California's Insurance Crisis; What To Know (Airdate: 2024-09-18) FOX - KTTV

Published Date: 09/18/2024

California’s Insurance Crisis: What New Reforms Really Mean for Homeowners

For years, California homeowners have faced an unsettling reality: their insurance coverage can vanish with little warning. As wildfires grow larger and more destructive, major insurance carriers have scaled back operations, raised rates, or abandoned the state’s most fire-prone regions altogether.

But in a new FOX–KTTV segment, insurance expert and Insurance Hour host Karl Susman explained how long-awaited reforms could finally begin to reverse that trend — offering both hope and clarity to millions of Californians navigating the state’s ongoing insurance crisis.

The Wildfire Wake-Up Call

California’s worsening wildfire seasons have been devastating not only for communities but also for the insurance industry that underwrites their recovery.

In just the past few years, massive blazes have wiped out entire neighborhoods, leaving insurers with billions in claims. In response, many companies — from State Farm to Allstate — stopped writing new home insurance policies or dropped customers outright.

As a result, hundreds of thousands of residents have been forced into the California FAIR Plan, the state’s last-resort fire insurance program. While the FAIR Plan provides basic coverage, it’s expensive, limited, and never meant to replace the private market.

“Insurance companies make money by writing insurance,” Susman reminded viewers. “So if they’re not offering policies, their first thought should be, ‘They obviously can’t make money — or they would be doing it.’”

That single sentence captures the dilemma. The system isn’t broken because insurers don’t want to insure — it’s broken because outdated regulations prevent them from doing so profitably and sustainably.

A Battle Over Reform

At the center of this debate is California Insurance Commissioner Ricardo Lara, who announced sweeping new regulations designed to reopen the market and require insurers to write more coverage in high-risk areas.

The changes, expected to take effect by January 2025, aim to modernize how rates are calculated and how coverage is distributed — while maintaining compliance with Proposition 103, the 1988 law that governs insurance rates in the state.

However, not everyone is on board.
Jamie Court, president of Consumer Watchdog, a longtime advocacy group, accused Lara of “backroom deals” with insurers and warned that the reforms would “raise rates without expanding coverage.”

Susman, who testified at the Department of Insurance hearing in Sacramento, respectfully disagreed.

“Jamie’s a good guy,” he said. “I think his heart is in the right place. But I’m puzzled when he talks about things that aren’t actually in the regulations.”

Debunking the “Black Box” Myth

One of the most controversial claims made by Consumer Watchdog is that the new reforms would allow insurers to use “black box” algorithms — secretive, unregulated computer models — to set rates without oversight.

Susman corrected that misconception:

“The regulations literally have language in them — something called the Pre-Application Required Information Determination (PRID) — that requires every carrier using these models to disclose exactly how they’re utilizing them and what common factors they’re based on. It’s all in compliance with Prop 103 and the Insurance Code.”

In other words, insurers will be able to use modern catastrophe models (the same kind used nationwide) to project future wildfire risks and reinsurance costs — but they must do so transparently.

These models are critical because they reflect today’s realities — where wildfire risk is not static but escalating. Without them, insurers are forced to price based on backward-looking data, a formula that’s proven unsustainable.

“I’m always puzzled,” Susman added, “when I see people who know this stuff talk about it with a jaundiced eye.”

What the New Regulations Actually Do

So, what’s really changing under these new guidelines?

1. Risk-Based Pricing at the Property Level

Currently, California’s rate system is blunt and outdated. Insurers must rate properties by ZIP code — meaning every homeowner in a given area pays roughly the same premium, regardless of how well they’ve mitigated their fire risk.

That’s why a homeowner in Brentwood’s 90049 ZIP code, living safely near San Vicente Boulevard, might pay the same high rate as someone whose home backs up to dry brush in the foothills.

“Under the new regulations,” Susman explained, “if you live closer to San Vicente, away from the foothill, you’ll pay less than someone right up against the brush. That’s exactly how it should work.”

This granular pricing model rewards homeowners who take proactive steps — clearing vegetation, installing ember-resistant vents, upgrading roofs — and it brings fairness back to the system.

2. Mandatory Market Participation in High-Risk Areas

The new rules also require insurers to write more business in high-risk regions as a condition of accessing the benefits of the updated pricing system.

“They’re being told, you have to write up to 85% of the business that you’re writing in other areas,” Susman said. “In exchange, you can use these new tools to set rates more accurately on a home-by-home basis.”

This “trust but verify” approach — borrowing a phrase from Ronald Reagan — is designed to ensure that insurers can’t cherry-pick low-risk properties while abandoning rural or wildfire-prone communities.

From ZIP Codes to Microzones: A Fairer Future

The shift from broad ZIP-code pricing to property-specific underwriting marks one of the biggest insurance reforms in decades.

It aligns premiums more closely with actual risk, creating incentives for mitigation and greater transparency in how rates are determined.

For example:

• A homeowner who clears defensible space and uses fire-resistant materials could see premium reductions.
• Those who neglect fire safety could pay more, reflecting their higher exposure.

This mirrors successful models used in states like Colorado and Arizona, where fire resilience has become a factor in underwriting decisions.

“These new guidelines are going to allow insurance carriers to provide a more granular experience,” Susman said. “That makes for a more competitive marketplace — but not everyone is a fan of that.”

Indeed, critics argue that increased variability could penalize low-income homeowners in high-risk zones. But without accurate pricing, the alternative is worse: insurers withdrawing altogether, leaving homeowners uninsured.

How We Got Here: The Weight of Proposition 103

To understand why this reform matters, we need to revisit Proposition 103, passed in 1988 during California’s auto insurance wars.

Prop 103 gave the state’s Insurance Commissioner broad power over rate approvals and established a “prior approval” system — meaning insurers must get state approval before raising rates.

It also created the intervener process, allowing third-party consumer groups (like Consumer Watchdog) to challenge rate filings — and receive payment from insurers when they prevail.

While the intent was transparency and consumer protection, over time, Prop 103 became a bottleneck. Rate filings can take over a year to process, forcing insurers to operate with outdated risk data and capped premiums — even as reinsurance and wildfire costs skyrocket.

The result: a shrinking market, spiraling FAIR Plan enrollments, and frustrated consumers.

A Turning Point for the Industry

The reforms discussed in the KTTV segment represent the most significant overhaul of California’s insurance market since Prop 103 itself.

“This would be the largest reform of the insurance industry in a few decades,” Susman noted. “Easily. By far.”

The regulations are expected to be finalized by year-end, taking effect in early 2025. Most industry observers — from carriers to brokers to policy analysts — see them as a necessary course correction to prevent market collapse.

But as Susman cautioned, change is hard.

“Most people who understand the mechanics of it are very proactive and eager to have these done,” he said. “But there’s still concern, because people don’t like change.”

What It Means for Homeowners

For consumers, the reforms could bring new hope and new complexity.

1. More Availability

With insurers required to write in high-risk areas again, more homeowners should have access to standard coverage rather than being forced into the FAIR Plan.

2. Smarter Pricing

Premiums will reflect specific property conditions — which may mean lower rates for those who maintain defensible space or upgrade materials, but higher rates for those who don’t.

3. Greater Transparency

New disclosure requirements for catastrophe modeling and risk assessment ensure that homeowners can understand — and, if needed, challenge — how their rates are calculated.

The Road Ahead

Change won’t happen overnight. The new system will require both insurers and regulators to adapt, retrain, and retool their data systems.

Still, experts believe that by mid-2025, the reforms could begin to show results:

• More competition among insurers.
• Stabilized pricing in high-risk zones.
• Reduced strain on the FAIR Plan.

If successful, California’s reforms could become a national model for balancing climate risk, consumer fairness, and market viability.

“These are changes we’ve needed for decades,” Susman said. “It’s about creating a system that works for everyone — homeowners, insurers, and the state.”

Final Thoughts

California’s insurance market sits at the crossroads of climate, policy, and economics. The wildfires of the past decade exposed the fragility of a system built for a different era — one where risk was predictable and losses were manageable.

Today, the challenge is to modernize that system without abandoning the consumer protections that make California unique.

The 2024 reforms — while imperfect — represent a serious attempt to do just that. By integrating transparency, fairness, and accountability, they may finally restore the confidence needed to keep insurers in the game and homeowners protected.

“At the end of the day,” Susman concluded, “insurance companies want to write business — and Californians want peace of mind. These changes are about making both possible again.”