(Airdate: 2024-03-06) FOX - KTVU - Premium Prices Continue To Climb

Published Date: 03/06/2024

California’s Insurance Squeeze: Why Premiums Keep Rising — and Why Relief Might Be on the Horizon

It’s no secret that California’s insurance market has been under enormous strain. For the past several years, homeowners have faced skyrocketing premiums, shrinking coverage options, and unprecedented carrier withdrawals. From wildfires and floods to inflation and outdated regulation, the state’s insurance system has reached a breaking point.

In a recent FOX KTVU segment titled “Premium Prices Continue to Climb,” insurance expert Karl Susman, president of Susman Insurance Services, sat down with anchor Frank Somerville to explain what’s really driving this crisis — and why there might finally be reason for cautious optimism.

The Paradox: How Insurers Can Lose Billions and Still “Make Money”

The conversation began with an eyebrow-raising fact: even as major insurers like State Farm and Allstate report record underwriting losses, they’re still technically profitable.

“Billions of dollars in losses, but still making money — how does that work?” Somerville asked.

Susman broke it down simply:

“It’s actually easier than it sounds,” he said. “When you hear that the insurance industry is making money, that’s sort of like saying if it’s raining outside your window, it must be raining everywhere.”

In other words, the insurance industry is global — and while some regions (like California, Florida, and Texas) are bleeding money from catastrophic claims, others (such as New Hampshire, North Dakota, Vermont, and Ohio) are still generating healthy profits.

Insurers offset losses in one market with gains in another. But when losses in high-risk states become too large or too unpredictable, even large carriers begin to retreat.

“There are states where they’re able to turn profits,” Susman explained. “However, there are other states — California, Florida, Texas, Colorado — where they’re losing money to staggering numbers. That’s why you’re seeing them pull back in areas where they’re not able to make a profit.”

Mother Nature and Market Reality: Why Insurers Are Leaving California

So why California?

Susman was direct: it’s not about politics or population — it’s about unpredictability.

“There’s one thing carriers don’t like,” he said. “It’s unpredictability. And all of a sudden, the fact that we’re having rainstorm after rainstorm, wildfires, tsunamis, and major water events — these are not things carriers have been prepared for.”

For decades, insurers priced California risks using historical data that no longer reflects today’s climate reality. When wildfires began destroying entire communities, followed by back-to-back atmospheric rivers and floods, insurers faced losses far beyond what their models anticipated.

“They’re paying out claims they haven’t priced into their pricing models,” Susman noted. “So what they’re doing now is retreating, trying to figure out how to properly price a product in California.”

That retreat has been dramatic. In 2023, State Farm — which insures roughly 27% of all California properties — announced it would stop writing new homeowners and business property policies. The company cited “historic increases in construction costs and inflation” alongside rising catastrophe exposure.

The result? A tighter market and higher costs for those who remain insured.

The Domino Effect: When 90% of the Market Pulls Back

Susman described the consequences of this retreat in blunt terms:

“When you have 90% of the insurance market not offering policies,” he said, “you can imagine what the price is going to be for the rest of the 10%.”

With fewer carriers competing, the remaining companies are overwhelmed with demand — and free to raise prices to offset their own rising costs.

The shortage has also affected California’s FAIR Plan, the state-backed “insurer of last resort.” Once a niche option for hard-to-insure homes, the FAIR Plan now covers hundreds of thousands of properties statewide — many of which would have qualified for private coverage just five years ago.

The New Reality: “You’re Not Shopping Anymore — You’re Hunting”

In better times, consumers could shop around for insurance quotes, comparing premiums and coverage options from multiple carriers. But today, the dynamic has changed completely.

“We used to say you can shop for insurance,” Susman said. “Now we look at it more like hunting. You look, you aim, you fire. If you hit something, grab it and hold on tight — because it’s that difficult to get coverage.”

He wasn’t exaggerating. Many carriers are declining new business entirely, while others are capping policies in high-risk zip codes or requiring strict underwriting conditions like defensible space, home-hardening upgrades, or fire-resistant roofing.

For policyholders who already have coverage, Susman offered one crucial piece of advice: protect it at all costs.

“If you have a policy, the most important thing to do is to keep it,” he said. “Because the likelihood, if you let that policy cancel or you miss a payment, is that the insurance carrier — because they’re actually losing money by keeping that policy in effect — is not going to reinstate you.”

His recommendation:

• Put your policy on auto-pay.
• Avoid lapses or cancellations.
• Keep your coverage active, even if rates rise.

If your policy lapses, getting reinstated may be impossible — leaving you stranded in a market where options are scarce.

Inflation and the Insurance Equation

Beyond climate risk, inflation remains a key driver of premium increases.

From lumber and labor to supply chain disruptions, rebuilding costs have skyrocketed in recent years. Insurers base replacement cost coverage on current construction prices — meaning as materials and wages go up, so do premiums.

At the same time, reinsurance (insurance that insurers buy for themselves) has also become more expensive due to global catastrophes. These costs trickle down to consumers in the form of higher rates and stricter underwriting standards.

Susman noted that while these pressures are real, the situation may soon stabilize.

“We’re already at that point,” he said. “I think we should start to see carriers reentering the market before the end of the year.”

The Turning Point: California’s “Sustainable Insurance Strategy”

Amid this crisis, there’s a glimmer of hope.

Susman highlighted a new initiative by the California Department of Insurance called the Sustainable Insurance Strategy, announced by Commissioner Ricardo Lara in late 2023.

The goal: modernize the state’s outdated regulatory system — particularly Proposition 103, the 1988 law that tightly controls rate approvals and data usage.

“What’s happening now,” Susman explained, “is the Department of Insurance is rolling out new regulations called the Sustainable Insurance Strategy. It’s updating some of the rules to allow insurance companies to actually underwrite and price risks based on where they actually are — and other characteristics that previously they couldn’t.”

For decades, insurers have argued that California’s restrictions prevent them from using modern tools like catastrophe modeling and reinsurance cost indexing — methods widely adopted in other states to predict and price risk more accurately.

By allowing these tools, Lara’s reform plan aims to give insurers a path back into the market, while balancing transparency and consumer protection.

“So what’s going to happen,” Susman said, “is all of the carriers are going to slowly come back. And when that happens, competition kicks in.”

The Forecast: Stabilization Ahead

While the short term may still bring more premium hikes, Susman sees reasons for optimism.

“The news is actually good,” he told KTVU. “After three or four years of gloom and doom, it’s nice to finally be able to say that the future is bright.”

He predicts that by late 2024 or early 2025, as new regulations take effect and insurers return to the market, competition will increase — which could finally slow or even reverse premium growth.

Until then, it’s a waiting game.

“We’re going to continue to see premiums increasing until we reach that point where carriers start reentering the market,” Susman said. “Then competition kicks in, and we can expect to see all the premiums start to level out again.”

What Homeowners Can Do Right Now

While the regulatory process plays out, homeowners can take practical steps to safeguard both coverage and cost:

✅ 1. Keep Your Policy Active

Set up automatic payments and avoid missed deadlines. Once a policy is canceled, reinstatement is unlikely.

✅ 2. Review Coverage Annually

Inflation and rebuilding costs can leave homes underinsured. Work with your broker to ensure your coverage limits reflect current construction costs.

✅ 3. Document Home Upgrades

If you’ve made fire safety or home-hardening improvements, share that documentation with your insurer. Some companies offer discounts for defensible space or fire-resistant materials.

✅ 4. Explore the FAIR Plan Cautiously

The FAIR Plan can serve as a temporary safety net, but it provides limited coverage and higher rates. Pair it with a supplemental “wrap” policy when possible.

✅ 5. Stay Informed About Regulatory Updates

The Sustainable Insurance Strategy will evolve throughout 2024. Stay in touch with your broker to understand how it could impact availability and pricing.

Final Thoughts: A Market in Transition

California’s insurance crisis didn’t develop overnight — and it won’t be solved overnight either. But for the first time in years, experts like Karl Susman are cautiously optimistic.

With new regulatory reforms, better risk modeling, and increased transparency, the insurance market is slowly moving toward sustainability.

For now, homeowners should focus on stability over savings: keeping current coverage, avoiding lapses, and preparing for gradual improvement rather than immediate relief.

“The future is bright,” Susman said. “We’re at the point where things will start getting better.”

That may be small comfort for homeowners facing steep premiums today — but after years of uncertainty, even a little optimism is worth holding on to.