When the Palisades and Eaton fires struck homes on the west and east sides of Los Angeles County, the residents mobilized in a mad dash to provide temporary housing, donate supplies and food, and excavate rubble to salvage what remained of a family home.

At the center of it all were crowdfunding platforms like GoFundMe and Givebutter which hosts crowdfunding sites that allowed people to donate to people who lost their homes and belongings so that they may rebuild. Several people have shared their stories while fundraising – some were first-generation immigrant families in South Pasadena, others were children of piano teachers who watched fellow students pass through their homes for music lessons, others still were longtime residents with deep pockets in the technology and entertainment sectors. One was the chief executive of GoFundMe himself – Tim Cadogan evacuated his Altadena home on Jan. 7, along with scores of other Angelenos.

But while crowdfunding has been a lifeline for several families, it’s a small slice of an evolving financial aid ecosystem that is in crisis – a tangle of black-box risk analysis algorithms and bureaucratic processes have resulted in insurance companies leaving California and the state’s own fire insurance plan running out of money, leaving homeowners and renters to fend for themselves as they scrounge up a life similar to the one they once had.

“The prevalence of crowdfunding and the need for it in the wake of these fires is evident of how the insurance industry has abandoned California,” said Carmen Balber, executive director at the Carthay-based Consumer Watchdog.

The insurance exodus

A spate of fires in 2017 and 2018 led to insurance companies quietly leaving California due to the unprofitability of covering those areas. In 2023 and 2024 Allstate, State Farm General Insurance and Farmers Auto Insurance pulled out of California by either cancelling, not renewing or not offering plans – State Farm in particular announced it wouldn’t renew a whopping 72,000 insurance policies in California.

Tim Gaspar founded Woodland Hills-based Gaspar Insurance Services Inc. in 2008 and grew it into one of the largest independent insurance agencies in the San Fernando Valley. For independent agencies like Gaspar Insurance Services, the cancelling of plans forces them to scramble to find replacements for different home and auto insurance carriers that no longer want to play ball in California – and that group is shrinking.

“Every time a policy cancels, we have to find a new home for it and that’s really difficult in this environment because there are so few options,” Gaspar said. “Essentially, we have customers that are frustrated because their insurance got canceled at renewal, which I totally understand. And then we have customers that get frustrated because they’re in escrow to buy a house and they can’t buy the house because it’s not insurable.”

According to Balber, the insurance market squeeze has forced Californians to turn to platforms like GoFundMe. According to the New York Times, GoFundMe campaigns that resulted from the Los Angeles fires raised more money than all natural disaster GoFundMe campaigns worldwide in 2024 combined. In total, more than $250 million was donated to wildfire relief efforts.

“Especially during natural disasters, whether it be like the wildfires or even hurricanes, you’ll see these fundraisers and people mentioning that they either have recently been dropped from their insurance or didn’t have insurance to begin with,” said Leigh Lehman, the director of communications at GoFundMe. “But we do not consider ourselves to be the only answer. We are part of a piece of a larger response that comes after these moments.”

Changing regulations with insurance

Insurance leaders like Gaspar point to Consumer Watchdog-led Proposition 103 for the demise of California’s shrinking insurance marketplace. The 1988 California proposition, otherwise known as the Insurance Rate Reduction and Reform Act, required insurance companies to get approval from the Department of Insurance for any rate increases. Increases above a certain threshold would trigger a hearing in which insurance companies would hand over financials to the department.

According to Gaspar, many of these rate increases were not approved.

“The law was written to keep insurance rates as low as possible,” Gaspar said. “What happened over a period of 30 years is insurance rates in California for both auto and home were kept artificially low. People should have been paying far more for home insurance than they have been for the past couple of decades.”

But determining the accuracy of a rate increase request is getting progressively more difficult for lawmakers due to proprietary algorithms that determine the risk, eligibility and premiums for homes. Climate risk technology has been increasingly popular for almost every sector – defense, agriculture, property development and logistics, to name a few – for its ability to help industries plan ahead and avoid any obstacles. Deal count for the category was the highest it had ever been in 2024, according to Pitchbook data.

“But those models are a complete black box and neither consumers nor regulators have the ability to look inside the box to determine if the science they’re using is fair, or if the inputs are even accurate,” Balber said.

Insurance Commissioner Ricardo Lara said in December he would allow insurance providers to use such technology to set rates, rather than just historic wildfire data. But the move came not even a month before the Eaton and Palisades fires occurred. Insurance companies were increasingly dropping business in California, moving homeowners to the state’s last-resort fire insurance provider, the California FAIR Plan. The FAIR Plan is at risk of running out of money, which would require state residents to bail out an insurance provider they already pay for.

“The irony here is that this whole goal of keeping costs low for consumers from the Department of Insurance had literally the exact opposite impact,” Gaspar said.

Using crowdfunding to solve an issue

California is, in many ways, a gold mine for insurance companies. The state provides 100 billion premiums to the insurance industry, according to a 2022 report on profitability by the National Association of Insurance Commissioners – far more than any other state. California is also the 18th most profitable state for insurers based on return on net worth. But the rising cost of labor and materials is making rebuilding expensive, and both Balber and Gaspar agree, the insurance squeeze has forced residents to rely more on other forms of aid as a result.

Those who collect money from insurance or crowdfunding for specific needs may not be eligible for disaster relief from the Federal Emergency Management Agency. For example, if insurance or crowdfunding finances cover the cost of temporary housing, people cannot request temporary housing funds from FEMA.

“Whenever I see a crowdfunding campaign for anything, whether it be a house that burned down or, god forbid, somebody that passed away, the first thing I think is, I guess there was no insurance in place,” Gaspar said. “Crowdfunding is just – the numbers are a lot smaller typically than what insurance is going to pay out and it’s not a responsible replacement for insurance.”

Lehman says GoFundMe sees itself as filling in the hopefully small gaps left by other, more substantial forms of aid.

“After a disaster there are so many needs that folks have, both immediately after you know the fires as well as longer term, that these other forms of aid will just never be able to cover.”