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As wildfires continue to ravage California, the state’s insurance market faces one of its most significant challenges to date. Homeowners, renters, and landlords are now embroiled in a series of lawsuits that accuse major insurance companies of colluding to deny coverage in high-risk wildfire zones, ultimately pushing consumers into the state-run California FAIR Plan. These allegations have reignited long-standing debates about fairness, competition, and the sustainability of the insurance system in California.
The Lawsuits: A Conspiracy or a Symptom of a Broken System?
The lawsuits allege that more than 100 insurance companies conspired to withdraw from wildfire-prone regions, leaving homeowners with no choice but to turn to the FAIR Plan. This state-mandated insurer, which was initially intended as a temporary safety net, has ballooned into the only option for many homeowners facing skyrocketing premiums or the risk of being dropped by private insurers.
With over half a million Californians now insured through the FAIR Plan, the crisis is becoming more apparent. Since the 1990s, the state has experienced 19 major billion-dollar wildfires, causing total losses exceeding $200 billion. In 2025 alone, wildfires caused an estimated $131 billion in damages, with only $45 billion of those losses covered by insurance. This imbalance between insured and uninsured losses reflects the escalating risks Californians face from natural disasters.
Karl Susman: “Insurers Compete — They Don’t Collude”
While the lawsuits accuse insurers of corporate conspiracy, industry veteran Karl Susman sees the situation differently. “Insurance companies compete. They don’t collude,” Susman said. “The idea that over 100 insurers would sit down and agree not to write business—just doesn’t make sense.” Instead, Susman argues that insurers are simply trying to protect their financial solvency in a system that prevents them from charging rates that accurately reflect modern risks.
California’s Proposition 103, a law passed in 1988, mandates that insurance rates must be approved based on past loss data, not future risks like climate change or escalating reinsurance costs. This outdated system has made it nearly impossible for insurers to keep up with the rising costs of wildfire coverage, leading them to withdraw from high-risk areas.
The FAIR Plan: From Safety Net to Structural Support
The California FAIR Plan, originally created in 1968 to provide insurance for those unable to find private coverage, has now become a central pillar of the state’s insurance system. What was meant to be a stopgap measure has evolved into a major insurer for California’s homeowners, with over 340,000 policies in force—nearly four times the number from just five years ago.
Susman warns that the FAIR Plan was never intended to take on this much risk. "The FAIR Plan was never meant to carry half a million policies," he explained. "It’s supposed to be temporary coverage, but now it’s becoming the foundation." The increasing reliance on the FAIR Plan is putting the entire system at risk, as its financial stability is tied to the premiums paid by all participating insurers.
To address the growing strain on the FAIR Plan, legislation like AB 226 is being proposed to inject more funding and ensure that the plan can continue to function in the event of future catastrophic losses.
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The Bigger Picture: Climate, Costs, and Catastrophe
The ongoing wildfire crisis has dramatically shifted the economics of home insurance in California:
- Wildfire losses are soaring: From the devastating Camp Fire in 2018 to the more recent 2025 wildfires, the frequency and cost of wildfires have skyrocketed.
- Reinsurance costs are exploding: Reinsurers, the insurers that cover the insurers, have sharply raised rates for California’s high-risk areas, further driving up the cost of coverage.
- Proposition 103 restricts pricing flexibility: This 1988 law has left insurers unable to adjust rates to reflect the growing risk of climate-driven disasters.
These factors have made it increasingly difficult for insurers to operate in California, which has led to market withdrawals, policy cancellations, and an overwhelming number of homeowners relying on the state’s last-resort insurer, the FAIR Plan.
Can the FAIR Plan Survive This Surge?
The FAIR Plan’s policy count has surged, and with it, the potential for financial collapse. If a single wildfire caused widespread destruction across multiple counties, the FAIR Plan could quickly be overwhelmed. This would result in assessments on participating insurers and, in the worst case, threaten the entire system’s solvency.
Despite the grim outlook, Susman remains cautiously optimistic, noting that legislation like the Sustainable Insurance Strategy may help create a more sustainable system. “We’re finally rewarding people for hardening their homes instead of just penalizing them for where they live,” he said. This is a step in the right direction, but the road to stability remains uncertain.
A Glimmer of Reform: The Sustainable Insurance Strategy
Introduced at the end of 2024, the Sustainable Insurance Strategy aims to modernize how insurers assess and price risk. Key components of the strategy include:
- Allowing
catastrophe modeling to predict wildfire losses more accurately.
- Permitting insurers to reflect
reinsurance costs in their rate filings.
- Encouraging
mitigation-based discounts for homeowners who take steps to protect their properties from wildfire risks.
While these changes won’t fix the crisis overnight, they represent the first real signs of reform in a system that has been outdated for decades.
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What Homeowners Can Do Now
For homeowners living in high-risk wildfire zones, Susman offers several practical steps:
- Check your coverage early: Don’t wait until your policy expires to shop around for better rates.
- Explore surplus lines markets: These non-admitted insurers may offer coverage where traditional insurers won’t—though at higher rates.
- Invest in mitigation: Fire-resistant roofing, defensible space, and brush clearing can not only protect your home but may also qualify you for discounts.
- Keep detailed documentation: Photos, receipts, and inventory lists can expedite claims processing if needed.
- Work with a licensed broker: Independent brokers can access multiple markets, including specialty and excess carriers, to find coverage solutions where traditional insurers won’t.
The Bottom Line: A Market on the Brink of Reinvention
While the collusion lawsuits may bring attention to the issue, the real crisis in California’s insurance market is one of outdated regulation, rising risks, and diminishing availability of coverage. The system’s inability to adapt to modern realities has left millions of homeowners struggling to find affordable insurance.
Until California’s regulatory framework is updated to reflect the true cost of risk, the state will continue to face insurance instability. As Susman summed up, “This isn’t about conspiracy. 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.”
Final Takeaway
California’s insurance market is at a crossroads. The ongoing crisis, fueled by climate change, regulatory inflexibility, and rising disaster risks, requires urgent reform. While the FAIR Plan may be a temporary fix, it’s not a sustainable solution. Until the state modernizes its insurance framework, the future of affordable, accessible coverage will remain uncertain for millions of Californians.
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