This week’s wildfires come at a crisis point in the homeowner’s insurance market in which companies, citing the growing risks caused by climate change, have been dropping policies and refusing to write new ones.

Last spring, State Farm announced it was canceling 72,000 policies in California, including 1,600 for homes located in Pacific Palisades.

“We must now take action to reduce our overall exposure to be more commensurate with the capital on hand to cover such exposure, as most insurers in California have already done,” State Farm executive Denise Hardin explained in a letter to California Insurance Commissioner Ricardo Lara, adding, “We have been reluctant to take this step, recognizing how difficult it will be for impacted policyholders, in addition to our independent contractor agents who are small business owners and employers in their local California communities.”

That has left homeowners flocking to the Fair Plan, the state’s insurer of last resort. As a result, the Fair Plan’s financial exposure has skyrocketed.

“As of September 2024 (current fiscal year-end), the FAIR Plan’s total exposure is $458 billion, reflecting a 61.3% increase since September 2023 (prior fiscal year-end),” the Fair Plan says on its website.

If the losses from the current wildfires are higher than what the Fair Plan can pay, it will legally be able to seek rate increases from all other insured Californians.

“In California, just as in Florida, ordinary homeowners who have car insurance policies, life insurance, will be on the hook for the failures of the insurance in that state,” Susan Crawford, a senior fellow at the Carnegie Endowment for International Peace and a former science adviser to President Obama, previously told Yahoo News.

If that fails to balance the books, she added, “the likelihood is that the state will then turn to the federal government for a bailout.“