new insurance,. Critics argue that the new regulations contain loopholes that allow insurers to receive massive rate hikes without guaranteeing increased high-risk coverage,,.

The Governance Trap of Last Resort

The structural flaw common to nearly all residual market plans is governance dominated by the industry they are meant to backstop. Fair Access to Insurance Requirements Plans (FAIR Plans) are fundamentally involuntary associations of private insurers mandated by state law,.

In at least 86% of FAIR Plans and Beach/Wind Plans, insurance company representatives control the majority of governing board seats,. This structure ensures these quasi-public programs are consistently run in the interest of private insurance industry members, thereby subordinating the public mandate of accessible, affordable coverage.

This industry-centric model is evident in both states:

  • Florida’s Citizens, despite being a state-owned entity, is structured to protect the private market through a statutory mandate to charge non-competitive rates and aggressive depopulation programs,.
  • California’s FAIR Plan is administered by a governing committee with representatives from major carriers like State Farm, Allstate, and Travelers. This industry control facilitates decisions, such as the recent controversial assessment, that shift financial liability from private insurers onto all state policyholders,.

The Mandate for Resilience and Risk Reduction

The instability in California and Florida confirms that merely shifting the financial burden of risk does not eliminate the physical threat,. The long-term solution requires addressing the root cause: the vulnerability of the built environment to climate-driven disasters,.

States must implement policies that move beyond passive acceptance of risk to active risk mitigation. This includes requiring private insurers to incorporate the benefits of measures like “defensible space” for wildfire risk or adherence to “fortified home” standards against wind and hail into their pricing and underwriting models,,. For instance, Colorado recently enacted legislation mandating that insurers account for property-, community-, and landscape-scale mitigation in their pricing models,. By incentivizing and mandating these physical changes, states can reduce the actual probability of loss, making the property risk insurable in the first place. Without such interventions coupled with policies discouraging development in high-risk areas, market retreat and escalating public costs will continue.