What’s Behind Your Homeowner’s Insurance Premium?

Editor’s note: This is the latest in a series of articles on local homeowners’ insurance rates.

The County Board of Supervisors’ decision on January 6, 2026, to close the Mono Vista Fire Station in July, when the SAFER (Staffing for Adequate Fire and Emergency Response) grant funding ran out, raised legitimate concerns about the effect of that decision on homeowners’ insurance rates for fire coverage (1).

Insurance companies, which have canceled fire coverage for many Tuolumne County residents, certainly watch closely for a community’s available firefighting resources. But what else do insurance companies consider when setting premiums, or deciding whether to offer coverage to a community at all? Actuaries calculate the exact formulas a company uses, and in California, any resulting requests for rate changes must be approved by the California Department of Insurance under the direction of the elected Insurance Commissioner.

It is easy to understand that the individual attributes of the homes themselves – size, age, type of roof, condition of fireplace and heating equipment – and risk factors of the surrounding neighborhood come into play. But a contributing factor driving many insurance companies to drop coverage in our community was the restrictions Proposition 103 (the 1988 Insurance Rate Reduction and Reform Act) imposed on their risk-modeling algorithms.

Proposition 103 was intended to protect consumers by overseeing things like prompt payment of claims and ensuring the solvency of the company offering policies. It established guidelines that insurance companies had to follow when setting or adjusting rates. In particular, the law required companies to provide detailed data and regulated the types of information allowed when a company submitted a request for rate adjustments.

Under Proposition 103, insurance companies could use only historical data on fire occurrences when computing their predictions; they could not use sophisticated “catastrophe modeling,” which provides a more nuanced appraisal of the likelihood of fire danger. Catastrophe modeling applies data about changing climate patterns and local ecological conditions to the fire prediction process.  In other words, it helps insurers estimate potential losses from events like wildfires that climate change might make more likely.

Proposition 103 also excluded the cost of reinsurance in figuring rate adjustment requests. Reinsurance is the practice of an insurance company buying insurance from another company on its own policies, thus sharing any risk. The primary insurance company was not allowed to include this cost when requesting a rate adjustment (2)(3).

The restrictions on catastrophe modeling and the exclusion of reinsurance costs have left Tuolumne County homes in a very unappealing position from an insurance company’s point of view.

On January 1, 2026, several pieces of legislation took effect that changed some old insurance practices. Of particular interest are two new bills: SB 429 and AB 888.

The California Wildfire Public Model Act (SB 429) funds a publicly available wildfire catastrophe model to be used in determining risk levels. The key here is “publicly available” because insurance companies have generally kept the privately designed algorithms they use to set rates under wraps. SB 429 allows catastrophe modeling but, in the interest of transparency, restricts that use to the public model.

The California Safe Homes Grant Program (AB 888) establishes a program to help cover homeowners’ costs of implementing fire-resistance measures, such as installing fire-resistant roofing or improving the fire resistance of landscaping (4). (It will be interesting to see how this program might be implemented by neighborhoods that have become Firewise Communities.)

There is a great deal of speculation about how these new models will affect insurers’ decisions to continue doing business in Tuolumne County, and even more speculation about how the actual rates for homeowners in risk-prone areas will be affected. We also note that the insurer of last resort, the California FAIR Plan, is only available if private policies are unavailable. The fire insurance landscape may well continue to change.

Afterword from Karen Caldwell, Director and Firewise Community Program Coordinator, Tuolumne Fire Safe Council.

“Keep in mind that insurance companies are “for-profit” businesses. They are not government entities. The state government has very limited authority to impose requirements on a private business. Because of increasing nationwide disasters (floods, fires, hurricanes), the funding pool insurance companies use to pay out damages/losses is dwindling fast; thus, rates increase, and fire insurance cancellations rise for homes in high-risk areas like ours. It is now a national issue, not just in the West.

A lot is happening at the state level, where the Insurance Commissioner is working with the insurance industry to incentivize homeowners to maintain defensible space and harden their homes. There is no free ride; homeowners must take responsibility for reducing the risk to their properties.”

NOTES

1. “Tuolumne County Board of Supervisors Meeting,” Access Tuolumne Archive, January 6, 2026. Note: The presentation by CalFire begins around the 35-minute mark.
2. Augustina Ullman and Eric McGhee, “A Deeper Look at California’s Homeowner Insurance Challenges,” Public Policy Institute of California, April 10, 2025.
3. Jazzmin Lu, “California’s Proposition 103: The Ongoing Debate Over Insurance Regulation,” CoverageCat, December 13, 2025.
4. Danielle Venton, “New California Insurance Laws on the Books in 2026,” KQED, January 12, 2026.