California’s insurance crisis continues to deepen, leaving homeowners across the state desperate for answers. With premiums soaring, insurers pulling out of entire regions, and coverage becoming harder to find—especially in wildfire-prone areas—frustration has reached a boiling point.
That frustration was on full display during a virtual town hall hosted by ABC 10 Sacramento on July 2, 2024, where California Insurance Commissioner Ricardo Lara took direct questions from homeowners. Insurance expert Karl Susman also joined the discussion, offering context on why the market is in such distress and what relief may be on the horizon.
“It’s a horrible situation right now,” Susman said. “There’s no way to put it any other way.”
Yet, amid the anger and uncertainty, Lara outlined major regulatory changes that could reshape how insurance companies operate in California.
Why Insurers Can “Cherry-Pick” ZIP Codes
One of the first questions from homeowners cut straight to the heart of the crisis: why insurers are allowed to stop writing policies in entire ZIP codes.
“Unlike public utilities,” Lara explained, “insurance companies can limit where they write policies.”
While the state regulates how insurance works, it cannot legally force private companies to offer coverage in every location.
For homeowners in wildfire-prone regions, this reality feels like abandonment. Many have been dropped despite years of loyalty and no prior claims, simply because of where they live.
The Sustainable Insurance Strategy and the Coverage Deal
To address this imbalance, Lara pointed to his Sustainable Insurance Strategy, first announced in September 2023. Under this framework, the state has reached what Lara called a “historic agreement” with insurers.
Insurers will be allowed to use forward-looking catastrophe models to assess wildfire risk—but only if they commit to writing more policies in high-risk areas.
“They’re going to commit to come back and write in these communities,” Lara said. “It’s a win-win because we also have to secure our insurance market in California.”
The trade-off is clear: greater pricing flexibility for insurers in exchange for expanded access for homeowners in underserved, wildfire-prone communities.
Why Using Only Past Data No Longer Works
Under current California law, insurers must justify rate requests using about 20 years of historical loss data. This backward-looking requirement dates back to the late 1980s and ignores how dramatically wildfire risk has changed.
Right now, companies can raise rates only with Department of Insurance approval—and only using that historical data. Insurers argue this prevents them from reflecting today’s climate-driven risk, forcing them to either raise prices broadly or withdraw from high-risk markets altogether.
“We should be using forward-thinking technology to help us assess the risk,” Lara said.
That’s why allowing catastrophe modeling is being called a possible game changer.
How Catastrophe Modeling Works
Catastrophe modeling uses advanced analytics to estimate future losses from disasters such as wildfires, floods, and earthquakes. These models combine:
- Historical data on past fires and claims
- Current environmental conditions like drought, vegetation, and wind
- Future projections tied to climate trends and development patterns
For insurers, this provides a more accurate way to price risk. For regulators, it offers a method to review and challenge those projections to ensure they do not lead to unjustified increases.
“It’s about creating a system that’s fair and sustainable,” Lara said. “We have to protect homeowners while also keeping companies in the market.”
What the Reforms Mean for Wildfire-Prone Communities
A critical element of the reform package is the requirement that insurers write policies in specific wildfire-prone ZIP codes and counties—regions where private insurance has nearly disappeared.
The Department of Insurance has already identified large areas of Northern California, the Sierra foothills, and parts of inland Southern California as priority zones. Insurers that want to use catastrophe modeling must increase their coverage footprint in these very communities.
For homeowners, this could mean a slow but steady return of private insurance options and reduced dependence on the California FAIR Plan.
Why Relief Won’t Be Immediate
Despite the promise of reform, experts agree that change will not happen overnight.
“It’s a horrible situation right now,” Susman reiterated. While the proposed regulations are moving in the right direction, he cautioned that homeowners likely won’t feel real relief until sometime next year.
“We’re going to have to be a little more patient,” he said. “I think realistically, we’ll start to see companies reenter the market slowly and cautiously.”
Some insurers may dip back in with limited offerings, while others will wait to see how financially viable the new rules prove to be.
Balancing Consumer Protection and Market Stability
For decades, Proposition 103 has been the backbone of California’s insurance regulation. It prevents excessive premiums, requires public review of rate increases, and blocks the use of catastrophe modeling.
While it has saved consumers billions, it has also constrained insurers in an era of escalating wildfire losses, inflation, and rising reinsurance costs.
Lara’s Sustainable Insurance Strategy attempts to modernize the system without dismantling Prop 103. The goal is to introduce flexibility while preserving consumer protections.
“We have to use forward-thinking technology,” Lara said, “but in a way that expands access, not restricts it.”
What Homeowners Can Expect Next
As these reforms move forward, homeowners should prepare for a gradual transition:
- A slow return of private insurers: Some companies may begin reentering the market in late 2024 or early 2025, often starting with homes that meet new wildfire-hardening standards.
- Continued reliance on the FAIR Plan (short term): Until reform is fully implemented, the FAIR Plan will remain the fallback option for many high-risk properties.
- Greater emphasis on mitigation: Expect stronger incentives and discounts for defensible space, fire-resistant roofing, and community-wide risk reduction.
- More data-driven pricing: Rates will increasingly reflect individual property conditions, not just ZIP codes.
What Homeowners Should Do Right Now
While Sacramento works through the policy changes, homeowners can take practical steps to improve insurability:
- Maintain defensible space by clearing vegetation and debris around the home.
- Upgrade roofing and vents to fire-resistant materials.
- Stay in close contact with your insurance agent, as eligibility may change quickly.
- Document all mitigation work with photos and receipts for future underwriting reviews and discounts.
The Bottom Line
California’s insurance crisis has placed enormous strain on homeowners, insurers, and regulators alike. But the state’s new Sustainable Insurance Strategy—linking catastrophe modeling with firm commitments to serve wildfire-prone communities—offers a potential path forward.
“It’s a horrible situation,” Susman said, “but we’re moving in the right direction.”
Real relief will take time. For now, patience, preparation, and proactive mitigation remain essential. Still, for the first time in years, California’s insurance market may finally be shifting from collapse toward recovery.
