California Department of Insurance Property Public Rulemaking Hearing - Karl Susman comments

Published Date: 03/28/2024

The Turning Point in California’s Insurance Crisis: Why the Department of Insurance’s New Rules Could Finally Restore Balance

California’s insurance system is at a breaking point — but also, potentially, at the beginning of a long-overdue recovery.

In a historic public rulemaking hearing at the California Department of Insurance (CDI), regulators, industry leaders, and consumer advocates met to debate Commissioner Ricardo Lara’s proposed property and casualty rate reform regulations.

Among the first to speak was Karl Susman, an insurance broker, expert witness, and host of The Insurance Hour, who captured what many in the industry have been saying quietly for years:

“Everyone here already knows, or certainly should know, that the insurance industry in California is in a major crisis,” Susman said. “Insurers are non-renewing policies, not offering new ones, and some are leaving the state — or the industry — entirely because they can’t afford to be in it anymore.”

His remarks, though concise, offered a rare moment of alignment between regulators and insurers — both acknowledging that California’s decades-old system for approving rates is too slow, too rigid, and too outdated to handle today’s risk environment.

1. The Crisis: An Industry on the Edge

For over a year, California has faced an escalating property insurance emergency. Major carriers, including State Farm, Allstate, and Farmers, have either halted new business or withdrawn from high-risk areas, citing rising claims costs, wildfire losses, and reinsurance pressures.

At the same time, the California FAIR Plan, designed as a last-resort insurer, has ballooned into the primary option for hundreds of thousands of homeowners — a trend that experts say is unsustainable.

Susman, representing both industry and consumer perspectives, described the situation bluntly:

“Insurers are leaving the state, while others are actually leaving the industry entirely because they can’t afford to be in it anymore.”

The combination of regulatory lag and climate volatility has left the market gridlocked. But Commissioner Lara’s Sustainable Insurance Strategy — a comprehensive reform plan announced in late 2023 — aims to change that.

2. Proposition 103: The Foundation and the Friction

At the heart of California’s insurance debate lies Proposition 103, the 1988 voter-approved initiative that transformed the state’s insurance landscape.

Prop 103 requires that all insurance rate changes — whether increases or decreases — receive prior approval from the Department of Insurance. It also allows for public participation in rate proceedings, enabling consumer advocates to intervene and challenge proposed rates.

The intent was noble: to protect consumers from unfair or excessive premiums. But in today’s fast-moving market, the process has become a bottleneck.

“Add that to the time it takes for an insurer to actually roll out the change and then see results,” Susman said, “we’re looking at years from start to finish.”

This lag, he explained, prevents admitted carriers from being nimble and innovative, and costs both the industry and the CDI enormous time and resources.

3. What the New Regulations Aim to Fix

The proposed Property and Casualty Rate Application Regulations seek to overhaul the way insurers submit rate filings to the state.

Under the current system, insurers often go through multiple rounds of revisions — months or even years of back-and-forth correspondence with CDI analysts. Each time, new data is requested, reviews restart, and implementation is delayed.

The new rules, Susman explained, would simply require a “complete application” upfront — ensuring the Department receives all necessary information from the beginning.

“Anyone who’s telling you that a complete application from the get-go would actually slow things down,” he said, “is just not living in reality.”

The goal is to streamline the process without sacrificing consumer protections, allowing insurers to adjust rates faster in response to real-world conditions — such as inflation, rebuilding costs, and reinsurance pricing.

4. The Math of Fairness: What “Adequate, Not Excessive” Really Means

Proposition 103’s cornerstone principle — that rates must be “not inadequate, not excessive, and not unfairly discriminatory” — remains intact under the new rulemaking.

Susman emphasized that the reforms don’t change the law’s intent. Instead, they make compliance more efficient:

“All this new regulation is doing is providing the Department of Insurance with the information they’ve wanted from day one to enable them to make the appropriate decision.”

In other words: it’s not deregulation — it’s modernization.

These updates ensure the Department has everything it needs to assess whether rates meet Prop 103’s legal standards, while eliminating redundant or outdated procedural hurdles.

5. Restoring Efficiency and Innovation

California’s admitted insurance market — meaning regulated insurers approved by the CDI — has historically been one of the most competitive in the country.

But as approvals slowed, insurers shifted to non-admitted (surplus lines) carriers — companies not regulated under Prop 103 — to continue serving customers. Those policies often cost more and provide less coverage.

By accelerating approvals, Lara’s rulemaking aims to bring admitted carriers back to the table — restoring competition, capacity, and affordability.

“Time is money,” Susman said. “And this up-and-back is wasting money on the part of the Department of Insurance and the admitted companies that want to compete in California.”

The result? A faster, more predictable regulatory environment where insurers can operate sustainably — and consumers have more options.

6. A Call for Cooperation, Not Confrontation

Susman also took aim at critics who have framed the reforms as a “rollback” of consumer protections.

“Proposition 103 encourages public participation in rate making,” he said. “This new regulation does not in any way, shape, or form change that.”

He cautioned against allowing a single organization or advocacy group to dominate the process — effectively acting as a “pseudo-secondary Department of Insurance.”

“Prop 103 is not designed, at least I hope not, for one single entity to act as an all-knowing insurance czar with de facto veto power to prevent the Department of Insurance from actually doing their job.”

His point underscores a growing frustration shared by many in the industry: that public intervention has at times evolved into obstruction, delaying necessary rate corrections and worsening market instability.

7. Commissioner Lara’s Mandate

Susman reminded attendees that Insurance Commissioner Ricardo Lara holds a unique democratic legitimacy.

“Proposition 103 made the California Insurance Commissioner an elected position,” he said. “The residents of California have spoken — they have elected Commissioner Lara not once, but twice.”

Lara’s Sustainable Insurance Strategy, announced in 2023, represents the most ambitious reform effort since Prop 103’s passage. It includes:

• Allowing catastrophe modeling to account for future wildfire risk,
• Mandating insurers to write a fair share of policies in high-risk areas,
• Accelerating rate review timelines, and
• Strengthening consumer transparency and public input.

Susman’s testimony — far from partisan — called for unity in letting the Commissioner execute his mandate without political interference.

“Let him do his job that he was elected to do,” Susman urged. “He was elected by the consumers — twice. Let’s let him do his thing.”

8. Why This Matters to Every Homeowner and Business

For the average Californian, regulatory rulemaking might sound like bureaucratic minutiae. But its impact is tangible — influencing whether you can find coverage, how much it costs, and how quickly it adapts to changing risks.

Faster rate review means:

• More insurers stay in the market instead of pausing or leaving.
• New products reach consumers faster, including those incentivizing mitigation.
• Reduced reliance on the FAIR Plan, helping stabilize rates across the board.

Simply put: modernizing rate regulation could be the first real step toward making California insurable again.

9. The Broader Implications: Setting a National Example

Other states — from Florida to Louisiana — are facing similar crises, struggling to balance affordability with solvency in the face of climate-driven disasters.

California’s reforms, if successful, could become a model for regulatory modernization nationwide — proving that consumer protection and industry sustainability are not mutually exclusive.

“The exciting part,” Susman said, “is both the Insurance Commissioner and the insurance industry agree wholeheartedly on what this first regulation fixes.”

That alignment, rare in any regulated sector, could mark a new era of collaboration in a field too often defined by conflict.

10. A New Chapter for California Insurance

The rulemaking hearing may not have made front-page headlines, but its outcome could shape California’s insurance market for decades.

Susman’s testimony captured the optimism of an industry ready to move forward — one that welcomes accountability but needs efficiency to survive.

“This isn’t about taking away oversight,” he said. “It’s about giving the Department the tools it needs to do its job.”

With Commissioner Lara’s reforms now moving toward implementation, California may finally have the roadmap it needs to rebuild a fair, competitive, and sustainable insurance system.

Conclusion: From Gridlock to Groundbreaking

California’s insurance crisis didn’t happen overnight, and it won’t be fixed overnight. But for the first time in years, the conversation has shifted — from blame to solutions.

By streamlining rate approvals and restoring operational agility, the Department of Insurance isn’t abandoning Prop 103’s principles — it’s updating them for the 21st century.

And as Karl Susman reminded everyone in the hearing room:

“Time is money — and every month of delay costs everyone, from the Department to the consumer.”

If these reforms succeed, time — and trust — may finally be on California’s side again.