California Insurance Overhaul: What It Means

Published Date: 06/04/2024

California’s insurance market is in the midst of the most sweeping overhaul in decades. After years of mounting instability — insurers pulling back, homeowners facing non-renewals, and small businesses losing coverage — policymakers are finally taking bold action.



At the center of this transformation are Governor Gavin Newsom’s trailer bill and Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy — two complementary efforts designed to modernize outdated regulations while preserving the strong consumer protections that have defined California’s insurance laws for more than 30 years.

But as insurance expert Karl Susman explained on a recent episode of The Insurance Hour, not everyone is on board. Some long-standing advocacy groups are pushing back, claiming the reforms will “gut” consumer rights and hand the insurance industry a blank check. Susman calls those claims “factually wrong and dangerously misleading.”

Here’s what’s actually changing, why it matters, and how it could reshape California’s insurance landscape for years to come.

Why California’s Insurance Market Is Being Overhauled

To understand why change is happening now, it helps to look at how California got here.

Over the last decade, insurers in the state have faced massive wildfire losses — billions of dollars in claims that have outpaced premium growth. Between 2012 and 2022, insurers in California paid out about $1.13 for every $1.00 collected in premium.

In other words, companies have been operating at a loss for years.

Layer on top of that:

• Severe construction inflation
• Sharp increases in reinsurance costs
• Climate-driven escalation of wildfire and other catastrophe risks

The result is a marketplace on the brink. Major carriers — including State Farm, Allstate, and Farmers — have paused or restricted new business. Homeowners and business owners across the state have been non-renewed by the tens of thousands, forcing many into the California FAIR Plan, the state’s insurer of last resort.

“This isn’t about evil insurance companies,” Susman explained. “It’s about a broken system that doesn’t allow them to operate sustainably. If they can’t make money, they can’t sell insurance — and that means consumers lose.”

How Proposition 103 Shaped Today’s Problems

Much of California’s current regulation dates back to Proposition 103, passed in 1988. It established strict consumer protections, including:

• Mandatory state approval for rate changes
• Public access to rate filings
• The right for consumer groups to “intervene” in rate reviews

Those reforms were groundbreaking at the time, but they were written for a very different risk landscape. As Susman put it, “We’re still using rules written when most people didn’t even have home computers.”

Today:

• Wildfires are bigger, faster, and more destructive.
• Homes are built with new materials and technologies.
• Climate science and risk modeling are vastly more advanced.

Yet insurers in California are still prohibited from using forward-looking catastrophe models to assess wildfire risk — the same models used in every other state. Instead, they must rely strictly on historical loss data from the past 10 years.

“We’re asking insurers to look backward, when every sign tells us the future will look completely different,” Susman said.

That mismatch — between regulatory expectations and modern risk — has made it extremely difficult for insurers to price policies accurately and sustainably.

Inside Lara’s Sustainable Insurance Strategy

To address this, Insurance Commissioner Ricardo Lara launched the Sustainable Insurance Strategy — a multi-part reform package aimed at modernizing California’s insurance framework by the end of 2024.

The strategy’s goals are to:

• Update outdated regulations
• Speed up policy and rate approvals
• Reinforce consumer protections under Prop 103
• Encourage insurers to write more business in high-risk areas

Lara’s approach is meant to balance modernization with accountability. It doesn’t erase Proposition 103’s protections — it reaffirms them while improving how the system functions.

“We’re strengthening the Department’s ability to hold all parties accountable,” Lara said in a public statement. “This measure allows us to fix a system suffering from decades of delay and deferral.”

A key piece of that modernization is allowing controlled, transparent use of catastrophe models and better alignment between risk, mitigation, and pricing.

What Newsom’s Trailer Bill Actually Does

Governor Newsom’s trailer bill, introduced alongside the state budget, is designed to accelerate part of Lara’s plan so relief isn’t delayed until the end of the year.

The bill focuses on one critical chokepoint: the Department of Insurance’s rate review process.

Currently, when an insurance company wants to:

• Change its rates
• Add or modify a discount
• Introduce a new product

…it must submit a detailed filing to the Department of Insurance (DOI). The DOI then reviews and approves, modifies, or rejects the filing.

In practice, this process can take months or even years. That delay has left carriers stuck waiting for permission to make necessary adjustments — a major disincentive to write or maintain business in California.

The trailer bill addresses this by enforcing a clear timeline:

• The DOI has 60 days to review a complete rate filing.
• If more time is needed, the DOI may request two 30-day extensions, for a maximum of 120 days.
• After that, the DOI must respond — approve, deny, or propose modifications.

Crucially, this does not guarantee approval for insurers. It guarantees a timely decision.

“There’s a false narrative out there that this forces the Department to rubber-stamp rate hikes,” Susman said. “That’s just not true. The DOI can still deny anything — they just have to do it faster.”

Are Consumer Protections Being Weakened?

Some critics — particularly one long-standing “consumer” organization — have claimed that the trailer bill and the Sustainable Insurance Strategy will weaken oversight and shut the public out of rate reviews.

Susman flatly rejects those claims as “factually wrong.”

Here’s how the protections actually stand:

• Prop 103 remains fully in force. Insurers must still obtain approval for any rate increase or new program.
• The public’s right to intervene is unchanged. Consumer groups and individuals can still challenge rate filings and present evidence.
• The Insurance Commissioner retains full authority. The DOI can approve, deny, or modify any filing based on existing law and actuarial standards.

“This bill actually strengthens consumer protections,” Susman argued. “It forces complete applications, it enforces timelines, and it gives the Department more power — not less.”

The central change is procedural, not substantive: the law’s deadlines, long ignored in practice, must now be respected.

The Role of Consumer Groups and Intervener Fees

So why the intense opposition from at least one prominent advocacy group?

Susman points to the financial incentives built into the intervener system under Prop 103.

When a consumer group challenges an insurer’s filing and is deemed to have made a substantial contribution to the outcome, the law allows that group to be compensated — by the insurer — for its time and legal costs.

Public records show that between 2018 and 2021, one organization received about 90% of all intervener fees in California, totaling millions of dollars. That included nearly $450,000 in consulting fees to its founder.

“They’ve made millions off the very process they claim protects consumers,” Susman said. “They’re not fighting for lower rates — they’re fighting to stay in business.”

The irony, he noted, is that this same group helped create the current system — including making the Insurance Commissioner an elected office — and is now attacking the elected Commissioner for using that authority to modernize the system.

Why Catastrophe Modeling Matters

Another major flashpoint in the reform debate is catastrophe modeling — the use of advanced computer models to predict the frequency and severity of disasters like wildfires or floods.

California is currently the only state that bans insurers from using these models in their rate calculations. Instead, they must look only at past losses — a dangerous limitation in a time of rapidly changing climate risk.

The Sustainable Insurance Strategy proposes allowing catastrophe models under strict DOI oversight, with transparency and review requirements.

“If every other state allows it, and they’re not collapsing, why are we pretending this is dangerous?” Susman asked.

Critics claim models will simply be used to justify higher premiums. Supporters argue that they will:

• Make pricing more accurate and property-specific
• Better reflect mitigation efforts and home hardening
• Help restore stability and competition by reducing uncertainty

Without modern modeling, Susman and others argue, California will remain stuck in a system that underprices risk, scares off carriers, and ultimately hurts consumers.

Rebuilding a Functional, Competitive Insurance Market

At its core, this debate isn’t about political ideology — it’s about whether the system works.

Right now:

• Insurers face unpredictable delays and outdated rules.
• Consumers face fewer choices, higher costs, and shrinking availability.
• The FAIR Plan is carrying more risk than it was ever designed to handle.

The Sustainable Insurance Strategy and trailer bill aim to fix this — not by dismantling protections, but by enforcing them more efficiently and aligning them with today’s realities.

“Right now, if you call ten places for a homeowners quote, nine will say no,” Susman said. “That’s the problem we’re trying to solve. We need to get back to a competitive marketplace where people actually have options.”

What Happens Next for California Policyholders

With both Newsom and Lara aligned, the reforms are expected to move quickly through the legislative and implementation process.

In the near term, the goals are to:

• Speed up approvals so insurers can re-enter and expand in the market.
• Modernize the regulatory framework to match current and future risk.
• Restore competition, which is the single strongest driver of affordability.
• Preserve — and in some ways strengthen — core consumer protections from Prop 103.

As Senator Susan Rubio put it:

“I could not be more pleased with the governor’s proposal to help reduce unnecessary red tape. We can’t fix this if we keep doing things the same old way.”

Every month of delay means more non-renewals, more FAIR Plan enrollments, and more financial uncertainty for families and businesses.

“We can’t wait for December,” Susman said. “We need to fix this now.”

Final Thoughts: Modernization with Accountability

California’s insurance overhaul represents a pivotal moment — a chance to modernize without abandoning the values that made the state a national leader in consumer protection.

This isn’t about deregulation or giving insurers a blank check. It’s about updating the rules so they work in a world where:

• Climate risk is accelerating
• Data and modeling tools are far more advanced
• Regulatory delays can destabilize an entire market

The reforms reaffirm Proposition 103, maintain public oversight, and demand accountability from both insurers and regulators.

“At the end of the day,” Susman concluded, “this is about one thing: making sure Californians can get insurance again. That’s the goal. And that’s what these reforms are finally moving us toward.”