Days before wildfires ravaged the Los Angeles area, California’s insurance commissioner said carriers will be required to increase coverage in risky areas. In exchange, insurers got more leeway on how much they can charge homeowners.

In the final days of 2024, the State of California announced a new regulation that was meant to help homeowners in risky areas obtain more access to insurance.

The rule, which goes into effect later this month, requires carriers to offer coverage in wildfire-prone regions over time, specifically, by 5% every two years until they reach at least 85% of their statewide market share, according to a statement from Insurance Commissioner Ricardo Lara’s office on Dec. 30. In return, insurers can incorporate reinsurance costs in their calculations for what they will charge consumers.

“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change,” Lara said in the statement at the time, noting that all other states allow insurers to pass on reinsurance costs.

That’s after carriers have been fleeing the state in recent years, driven out by increasingly costly weather events, including previous fires that have wiped out company profits. In fact, State Farm dropped nearly 70% of its policies in Pacific Palisades last year.

But just over a week after the new rule, the Los Angeles area erupted in flames as powerful winds fueled massive wildfires in Pacific Palisades, Altadena, and the San Fernando Valley. About 12,000 structures have been damaged or destroyed. The latest estimate from AccuWeather puts damages at $135 billion to $150 billion, making it one of the worst wildfires in modern U.S. history.

Even before the blazes scorched 36,000 acres and counting, advocacy group Consumer Watchdog warned that the state’s new regulation could allow insurance companies to hike rates on homeowners by 40% to 50%—and without a significant boost in coverage for wildfire-prone regions.

California’s insurance department didn’t immediately respond to a request for comment. But Lara told CNN this week that he disputes those estimates.

Meanwhile, homeowners who lost their previous insurance policies after carriers pulled back from California either had to go without any coverage or get it from the FAIR plan established by the state as an insurer of last resort.

As of September, FAIR’s exposure to residences was $458 billion, up 61% from a year earlier. That includes nearly $6 billion worth of property that FAIR was insuring in Pacific Palisades alone at that time.

FAIR has maintained that it can pay out policyholders’ claims, noting that state laws says it can tap primary insurers to recoup its costs. That’s likely to get passed on to customers.

So either way, whether from private sector insurers or the state’s FAIR plan, California homeowners are facing the prospect of higher rates.

More on the California wildfires:

Just before wildfires hit, California told insurers to cover homes in risky areas. In return, they can pass on a key cost to customers