California Insurance Reforms Signal Hope for Homeowners
Published Date: 09/18/2024
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.
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 devastated not only communities but also the insurance industry that underwrites 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 is expensive, limited, and was 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.’”
The system is strained not because insurers do not want to insure, but because outdated regulations have made it increasingly difficult to do so profitably and sustainably.
A Battle Over Reform at the Department of Insurance
At the center of the debate is California Insurance Commissioner Ricardo Lara, who announced sweeping regulations designed to reopen the market and require insurers to write more coverage in high-risk areas.
These changes, expected to take effect by January 2025, aim to modernize rate calculations and coverage distribution while staying within the framework of Proposition 103, the 1988 law governing insurance rates in California.
Not everyone supports the reforms. Jamie Court, president of Consumer Watchdog, accused the Department of Insurance of “backroom deals” with insurers and warned that the changes would raise rates without expanding coverage.
Susman, who testified at the Department of Insurance hearing in Sacramento, pushed back on that characterization.
“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” Algorithm Myth
One of the most controversial claims surrounding the reforms is that they would allow insurers to use secret “black box” computer models to set rates without oversight.
Susman corrected that claim directly.
“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.”
Under the reforms, insurers will be allowed to use modern catastrophe models to project wildfire risk and reinsurance costs — but only with full disclosure and regulatory review. These tools reflect today’s escalating wildfire behavior and replace backward-looking rate methods that no longer match reality.
“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 Change
The reforms introduce two major structural shifts in how homeowners insurance is priced and distributed.
First, pricing will move from broad ZIP-code rating to property-level risk assessment. Under the current system, every homeowner in a ZIP code often pays roughly the same rate, regardless of individual mitigation efforts. Under the new rules, homes closer to open brush or foothills may pay more than similar homes farther from wildfire exposure.
“As an example,” Susman explained, “someone living near San Vicente Boulevard in Brentwood would no longer pay the same rate as someone living right up against the brush in the hills. That’s exactly how it should work.”
Second, insurers will be required to participate in high-risk markets as a condition of accessing modern pricing tools.
“They’re being told you have to write up to 85% of the business you write elsewhere,” Susman said. “In exchange, you can use these new tools to set rates more accurately on a home-by-home basis.”
This structure is designed to expand availability while preventing insurers from selectively avoiding wildfire-exposed regions.
From ZIP Codes to Microzones: A Fairer Pricing Model
The shift from ZIP-code pricing to micro-level underwriting is intended to reward homeowners who actively reduce wildfire risk while aligning premiums with true exposure.
Under the new system:
- Homeowners who clear defensible space and harden their homes may qualify for lower premiums.
- Properties with unmitigated exposure may see higher rates that reflect elevated risk.
This model already operates successfully in states such as Colorado and Arizona, where mitigation plays a larger role in underwriting decisions.
“These guidelines allow carriers to provide a more granular experience,” Susman said. “That makes for a more competitive marketplace — though not everyone is a fan.”
Critics argue the changes could burden lower-income homeowners in high-risk zones, but supporters counter that without accurate pricing, insurers will continue withdrawing, leaving many homeowners with no private coverage at all.
Proposition 103 and the Regulatory Bottleneck
Passed in 1988, Proposition 103 created California’s prior-approval rate system and empowered third-party interveners to challenge rate filings.
While the law strengthened consumer protections, it also created a slow and adversarial regulatory process.
Today, rate approvals can take more than a year, forcing insurers to operate on outdated wildfire data while reinsurance and catastrophe costs rise rapidly. Susman noted that what once protected consumers now contributes to market contraction, ballooning FAIR Plan enrollment, and reduced competition.
A Turning Point for California’s Insurance Market
The reforms discussed in the FOX–KTTV segment represent the most significant overhaul of California’s insurance market in decades.
“This would be the largest reform of the insurance industry in a few decades,” Susman said. “Easily. By far.”
If finalized on schedule, the regulations will take effect in early 2025. Industry analysts view them as a necessary correction to prevent further market collapse, even as public skepticism remains high.
“Most people who understand the mechanics are very eager to see these changes happen,” Susman said. “But there’s still concern, because people don’t like change.”
What the Reforms Mean for Homeowners
For consumers, the practical impact of the reforms could be significant.
Availability may improve as insurers are required to write more policies in wildfire-prone regions. Many homeowners could regain access to standard private coverage rather than relying on the FAIR Plan.
Pricing will become more individualized, reflecting specific property conditions rather than broad geographic averages.
Transparency will increase through new disclosure requirements governing catastrophe modeling and underwriting factors.
Together, these changes aim to rebuild competition while preserving California’s core consumer protections.
The Road Ahead for Market Stabilization
The transition will not be immediate. Insurers and regulators must update systems, retrain staff, and adapt to new compliance standards. Still, observers believe that by mid-2025, measurable progress could emerge.
Potential outcomes include:
- Increased insurer participation in high-risk zones
- More stabilized premiums
- Reduced dependence on the FAIR Plan
If successful, California’s model could influence how other climate-exposed states modernize their insurance systems.
“These are changes we’ve needed for decades,” Susman said. “It’s about creating a system that works for homeowners, insurers, and the state.”
Final Thoughts on California’s Insurance Crossroads
California’s insurance market now sits at the intersection of climate risk, public policy, and economic reality. The wildfires of the past decade exposed weaknesses in a regulatory structure built for a different era.
The 2024 reforms attempt to modernize that structure while preserving the consumer protections that define California’s system. Whether they succeed will shape affordability, availability, and long-term market resilience for years to come.
“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.”
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