California Insurance Crisis Explained by the CDI

Published Date: 04/16/2024

As California’s property insurance market continues to reel from company withdrawals, mass non-renewals, and soaring premiums, homeowners are asking a fundamental question: Is there a real plan to fix this?



In a recent episode of The Insurance Hour, host Karl Susman spoke with Michael Soller, Deputy Insurance Commissioner for Communications at the California Department of Insurance (CDI), in a rare and candid discussion about the causes of the crisis and the state’s strategy to stabilize the system.

From State Farm’s non-renewals to the growing dependence on the FAIR Plan, the conversation offered one of the clearest perspectives yet on where California’s insurance market stands — and where it may be headed.

The Department’s Mission: Consumer Protection and Market Stability

Soller began by reinforcing the dual responsibility of the California Department of Insurance: protecting consumers while maintaining a stable and available insurance market.

“We’re the largest insurance market in the country,” Soller said. “That makes us the fourth largest in the world. Our goal is to make insurance as available as possible and keep rates as low as possible, given the risks we face in this state.”

The Department oversees 8.7 million residential policies and is responsible for ensuring that rates are justified, claims are paid fairly, and consumers have access to help when disputes arise. That includes working directly with agents and brokers when coverage options become limited.

The State Farm Shock and Regulatory Oversight

When State Farm announced in 2024 that it would non-renew 30,000 residential and 42,000 commercial policies, the decision sent shockwaves through California’s insurance industry. The impact deepened when A.M. Best downgraded State Farm’s financial rating from A to B, citing solvency concerns.

Soller confirmed that the Department immediately launched a coordinated financial review with regulators in Illinois, State Farm’s home state.

“Their decision to non-renew less than a year after they paused new policies raises serious questions for us as the regulator,” Soller said. “We’re working with State Farm’s home state of Illinois to get a full picture of their financial condition and their plan for improvement.”

Despite the downgrade, Soller emphasized that State Farm remains solvent and able to pay claims.

“This is more like an early warning system,” he said. “Non-renewals will phase in over a year, and customers should contact their agents to understand their options.”

The FAIR Plan: Safety Net Under Growing Strain

As private insurers retreat, more homeowners are turning to the California FAIR Plan. Soller clarified that the FAIR Plan is not government-run but is managed by private insurance companies.

“If the FAIR Plan ever becomes insolvent, it can assess its member companies,” he explained. “That means every insurer operating in California could be forced to pay a share of the losses.”

That exposure risk discourages insurers from expanding their California business. While large assessments have not occurred since the Northridge earthquake, the possibility still influences carrier behavior today.

The Department’s goal is to modernize the FAIR Plan while shrinking its role.

“It needs to serve people better — but at the same time, we want fewer people relying on it,” Soller said. “That means restoring a normal, competitive marketplace.”

Debunking the “Insurance Conspiracy” Narrative

During the interview, Susman addressed a common public belief that insurers and regulators are working together to manufacture a crisis in order to justify higher rates.

Soller firmly rejected that claim.

“Absolutely not,” he said. “Insurance companies are regulated under Proposition 103. They can set their rates only at levels appropriate to pay future claims — not more.”

Under Proposition 103, rates must be:

• Not excessive
• Not inadequate
• Not unfairly discriminatory

The Department has final authority to approve or deny rate requests.

“What’s happening now isn’t a conspiracy,” Soller explained. “It’s a result of outdated rules colliding with modern risks. We’re seeing the limits of a 35-year-old law.”

Delayed Action and a Broken Feedback Loop

One of the most revealing moments of the discussion was Soller’s acknowledgment that the warning signs of today’s crisis appeared more than a decade ago.

“Looking back, we had warning signs more than a decade ago,” he said.

When carriers like Allstate stopped writing new business in 2007, the regulatory system failed to respond quickly enough. Years of delayed adjustments allowed problems to compound.

“We had delayed action for decades,” Soller admitted. “And when global catastrophes increased and rebuilding costs exploded, it all hit at once.”

Because Proposition 103 requires lengthy approval processes, insurers had very few immediate tools to manage growing losses. The fastest response available to them was to stop writing new business altogether.

“Instead of collaborating with the Department to make small, timely adjustments, carriers hit the brakes entirely,” Susman said.
“That’s exactly how we got here,” Soller agreed.

The Consumer Watchdog Debate

Another key issue discussed was the role of Consumer Watchdog, a group that frequently intervenes in rate filings using Proposition 103’s public participation rules.

While the intent of this process is consumer protection, Soller argued that it has become concentrated in the hands of a single organization, slowing reforms that Californians now urgently need.

“In practice, only one group has materially benefited — and the system isn’t helping Californians right now,” he said. “We need everyone working from the same facts.”

He emphasized that the Insurance Commissioner is an elected official and that the process is transparent and on the public record.

“There’s no backroom dealing,” Susman added. “Everyone gets to speak. Everything is on the record.”

The Sustainable Insurance Strategy: California’s Reform Plan

Commissioner Ricardo Lara’s Sustainable Insurance Strategy is the state’s primary roadmap for stabilizing the insurance market while preserving consumer protections. Soller outlined its four core pillars:

• Streamlined Rate Reviews
  Insurers will be required to submit complete applications upfront, reducing delays caused by repeated information requests.
• Catastrophe Modeling
  California will begin allowing forward-looking catastrophe models rather than relying solely on historical loss data.
• “If homeowners and communities make themselves safer, that must now be reflected in rates,” Soller said.
• Reinsurance Reform
  Reinsurance costs, now one of the largest drivers of premium increases, will be modernized within the rate-setting process.
• FAIR Plan Modernization
  The FAIR Plan will be updated and paired with a long-term strategy to move consumers back into the private market.

All four reforms are targeted for implementation by December 2024 after full public hearings.

“By the end of the year, companies will be filing new rates under these rules,” Soller confirmed. “And we’ll be monitoring them to ensure they write new business again.”

Shared Responsibility Across the System

Soller emphasized that rebuilding the insurance market is a shared responsibility between regulators, insurers, and consumers.

“Insurance companies have to manage their business effectively,” he said. “But consumers also have to take steps to reduce risk.”

That includes complying with California’s Safer from Wildfires standards — maintaining defensible space, trimming vegetation, and hardening structures.

“People who choose to live in high-risk areas understand there’s responsibility,” Soller said. “Now, insurers must recognize those efforts with lower rates.”

Susman added that prevention must become a cultural priority.

“Too often, people prefer a covered claim over preventing one,” he said. “But a claim means a loss — and a loss is bad for everyone.”

The Road Ahead: From Crisis to Correction

Soller acknowledged that recovery will not be immediate.

“We haven’t seen conditions this tough since the Northridge earthquake,” he said. “But we’re acting as fast as possible. Every day we’re working to move these reforms forward.”

He urged consumers and agents to contact the Department when coverage problems arise.

“If your insurance company says it can’t write your policy because your roof is too old — and you know it’s not — call us,” he said.

Consumers can reach the Department at 800-927-4357 or visit insurance.ca.gov for assistance.

The Bottom Line: Progress Through Partnership

Both Soller and Susman emphasized that California’s insurance crisis was decades in the making — and will take time to resolve. But for the first time in years, there is a coordinated and transparent plan in motion.

“Agents, brokers, and regulators are on the same side,” Susman said. “We all want availability, affordability, and accountability.”

“We’re not pointing fingers,” Soller concluded. “We’re building solutions. And that’s how we’ll get California insured again.”