(Airdate: 2024-04-01) Spectrum 1 News Interview - “Inside the Issues” with host Amrit Singh

Published Date: 04/01/2024

California’s Insurance Crossroads: Karl Sussman on Climate Risk, FAIR Plan Strain, and the Path Toward Reform

California’s insurance market is in the midst of a full-blown identity crisis. With major insurers withdrawing, premiums surging, and climate events growing more destructive, the state once known for innovation now finds itself struggling to insure its own future.

In a wide-ranging interview on Spectrum News 1’s “Inside the Issues” (April 1, 2024), insurance expert Karl Sussman explained what’s really driving the exodus of insurers from California, why the state’s new Sustainable Insurance Strategy may finally bring relief, and how national solutions like the proposed INSURE Act could reshape the very foundation of the U.S. insurance industry.

1. A Perfect Storm: Climate, Inflation, and the Collapse of Predictability

California’s insurance crisis didn’t begin overnight. But according to Sussman, the industry has entered a new phase — one defined by unpredictability.

“Insurance companies work on the premise of probability of a loss,” he said. “They calculate what the likelihood is of a loss happening, they come up with a premium, and they go from there. If they’re not writing policies, there could only be one reason — they’re not able to make money doing it.”

That loss of profitability, he explained, is tied directly to the loss of predictability.

“All of the old modeling that they had — all of that ability to predict properly and price accordingly — has gone out the window,” Sussman said.

The reason? Climate change has broken the historical record.

In the last eight years, five of the most destructive wildfires in California history have occurred — events once considered “100-year disasters” now happening every few years. These back-to-back catastrophes have overwhelmed insurers’ models and erased their confidence in future pricing.

2. California’s Unique Challenge: When Global Problems Meet Local Regulation

While climate volatility and inflation are national issues, Sussman explained that California’s regulatory structure makes the crisis especially acute.

The state’s 1988 voter initiative, Proposition 103, restricts insurers from using forward-looking catastrophe models to price future risk. Instead, companies must base their rate filings solely on past losses — an outdated approach in an era of fast-changing climate patterns.

This regulatory rigidity, Sussman argued, has made California nearly impossible to price accurately.

“We have zero competition in the market,” he said. “Carriers have literally gone bankrupt because they can’t afford the exposure anymore, or they’ve left before they go bankrupt.”

What’s left, he explained, is a fragile “holding pattern” — a temporary state while insurers and regulators figure out how to move forward under a new set of rules.

3. Debunking the Conspiracy: Are Insurers “Playing Hardball”?

Some critics, including Harvey Rosenfield, the author of Prop 103 and founder of Consumer Watchdog, have accused insurance companies of orchestrating their withdrawal from California as a negotiating tactic to pressure regulators for higher rates.

Sussman was blunt in his response:

“I’m not big on conspiracy theories,” he said. “I look at the facts and the dollars and cents. The idea that carriers are leaving — some going bankrupt, some walking away from billions in business — just to get negotiating leverage is preposterous.”

He also pointed out that Rosenfield himself helped create the framework now under scrutiny.

“Part of Prop 103 was to create an elected position for the insurance commissioner,” Sussman noted. “We took that part of the bill, and everyone liked it. We’ve elected the same guy twice, and we’ve given him the power to do what needs to be done.”

That commissioner, Ricardo Lara, is now leading one of the most ambitious reform efforts in the country.

4. The Sustainable Insurance Strategy: A New Path Forward

Under Commissioner Lara’s leadership, the California Department of Insurance has rolled out the Sustainable Insurance Strategy — a comprehensive plan to modernize the state’s rate-setting system and bring insurers back.

At the core of that plan is catastrophe modeling — or as Sussman called it, “a fancy way of saying computer modeling.”

“It’s not groundbreaking,” he said. “It’s been used forever. It’s used today for earthquake insurance and by FEMA for flood insurance.”

By integrating this modeling into property insurance pricing, California will finally allow insurers to account for future risk, not just historical data.

“It’s going to allow carriers to properly price on a more granular level — down to the fact that your house could be next door to someone else’s, and your rates could be different based on what you’ve done to make your home less likely to burn,” Sussman explained.

5. Why Everyone — From Brokers to Consumer Groups — Supports It

One of the most encouraging signs, according to Sussman, is that every major stakeholder appears aligned in support of the Sustainable Insurance Strategy.

“If everything that’s been proposed comes to fruition exactly as it’s written today,” he said, “everybody feels good about it. The consumer groups love it. The real estate associations love it. Brokers love it — it gives us our jobs back. And the insurance carriers — I had one executive tell me they see a light at the end of the tunnel that they’re hoping is not an oncoming train.”

That shared optimism marks a rare moment of consensus in an industry often divided between corporate and consumer interests.

The key takeaway? Insurers want to return to California. They’re not staying out of the market out of spite — they’re waiting for a sustainable way to do business profitably and predictably.

6. The FAIR Plan: A Stopgap That’s Becoming the System

With private insurers withdrawing, the California FAIR Plan — originally designed as a limited “last resort” — has exploded in size.

“The FAIR Plan was created in the 1960s after the Watts Riots,” Sussman explained. “It was designed to provide bare-bones fire insurance in the event of a loss. Now, because of the shortage of carriers, they’re writing everywhere.”

That growth has been staggering.

“The FAIR Plan has gone from about 7,000 brokers to over 60,000,” he said. “Many of them have never written FAIR Plan policies before, so they’re learning as they go.”

For consumers, that means higher costs for less coverage.

“People are paying more money to get basic fire insurance than they were paying for a full homeowner’s policy before,” Sussman said. “It’s a stopgap — it’s not where we’re going to end up. We can’t end up there.”

7. The National Angle: Could Federal Reinsurance Save the Market?

Beyond state-level reform, there’s growing discussion about creating a national safety net for catastrophic risk.

Congressman Adam Schiff has introduced the INSURE Act, which would allow the federal government to act as a reinsurer of last resort for large-scale disasters.

“It allows the federal government to act as a stopgap for the insurance industry countrywide,” Sussman said. “Private companies would take on the majority of the risk, and for those catastrophic events — the Paradise-type losses — the federal pool of money would kick in after that.”

Sussman believes a federal reinsurance backstop is inevitable.

“If you want to be a betting man,” he said, “ten years from now, Schiff’s plan — or something like it — will be in place.”

Such a framework would function similarly to how the National Flood Insurance Program (NFIP) or Terrorism Risk Insurance Act (TRIA) supports private markets today — limiting insurer exposure while ensuring continuity of coverage for consumers.

8. The Bigger Picture: A National Insurance Reckoning

Sussman also noted that California isn’t alone. At a recent national insurance conference, he learned that 45 of 50 states are currently facing property insurance capacity problems.

“This is absolutely happening everywhere,” he said. “We feel it the most because we’re California — we’re the first to find the problems, and we’ll be the first to find the solutions.”

That “California-first” phenomenon may ultimately make the state a testing ground for how climate resilience and insurance regulation intersect nationwide.

9. What Homeowners Can Expect Next

In the short term, homeowners should expect continued turbulence:

• Limited carrier options and higher premiums through 2024
• Continued reliance on the FAIR Plan for fire coverage
• Gradual stabilization as Sustainable Insurance Strategy reforms roll out over 2025–26

But Sussman’s message remains hopeful.

“The Sustainable Insurance Strategy is going to bring competition back,” he said. “Once that happens, premiums will start to come down.”

Until then, his advice to homeowners is simple: protect your current policy.

• Don’t let coverage lapse.
• Keep documentation of home improvements and fire-hardening measures.
• Work with independent brokers who can access multiple carriers.

10. Conclusion: Innovation, Not Abandonment

California’s insurance crisis has been painted as a story of abandonment — insurers walking away from homeowners. But as Sussman’s interview made clear, the deeper story is one of adaptation.

The state’s regulatory and environmental realities are forcing the insurance industry to evolve — toward smarter modeling, federal partnerships, and data-driven resilience.

“We’re suffering right now because we’re first,” Sussman said. “But we’ll also be the first to fix it.”

If the Sustainable Insurance Strategy delivers on its promise — and national efforts like the INSURE Act follow — California could once again lead the nation, this time not in crisis, but in creating a sustainable insurance future for a climate-challenged world.