California’s insurance market has been under strain for years, but in 2024 it reached a breaking point. Homeowners in high-risk regions now face widespread non-renewals, sharp rate hikes, and long delays just to secure coverage. The crisis has left regulators, insurers, and consumers locked in a high-stakes standoff over how fire insurance should be priced in an era of climate-driven risk.
In a recent FOX KTVU investigation, veteran reporter Tom Vacar examined what many are now calling a “fire insurance drought.” The report exposed a growing divide between insurers pushing for modernization and consumer advocates warning against deregulation. At the center of the dispute is Proposition 103, the 1988 voter-approved law that governs how insurance rates are set in California.
Why Proposition 103 Is at the Center of the Crisis
Under Proposition 103, insurers must justify all rate increases through a public review process with the California Department of Insurance. Rates are based primarily on historical loss data — what insurers have paid in the past — rather than forward-looking projections of future risk.
That framework worked when wildfire patterns were relatively stable. Today, however, climate change, extreme fire behavior, and sharply rising rebuilding costs have made historical data far less reliable.
As the FOX KTVU report explained, the traditional models insurers once relied on are no longer accurately predicting wildfire losses. Insurers are now asking for the ability to use forward-looking catastrophe models, which project future losses using climate data, vegetation, terrain, and development patterns.
Opponents argue that allowing predictive models would give insurers too much control through proprietary algorithms that are difficult for regulators and the public to scrutinize.
The Insurance Industry’s Argument: “This Is Just Math”
Independent broker Karl Susman, who works with both policyholders and insurance companies, framed the issue in purely financial terms.
Rising construction costs have pushed rebuilding expenses more than 30% higher over the past five years. Global reinsurance costs — the insurance that insurers buy — have doubled or tripled. At the same time, climate volatility means that past wildfire losses no longer reflect the risks insurers face today.
From the industry’s perspective, insurers cannot survive if they are forced to price tomorrow’s risk using yesterday’s data. Susman and other professionals argue that without reform, carriers will continue pulling out of California, making the current coverage shortage even worse.
The Consumer Advocate Response and Deregulation Fears
Consumer Watchdog founder Harvey Rosenfield, the original author of Proposition 103, strongly disputes the insurers’ narrative. In his FOX KTVU interview, he accused carriers of manufacturing a crisis to pressure lawmakers into weakening consumer protections.
Rosenfield warned that allowing insurers to rely on self-created computer pricing models could lead to unchecked rate increases that consumers and regulators would have little ability to challenge. From his perspective, Proposition 103 remains a critical safeguard against excessive or arbitrary pricing.
To him and other consumer advocates, the push for predictive modeling represents a “massive deregulation effort” that could permanently shift power away from the public and toward private insurers.
The FAIR Plan Caught in the Middle
The reform debate now extends beyond private insurers to the California FAIR Plan, the state’s insurer of last resort. The FAIR Plan currently operates as a shared pool funded by all admitted insurers in the state. When losses exceed reserves, participating companies must cover the shortfall.
A new proposal discussed in the report would shift that financial burden away from insurers and onto consumers. Under the proposal, wildfire losses the FAIR Plan cannot cover would be passed on to all homeowners, renters, and condo owners statewide through a surcharge — regardless of where they live or their individual risk.
Critics argue this would shift responsibility from the private insurance industry onto the public, forcing low-risk homeowners to subsidize coverage in the highest-risk areas.
Legislative Deadlines and the Governor’s Role
The legislative timeline for reform is tight. Lawmakers face a narrow window to negotiate changes before sending a final package to the governor. Once a bill reaches the governor’s desk, there is a limited period to approve or reject it.
At the same time, the Insurance Commissioner’s Sustainable Insurance Strategy — introduced earlier in 2024 — already attempts to strike a compromise by allowing limited predictive modeling while adding transparency requirements and new consumer safeguards.
With multiple proposals under consideration and intense lobbying on both sides, the outcome remains uncertain.
What Florida’s Experience Reveals
During the broadcast, Vacar pointed to Florida as the only major state that has already moved toward broader use of predictive models and looser rate controls in a disaster-driven insurance market.
Florida’s reforms gave insurers more flexibility to raise rates and price risk forward-looking. However, the results have been mixed. While the changes provided short-term market stability, they also fueled consumer backlash and affordability concerns. Today, Florida has some of the highest homeowners insurance premiums in the nation, and many carriers continue to exit the state.
California is closely watching Florida’s experience as a cautionary example of how reform can stabilize insurers while still creating serious challenges for consumers.
The Human Impact Behind the Policy Debate
Beyond legislation and rate models, the crisis has a very real human cost. Homeowners across California are being dropped by long-time insurers, forced onto the FAIR Plan, or struggling to afford full replacement cost coverage amid inflation.
Susman, who works directly with affected families, sees the emotional and financial toll daily. He fields constant calls from homeowners who cannot understand why coverage they carried for decades suddenly no longer exists.
For many, the crisis is not about abstract policy. It is about fear of losing their homes to fire — or losing insurance even before a fire occurs.
Balancing Risk, Affordability, and Fairness
California now faces a difficult balancing act. If reforms lean too heavily toward insurers, consumers risk losing essential affordability protections. If reforms fall short, insurers are likely to continue withdrawing from high-risk regions, pushing even more homeowners into the FAIR Plan.
As Susman often notes, risk cannot be legislated away. It can only be priced, managed, and shared more effectively. The challenge is finding a system that reflects the true cost of risk without abandoning the fairness principles embedded in Proposition 103.
Final Thoughts on California’s Fire Insurance Drought
California’s fire insurance drought represents more than a temporary market disruption. It is a test of the state’s regulatory philosophy in the face of accelerating climate risk.
Whether lawmakers preserve Proposition 103 in its current form or adapt it to modern conditions will shape the future of insurance availability, pricing, and consumer protection for decades to come.
As the debate intensifies in Sacramento, one point is already clear: doing nothing is no longer an option. The only open question is whether California can modernize its insurance system without sacrificing the transparency and fairness that voters demanded more than 35 years ago.
