California’s insurance crisis isn’t just hitting homeowners — it’s threatening the survival of small businesses that form the backbone of local economies. From boutique inns to wineries, mom-and-pop shops to tourism operators, companies across the state are facing skyrocketing premiums or outright policy cancellations.
As KPIX/CBS Bay Area recently reported, even businesses that have invested heavily in fire prevention are struggling to stay insured. On a recent Insurance Hour broadcast, insurance analyst Karl Susman broke down what’s really happening behind the scenes — and why relief may finally be on the horizon.
Guerneville: Natural Beauty and Rising Insurance Burdens
Nestled along the Russian River in Northern California, Guerneville is known for its redwoods, vineyards, and charming riverside lodges. It attracts visitors and entrepreneurs looking to build hospitality-driven businesses.
One of those entrepreneurs is Bryce Schulfield, who purchased and opened a small bed-and-breakfast in 2019. He invested heavily in the property and its safety. What he didn’t anticipate was that insurance — not wildfire, not the pandemic — would become his biggest obstacle.
“We noticed right away that the prices were going up exponentially,” Schulfield said. “It’s been a 222% increase since we bought the place.”
Despite installing a 5,000-gallon water tank, roof sprinklers, and maintaining defensible space, Schulfield has been dropped by multiple insurers and is now covered under the California FAIR Plan.
When Fire Mitigation Isn’t Recognized by Insurers
What frustrates many business owners is that their real-world risk reduction often goes unrecognized by insurance models.
Schulfield’s property is:
- Surrounded on three sides by vineyards, creating a natural firebreak
- Located next to a Cal Fire station
- Equipped with a dedicated emergency water system
Yet insurers still classify the location as high risk based on broad geographic and vegetation models rather than actual conditions on the ground.
“I don’t think it’s personal,” Schulfield said. “We’ve just gotten caught up in this fire bureaucracy.”
This disconnect between localized mitigation and generalized risk modeling is one of the central failures of the current system.
Why Small Businesses Are Hit Harder Than Homeowners
According to Karl Susman, the commercial insurance market is under even greater strain than the residential one.
“As bad as things are for homeowners,” he told KPIX, “it’s even worse for businesses because there are fewer carriers offering that kind of coverage.”
Commercial insurance must cover buildings, equipment, inventory, liability, and business income — making policies more complex and far more expensive. With fewer insurers willing to write these risks, prices have exploded.
Many business owners now face two difficult options:
- Enter the FAIR Plan for limited, higher-cost coverage
- Go uninsured and assume catastrophic financial risk
Neither is viable for long-term stability.
The California FAIR Plan and Its Growing Limitations
The California FAIR Plan was created in 1968 as a temporary safety net for properties unable to secure private insurance. It was never designed to become a primary market solution.
Enrollment has surged among both homeowners and small businesses. FAIR Plan policies are typically more expensive and provide far less protection, often excluding theft, liability, and business income coverage.
“When a bed-and-breakfast or winery is forced into the FAIR Plan, it limits their financial resilience,” Susman explained. “They may recover the building, but not the business.”
For many owners, it is a stopgap rather than a true safety net.
The Perfect Storm: Wildfires, Reinsurance, and Regulation
Susman points to three forces converging to create today’s crisis:
- Rising catastrophic losses: Wildfires are larger, more severe, and more costly than ever before.
- Escalating reinsurance costs: Global reinsurers are charging significantly more or pulling back from California entirely.
- Regulatory lag: Proposition 103 limits how quickly insurers can adjust rates and incorporate forward-looking climate data.
In effect, insurers are paying 2025-level losses while charging 2015-level premiums. To avoid underwriting unsustainable risks, many carriers have simply withdrawn.
Regulatory Reform and a Potential Market Reset
Despite the challenges, Susman offered cautious optimism.
“The good news,” he said, “is that for the first time in a really long time, I can tell you we’re going to see a dramatically different insurance market in the next several months — certainly by early next year.”
He pointed to reforms being advanced by Insurance Commissioner Ricardo Lara under the Sustainable Insurance Strategy. Key components include:
- Allowing forward-looking catastrophe modeling
- Permitting reinsurance costs in rate calculations
- Requiring insurers to write in high-risk areas in exchange for regulatory flexibility
If implemented effectively, these changes could restore competition and encourage insurers to re-enter the commercial market.
“Competition,” Susman emphasized, “is the only thing that truly lowers premiums.”
The Human Cost to California’s Small Businesses
Behind the policy debates are deeply personal stories. For entrepreneurs like Schulfield, insurance has become the greatest threat to years of hard work.
“Switching careers and going into a totally different industry, you expect challenges,” he said. “But I never thought insurance would be the biggest one.”
Some business owners are selling their properties or leaving the state entirely. Others are dropping coverages, reducing staff, or deferring maintenance just to keep policies active. Susman warns this trend is hollowing out tourism-dependent communities across Northern California.
Why California’s Crisis Matters Nationally
While California’s situation is severe, it may preview what’s coming elsewhere.
As climate-driven disasters intensify, states like Colorado, Oregon, and Florida are facing similar availability and affordability challenges. California is effectively becoming the national test case for how insurance systems adapt to climate risk.
“If California can modernize its insurance system successfully,” Susman said, “it’ll become a model for climate resilience nationwide.”
What Business Owners Can Do Right Now
While long-term reform unfolds, business owners still need practical strategies to survive:
- Work with an independent broker with access to multiple markets
- Document all mitigation efforts with photos and records
- Bundle policies strategically to control overall costs
- Explore surplus and specialty markets when traditional carriers decline
- Advocate locally for fair risk assessments and faster reform
“It’s about staying proactive,” Susman said. “Don’t just accept non-renewals or rate hikes as the end of the story.”
Final Thoughts: Hope in California’s Toughest Insurance Market
California’s commercial insurance market is strained, not broken. It is a system struggling to catch up with climate reality, reinsurance economics, and outdated regulation.
Reform is finally moving forward, and the coming year may bring long-awaited relief for small businesses across the state. Until then, owners like Bryce Schulfield continue navigating an unforgiving landscape where every renewal notice carries existential weight.
Insurance is no longer just a line item in a budget. For California’s small businesses, it is the foundation that determines whether the doors can stay open at all.
