California homeowners accuse insurers of colluding to deny coverage

Published Date: 04/25/2025

California’s Insurance Crisis Deepens: Allegations of Collusion and the Future of the FAIR Plan

As wildfires continue to devastate California, the state’s insurance system faces its most turbulent chapter yet. In a new legal twist, homeowners have filed lawsuits accusing major insurers of colluding to deny coverage in high-risk wildfire zones — effectively pushing consumers into the state-run California FAIR Plan.

These allegations have reignited a long-simmering debate over fairness, competition, and solvency in the Golden State’s insurance market. At the heart of the controversy lies a painful truth: millions of Californians are struggling to find affordable home insurance — and the backup system designed as a last resort is now being treated as the only resort.

In a recent broadcast, insurance expert Karl Susman unpacked the complexity behind the lawsuits, offering crucial context for both consumers and policymakers trying to navigate the state’s collapsing private insurance market.

The Lawsuits: A Conspiracy or a Symptom of a Broken System?

According to reports, the lawsuits accuse more than 100 insurance companies of conspiring to withdraw from wildfire-prone regions, forcing homeowners to rely on the FAIR Plan — a state-mandated insurance pool collectively managed and funded by the very insurers named in the complaints.

The plaintiffs claim that insurers effectively “shut out” policyholders in high-risk zones as a coordinated effort to reduce losses and drive up rates later.

The numbers are staggering:

• Over half a million Californians are now insured through the FAIR Plan.
• Since the 1990s, there have been 19 major billion-dollar wildfires, causing more than $200 billion in total losses.
• In January alone, wildfires caused an estimated $131 billion in damages — but only $45 billion of those losses were insured.

These figures underscore the growing gap between insured and uninsured losses — a dangerous imbalance in a state where the risk of natural disasters is escalating every year.

Karl Susman: “Insurers Compete — They Don’t Collude”

While the lawsuits allege corporate conspiracy, industry veteran Karl Susman calls that theory implausible.

“Insurance companies compete. They don’t collude,” Susman said. “The idea that over 100 insurers would sit down and agree not to write business — even to the point of going bankrupt — just doesn’t make sense.”

He compares it to a restaurant industry analogy:

“It’d be like one restaurant discovering a bad ingredient and warning the others not to use it. In reality, competitors would seize the opportunity to gain business, not coordinate to lose it.”

Susman argues that what’s happening isn’t collusion — it’s self-preservation. California’s outdated rate approval system, governed by Proposition 103, limits how insurers can price risk. When premiums can’t keep up with claims and reinsurance costs, companies withdraw — not out of conspiracy, but out of financial necessity.

“Some insurers are leaving because they simply can’t stay solvent,” Susman added. “The regulatory math doesn’t work anymore.”

The FAIR Plan: From Safety Net to Structural Support

Originally created in 1968, the California FAIR Plan was designed to insure homeowners who couldn’t find private coverage — a “last resort” option. But today, it’s become a central pillar of the state’s entire property insurance system.

“The FAIR Plan was never meant to carry half a million policies,” Susman explained. “It’s supposed to be temporary coverage — a stopgap. Instead, it’s becoming the foundation.”

The FAIR Plan is funded by all admitted insurers operating in California, meaning companies share the financial burden of its payouts. But as more consumers flood into the FAIR Plan, its financial stability — and that of the insurers backing it — is increasingly at risk.

Recognizing this, legislators like Assemblymembers Lisa Calderon and David Alvarez have introduced AB 226, a bill aimed at shoring up the FAIR Plan’s solvency and ensuring it can continue to pay claims in the event of future mega-fires.

The Bigger Picture: Climate, Costs, and Catastrophe

The wildfire crisis has fundamentally changed the economics of home insurance in California.

🔥 Wildfire losses are soaring.

From Paradise to Malibu, wildfire damage now occurs with staggering frequency. The Camp Fire (2018) alone caused over $16.5 billion in insured losses.

💸 Reinsurance costs are exploding.

Global reinsurers — the insurers of insurance companies — have sharply increased premiums for catastrophe-prone regions. These costs trickle down to consumers, making coverage less affordable.

🧮 Proposition 103 restricts pricing flexibility.

Under this 1988 law, insurers must base rate filings on past losses, not projected future risks. That makes it nearly impossible to price for climate-driven volatility.

The result: insurers can’t charge enough to cover future catastrophes, while homeowners can’t find affordable options. It’s a vicious cycle — and one that lawsuits alone can’t fix.

Can the FAIR Plan Survive This Surge?

The FAIR Plan is backed by private insurers, but it’s also facing mounting exposure. As of 2024, the plan’s policy count has more than doubled since 2019, ballooning to cover homes valued at tens of billions of dollars.

If a single catastrophic wildfire caused mass destruction across multiple counties, the FAIR Plan could be overwhelmed — triggering assessments on participating insurers and, in a worst-case scenario, threatening the solvency of the system itself.

Susman remains cautiously optimistic, noting that new legislation and reforms are underway to make the system more sustainable.

“Fortunately, there are steps being taken — like the Sustainable Insurance Strategy — that allow carriers to offer discounts for wildfire mitigation,” he said. “We’re finally rewarding people for hardening their homes instead of just penalizing them for where they live.”

A Glimmer of Reform: The Sustainable Insurance Strategy

At the end of 2024, California regulators introduced the Sustainable Insurance Strategy, a suite of reforms designed to modernize the way insurers assess and price risk.

Key elements include:

• Allowing the use of catastrophe modeling to predict wildfire losses.
• Permitting insurers to reflect reinsurance costs in rate filings.
• Encouraging mitigation-based discounts for homeowners who take measurable steps to protect their properties — such as creating defensible space or installing fire-resistant materials.

This marks a major shift from past restrictions and could help attract insurers back into the state over time.

“We’re not going to see instant relief,” Susman cautioned. “But these changes are the first real sign that regulators understand the market must evolve if we want to restore competition.”

What Homeowners Can Do Now

For homeowners stuck in high-risk zones, the path forward can feel uncertain. Susman offered several practical steps:

1. Check your coverage early.

Renewals and underwriting reviews can take weeks — don’t wait until your policy expires to shop.

2. Explore surplus lines markets.

Non-admitted insurers (surplus lines) may offer coverage where traditional companies won’t — though at higher rates.

3. Invest in mitigation.

Reducing wildfire risk through roof replacement, brush clearance, and defensible space not only protects your home but may soon qualify you for new rate reductions.

4. Keep detailed documentation.

If you ever need to file a claim, photos, receipts, and inventory lists can drastically speed up the process.

5. Work with a licensed broker.

Independent brokers — like Susman himself — can access multiple markets, including specialty and excess carriers, to find solutions traditional insurers can’t.

The Bottom Line: A Market on the Brink of Reinvention

The collusion lawsuits may grab headlines, but they distract from the real crisis — an antiquated regulatory model that no longer reflects modern risk realities.

Whether or not the courts find evidence of coordination among insurers, the outcome won’t change one fact: California’s insurance market must adapt or collapse.

“This isn’t about conspiracy,” Susman concluded. “It’s about math, risk, and survival. Until we fix how rates are approved and how risk is priced, California homeowners will continue to feel trapped — and that’s what really needs to change.”

Final Takeaway

California’s insurance crisis is no longer a distant policy issue — it’s a daily reality for millions of residents. Allegations of collusion may or may not hold legal weight, but they’ve exposed something undeniable: the state’s current system is unsustainable.

Modernization, transparency, and consumer education will be key to restoring balance — ensuring that insurance once again provides what it’s meant to: protection, not panic.