(Airdate 2024-05-27) CBS - KPIX - Bay businesses struggling as it becomes harder to find insurance
Published Date: 05/27/2024
California’s Small Business Insurance Crisis: When Wildfire Risk Meets Market Retreat
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: Beauty, Business, and a Growing Burden
Nestled along the Russian River in Northern California, Guerneville is known for its natural beauty — towering redwoods, vineyards, and charming riverside lodges. It’s the kind of place that draws both visitors and dreamers looking to escape city life.
One of those dreamers is Bryce Schulfield, who purchased and opened a small bed-and-breakfast in 2019. He poured everything into the property, confident in its location and safety. What he didn’t anticipate, however, was that insurance — not wildfire, not the pandemic — would become his biggest obstacle to staying in business.
“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 his efforts to protect the property — installing a 5,000-gallon water tank, roof sprinklers, and maintaining defensible space — Schulfield has been dropped by multiple insurers. He’s now covered under the California FAIR Plan, the state’s insurer of last resort.
And he’s not alone.
When Safety Measures Don’t Seem to Matter
What’s especially frustrating for business owners like Schulfield is that their risk-reduction efforts often go unrecognized by insurance companies.
His property is:
- Surrounded on three sides by vineyards — a natural firebreak.
- Located next to a Cal Fire station.
- Outfitted with its own emergency water system.
Yet despite those factors, insurers have classified his location as “high risk” based purely on geography and vegetation models — not on-site realities.
“I don’t think it’s personal,” Schulfield said. “We’ve just gotten caught up in this fire bureaucracy.”
This disconnect between real mitigation and modeled risk is one of the central failures of California’s current insurance system. Insurers rely heavily on broad wildfire risk maps and outdated catastrophe models, which often fail to account for localized mitigation. As a result, safe properties are treated the same as those surrounded by unmanaged forest.
Businesses Hit Harder Than Homeowners
According to insurance analyst Karl Susman, California’s commercial 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 property insurance is inherently more complex — and more expensive. Business owners must insure not just the building, but also equipment, inventory, liability, and income protection. With fewer carriers in the market, prices for these policies have exploded.
Susman says many insurers have simply stopped writing commercial policies in wildfire-prone zones, leaving business owners with two grim choices:
- Join the California FAIR Plan, which offers limited coverage at higher prices.
- Go uninsured, assuming personal and financial risk if disaster strikes.
Neither is sustainable for long-term business planning.
The FAIR Plan: A Safety Net Under Strain
The California FAIR Plan was never intended to be a long-term solution. Created in 1968 after devastating urban riots and wildfires, it’s a state-mandated pool that provides basic fire insurance for those unable to secure private coverage.
But in recent years, enrollment has surged — not only among homeowners but also among small business owners. FAIR Plan premiums are typically higher and cover less than traditional insurance, often excluding theft, liability, or loss of business income.
For many, it’s not a safety net — it’s a stopgap.
“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.”
The Perfect Storm: Regulation, Risk, and Reinsurance
The roots of this crisis run deeper than any one company or town. Susman points to a convergence of three major pressures on California’s insurance system:
- Rising catastrophic losses – Wildfires are larger and more frequent, costing billions annually.
- Reinsurance costs – Global reinsurers (which backstop primary insurers) are raising rates or pulling back from California, increasing costs for carriers.
- Regulatory lag – State law under Proposition 103 limits how quickly insurers can adjust rates or factor in forward-looking climate data.
In short: insurers are paying 2025-level losses but charging 2015-level premiums.
The result has been a market freeze, where companies withdraw to avoid losses rather than risk writing underpriced policies.
A Glimmer of Hope: Regulatory Reform Ahead
Despite the grim headlines, Susman offered cautious optimism in his interview:
“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’s referring to reforms being advanced by California Insurance Commissioner Ricardo Lara, including the Sustainable Insurance Strategy announced in 2024.
This strategy aims to:
- Allow insurers to use forward-looking catastrophe models (rather than relying only on past loss data).
- Permit insurers to account for reinsurance costs when setting rates.
- Require companies to write policies in high-risk areas in exchange for regulatory flexibility.
If implemented, these changes could encourage more insurers to re-enter the market — especially on the commercial side — and restore competition that helps moderate prices.
“Competition,” Susman emphasized, “is the only thing that truly lowers premiums.”
The Human Cost: Dreams on the Line
Behind every insurance headline is a personal story — and for business owners like Schulfield, the stakes couldn’t be higher.
“Switching careers and going into a totally different industry, you expect challenges,” he said. “But I never thought insurance would be the biggest one.”
Without affordable coverage, even one fire could erase years of work. For small businesses in rural areas, that risk is existential. Some owners are already selling properties or moving operations out of state, unwilling to face annual double-digit premium hikes.
Others are staying but scaling back — foregoing certain coverages, reducing staff, or deferring maintenance to afford their policies.
This quiet attrition, Susman warns, is hollowing out local economies and threatening tourism-dependent communities like Guerneville, Sonoma, and Lake County.
Why It Matters Beyond California
Though California’s situation is extreme, it’s also a preview of what’s coming to other parts of the country.
As climate-driven disasters — from wildfires to floods — grow more intense, insurers in states like Colorado, Oregon, and even Florida are facing similar pressures. The balance between affordability, availability, and actuarial fairness is becoming harder to maintain everywhere.
California, for better or worse, is the testing ground for how regulators, insurers, and consumers adapt.
“If California can modernize its insurance system successfully,” Susman said, “it’ll become a model for climate resilience nationwide.”
What Business Owners Can Do Now
While larger policy reforms take time, Susman offered several practical steps for business owners navigating today’s challenging market:
- Work with an independent broker – Unlike captive agents, independent brokers can access multiple insurers and specialty markets.
- Document mitigation efforts – Keep records and photos of fire-resistant materials, defensible space, and sprinkler systems. These can help when negotiating coverage.
- Bundle policies strategically – Combining property, liability, and business-interruption coverage can sometimes lower overall costs.
- Explore alternative markets – Certain surplus lines and specialty carriers still write in high-risk areas, though at higher rates.
- Advocate locally – Join or form coalitions with other small business owners to lobby for fair risk assessment 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 the Hardest Market
California’s insurance market is undeniably strained, but as Susman’s analysis shows, it’s not broken — just outdated. Reform is finally catching up to reality, and the coming year may bring long-awaited relief for both homeowners and businesses.
Still, for entrepreneurs like Bryce Schulfield, the stakes remain painfully personal.
Every renewal notice, every rate increase, is a reminder that running a small business in paradise now means confronting the very risks that make it beautiful.
As California works to balance protection and affordability, one truth remains:
Insurance isn’t just a business expense — it’s the foundation that allows businesses to exist at all.
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