Rising Insurance Rates in California: What Homebuyers and Sellers Need to Know

California regulators have recently greenlit rate hikes from two major insurance carriers—Mercury General and Safeco—putting additional pressure on homeowners already grappling with the aftermath of recent wildfires and surging construction costs.

Mercury General, the state’s fifth-largest home insurer, will implement a 12% average rate increase starting in late March, impacting approximately 579,300 single-family homeowners, condo owners, and renters. Meanwhile, Safeco, a Liberty Mutual subsidiary, will raise rates by 7.2% in May, affecting 86,700 policyholders—though notably, Safeco plans to exit the condo and renters insurance market next year.

A Liberty Mutual spokesperson explained the hikes, citing “significant inflationary pressures on labor and construction costs, and supply chain constraints that limit materials selection and increase repair/building times.” For Safeco customers, these changes could mean premium jumps ranging from 2% to 15%, depending on the policy.

Not Just the Wildfires—It’s About Construction Costs

Interestingly, neither insurer directly links these rate hikes to the historic wildfires that recently devastated parts of Los Angeles County. Instead, the increases reflect long-standing cost pressures. A Mercury General spokesperson noted that the rate adjustments stem from "mounting construction costs" and an uptick in "plumbing-related water losses," with the decision in the works since June 2024—well before the fires.

Despite the challenges homeowners face, Mercury General recently reported a $100 million profit in its fourth quarter, surpassing analyst expectations, which raises questions about the balance between profitability and consumer protection in the insurance market.

California’s Deepening Home Insurance Crisis

These latest rate hikes come on top of an ongoing home insurance crisis in California. Major carriers like State Farm, Farmers, and Allstate have stopped writing new policies in high-risk areas, primarily due to escalating natural disaster risks. This has had a ripple effect on the real estate market, lowering home values and derailing deals in vulnerable regions.

For many, the only option left is the FAIR Plan, California's state-sponsored insurer of last resort. By 2024, over 452,000 homeowners were enrolled in the plan—more than double the number in 2020. While the FAIR Plan offers basic coverage, it comes at a premium price and now faces its own financial crisis.

Last week, the California Department of Insurance revealed that the FAIR Plan requires a $1 billion bailout to stay solvent after paying out over $914 million in fire-related claims. Under the state-approved plan, private insurers will foot half the bill, while the remaining costs will be passed onto policyholders via a one-time fee.

What This Means for Homebuyers and Sellers in Orange County

For buyers and sellers in Orange County, these shifts in the insurance market could have real implications.

• Buyers may face higher monthly costs due to increased insurance premiums, potentially affecting their loan approvals and home affordability.
• Sellers might experience longer selling timelines or need to adjust pricing to account for the rising insurance expenses that deter some buyers.

As more insurance companies retreat from California’s high-risk zones, real estate transactions become trickier, requiring careful navigation to avoid pitfalls.

Bottom Line

Thinking of making a move in Orange County? With insurance rates climbing and market dynamics shifting, now more than ever, you need a real estate expert who understands how these changes can impact your bottom line. I’m here to help you make informed decisions—whether you're buying, selling, or just exploring your options.

Let’s connect and strategize the best move for your future in this evolving market. 

Reference: Farberov, S. (2025, February 21). Insurance rates will increase for some homeowners after 2 California carriers are given go-ahead. Realtor.com.