When Warnings Become Reality: California Confronts Its Underinsurance and Insurance Affordability Crisis

The recent hearing before the California State Board of Equalization on underinsurance brought long-overdue attention to a crisis that has been quietly eroding the financial security of homeowners across the state. ¹ In the aftermath of yet another devastating wildfire season impacting communities in and around Los Angeles. The testimony presented at the hearing painted a clear and unsettling picture that far too many Californians are discovering. After losing their homes, Californians find their insurance coverage falls dramatically short of what it would take to rebuild

As I listened to the summaries of the hearing, I couldn’t help but reflect on a blog post I wrote prior to the most recent wildfire. In that piece, The Looming Homeownership Crisis: A Ticking Time Bomb of Underinsurance, Insurance Premiums, Taxes, Systemic Losses, and Owners Not Able to Pay for Costs of Ownership, I discussed what I described as a ticking time bomb of underinsurance. It is a looming crisis driven by outdated insurance estimates, ever-rising construction costs, and a system that burdens homeowners with increasing premiums and taxes while offering little in the way of clarity or accountability. I did not anticipate the speed at which these concerns would rise to the surface of public discourse, but it is both sobering and validating to see these very issues now under examination by state officials and consumer advocates.

One of the most compelling voices at the hearing was Amy Bach, Executive Director of United Policyholders. Amy has been a steadfast champion for policyholder rights for decades and continues to be a vital force in pushing for fairness and transparency in California’s insurance landscape. Her testimony underscored the persistence of underinsurance as a systemic problem and offered practical pathways forward, including reforms to disclosure laws and stronger consumer protections. It is no exaggeration to say that homeowners across the state are better off because of her work and advocacy.

The hearing revealed that underinsurance is not merely a matter of individual oversight or failure to read the fine print. It is a structural problem exacerbated by insurance companies’ reliance on opaque algorithms, outdated property data, and an absence of meaningful accountability. Experts like Ken Klein from California Western School of Law presented data showing that nearly two-thirds of homeowners who lost their homes in recent disasters were underinsured—often by more than a third of the true rebuilding cost. These are not small discrepancies. They represent life-altering gaps in protection that leave families exposed in the moments when they are most vulnerable. I’ve previously noted Professor Klein’s work in Why Are Policyholders So Frequently Underinsured in the Event of a Total Loss? What Can Fix the Underinsurance Problem?

I commend Vice Chair Sally Lieber for convening this hearing and for her honesty in acknowledging her own underinsurance situation during the hearing. It is a powerful reminder that this problem can touch anyone, regardless of their knowledge or preparation. The proposals discussed, from enhancing extended replacement cost options to creating a publicly accessible database of real-world rebuilding costs, are steps in the right direction. But we should not lose sight of the urgency. Each new wildfire, flood, or earthquake will expose more families to this silent shortfall unless meaningful reforms are enacted.

I continue to believe that protecting the financial security of homeowners begins with making insurance coverage transparent, adequate, and enforceable. It also takes a societal commitment to reduce preventable losses so that insurers can charge rates that are affordable. Insurance is a societal product requiring good faith efforts from all stakeholders, which includes policyholders, insurers, and local governments.

Thought For The Day 

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”
— John F. Kennedy

¹ Susie Neilson, Megan Fan Munce. ‘I think that’s simply fraud’: California hearing probes solutions to underinsurance following Chronicle investigation. San Francisco Chronicle (May 29, 2025).