California wildfires likely to push auto insurance rates, loan deferrals higher

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Wildfires that ignited days ago in Southern California have already scorched over 38,000 acres, damaged more than 12,000 structures, and caused an estimated $150 billion in damages. And the impact is adding pressure to California’s expensive auto market, with rising insurance rates and lenders extending payment deferral options.

By the numbers:

• The average annual cost of full-coverage car insurance in California jumped 47.8% year over year to $2,575 in December 2024, per Insurify data.

• Nationally, full-coverage insurance costs rose 15.2% YoY to $2,313.

• California now ranks 12th in the U.S. for insurance costs but experienced one of the largest annual increases.

Why it matters: California’s current wildfire season is exacerbating systemic pressures on the state’s insurance and auto finance markets. Insurers and lenders are bracing for the fallout as damage claims mount and borrowers face heightened financial strain.

What’s happening: California’s “insurance crisis” has been years in the making, driven by a mix of devastating natural disasters, regulatory constraints, and rising costs:

• The 2018 Camp Fire, one of the most destructive wildfires in California’s history, caused $16.5 billion in damages. The fire accelerated a wave of non-renewals for homeowner policies, which surged over 30% in 2019.

• In 2023, industry giants like State Farm and Allstate ceased issuing new property insurance policies in California. State Farm attributed its decision to inflation and "rapidly growing catastrophe exposure," leaving many consumers scrambling for coverage.

• Until late 2023, state regulations prevented insurers from using catastrophe models to predict future wildfire risks and passing on the rising costs of reinsurance — safeguards against large-scale losses.

The turning point: When the state’s moratorium on rate increases was lifted, insurers implemented steep hikes to recover years of suppressed costs.

Zooming in: Combined with rising insurance costs, natural disasters are rippling through auto loan borrowers’ finances and will likely make it harder for some drivers to stay current. 

• After events like Hurricane Helene and Hurricane Milton in late 2024, subprime loan extensions had jumped 84% compared to 2019, according to an analysis of auto asset backed securities. 

• Toyota Financial Services, Lexus Financial Services, and Mazda Financial Services have stepped in with payment deferral programs to help customers in disaster-affected areas, offering temporary relief.

Bottom line: The current California wildfires are a stress test for an already fragile system. And with no quick fixes in sight — the pressure on insurers, lenders, and borrowers alike.

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