As Los Angeles begins its slow recovery from the devastating wildfires in Pacific Palisades and Altadena, residents who lost everything now face another nightmare: dealing with their homeowner's insurance.

California's regulation of the insurance industry made it extremely difficult for insurers to raise rates; the result was that most insurers simply stopped insuring houses in especially risk-prone areas. Most recently, State Farm declined to renew 72,000 policies owned by California residents — many of whom subsequently lost their homes earlier this month.

Considering that the national median household income is $74,580, based on the latest data from the U.S. Census Bureau, Americans spend 3.41% of their wages on car insurance.

These homeowners were stuck with the state's expensive yet bare-bones California Fair Plan insurance. Billed as a policy of "last resort," the CFP has caps well below many homeowners' mortgage amounts.

To make matters worse, the CFP is badly underfunded, facing up to $8 billion in loss exposure with only $377 million in funds to pay claims.

Add to this the typical dysfunction that comes with government bureaucracy, especially in Gavin Newsom's Golden State.

How the industry deals with this will have ripples across the country. That in itself is a whole other article.

Here, I want to focus on car insurance.

Widespread damage

In addition to homes, thousands of daily drivers, collector cars, and commercial vehicles have been destroyed; most will get either full or partial replacement, depending on the insurance policy.

Of course, we hope everybody affected by the fires receives swift and fair insurance compensation. But how does all this affect those of us outside of California?

In short, expect the trend of rising car insurance rates to continue.

When a vehicle is destroyed, it’s typically replaced, maybe not full replacement value, but still, that payout cost the company serious dollars. Too many of these claims can even put an insurance company out of business.

Insurance companies are backed by reinsurers, companies that handle risks too large for insurance companies to handle on their own — thus allowing the latter to take on more policies.

Like insurers, reinsurers are feeling the pinch from these devastating fires — and other natural disasters.

Expensive to replace

There's also the strain of inflation and the soaring prices of new cars.

The average price of a new vehicle is almost $50,000, according to Kelley Blue Book, up from roughly $36,000 during 2019 before the pandemic. Higher prices and more expensive parts make it costlier for insurance companies to cover accidents.

California, North Carolina, Utah, and Virginia introduced higher mandatory minimum liability limits as of January 1.

As you know, newer vehicles collect as much data as they can from drivers. Car companies subsequently sell this data to insurance companies, which can use it to justify higher premiums.

You may have had your insurance rates increased dramatically in recent years. There are a lot of reasons for that, and we’ve covered that on our channel. Sometimes it has to do with data collection; many vehicles are collecting the data and sending it to the insurance companies because the insurance companies pay for it. So your data is being shared with multiple buyers, including the government as well as other corporations.

More of the same

The increase in auto insurance premiums in 2024 is just the continuation of companies’ rate hikes in 2023 of 24% nationwide, according to Insurify.

In 2024, rates increased again. In some states, rates have increased as much as 61% in Minnesota and 54% in California — 48% on average across the USA. Drivers in these states don't have to take any action to adapt to the changes, as it will be up to their insurance companies to adjust their clients' liability coverage levels.

According to data from consumer financial services company Bankrate, car insurance rates surged to an average of $2,543 for full coverage. Considering that the national median household income is $74,580, based on the latest data from the U.S. Census Bureau, Americans spend 3.41% of their wages on car insurance.

However, how much more you will pay will depend on the state and your driving record.

Get comprehensive

An additional note: Only those car owners with comprehensive coverage — which protects from damage caused by natural disasters and "acts of God" such as riots, theft, and vandalism — will be compensated for losses due to the wildfires.

Motorists only receive coverage against damage caused by forest fires and wildfires if they maintain comprehensive coverage. Timing is important: Most insurance companies will enact binding restrictions if there is a tangible threat of wildfire or flooding.

Most insurance companies issue a moratorium on issuing or binding new policies when a disaster is expected. This typically applies to both home and auto insurance policies. The reason is simple: Insurance is meant to protect you in case of an unforeseen event such as a car accident or hitting a deer.

While many natural disasters happen unexpectedly, some events come with advanced warnings. Hurricanes, for example, can typically be forecast many days in advance — though their trajectories can change rapidly. Flooding is another example of a consequence of hurricanes or large amounts of rain, which is why FEMA mandates that a flood insurance policy must be in place for a certain number of days before it will cover any losses.

Even if you live in an area that is not in immediate danger, these moratoriums are often state-wide.

Car insurance will continue to get more expensive as cars both personal and commercial get more expensive to buy, maintain, and acquire replacement parts for. Shop around for the best rates before your old policy expires.