California's Insurance Overhaul: Navigating New Reforms and Consumer Protections

California’s Insurance Overhaul: Navigating New Reforms and Consumer Protections

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 heart 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Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy — two complementary efforts designed to modernize outdated regulations while preserving the strong consumer protections that have defined California’s insurance laws for more than 30 years.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.”

So, what’s actually happening in California’s insurance overhaul? Here’s a deep dive into what these reforms mean, why they matter, and how they could reshape the state’s insurance landscape for years to come.

A Market in Crisis

To understand why change is happening now, we need 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. According to industry data, between 2012 and 2022, insurers in California paid out $1.13 for every $1.00 collected in premium.

That means companies have been operating at a loss for years.

Add to that construction inflation, reinsurance price hikes, and climate-driven risk escalation, and the result has been an insurance marketplace on the brink of collapse.

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.”

Outdated Rules for a Modern Risk

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

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

Those were groundbreaking reforms — but they were written for a different time. As Susman noted, “We’re still using rules written when most people didn’t even have home computers.”

Today’s risk environment looks nothing like 1988:

Wildfires are bigger, faster, and more destructive.
Homes are built with new materials and technologies.
Climate data and risk modeling are vastly more sophisticated.

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 only 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 real-world risk — has made it nearly impossible for insurers to price policies accurately.

The Sustainable Insurance Strategy: Bringing California into 2024

To fix that, 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 goals are straightforward:

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 balances modernization with accountability. It doesn’t erase Prop 103’s protections — it reaffirms them while improving efficiency and transparency.

“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.”

The Trailer Bill: A Fast Track for Reform

Governor Newsom’s trailer bill, introduced alongside the state budget, accelerates part of Lara’s plan. The idea: get immediate relief for consumers and insurers rather than waiting until the end of the year.

The trailer bill focuses on one key area — speeding up the Department of Insurance’s rate review process.

Currently, when an insurance company wants to change its rates, offer a new discount, or introduce a product, it must submit a detailed filing to the Department of Insurance (DOI). The DOI then reviews and approves (or rejects) it.

In practice, this process can take months or even years. That delay has left carriers stuck waiting for permission to make necessary adjustments, which discourages them from staying in the market.

The trailer bill fixes that by enforcing a strict timeline:

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

Importantly, this rule does not guarantee approval for insurers. It simply guarantees a timely response.

“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.”

Consumer Protections: Still Fully Intact

Critics — particularly one vocal “consumer” organization — have claimed the trailer bill and Sustainable Insurance Strategy will weaken oversight and kill public participation in rate reviews.

Susman called those claims “factually wrong.”

Let’s break them down:

Claim: “The bill lets insurers set their own prices.”

Fact: Proposition 103’s rules remain fully in force. Rates must still be reviewed and approved by the elected Insurance Commissioner.

Claim: “The public can’t intervene anymore.”

Fact: The public intervener process — which allows any person or organization to challenge rate filings — remains unchanged.

Claim: “It turns the Department into a rubber stamp.”

Fact: The Department retains full authority to deny or modify filings; it’s simply required to respond within the existing legal deadlines.

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

The Controversy: Relevance vs. Reality

So why the backlash?

Susman argues that one major “consumer group” opposing the reforms — a group that helped write Proposition 103 — is more interested in staying relevant than serving the public.

According to public records, this organization collects the majority of intervener fees in California. When a consumer group challenges an insurer’s rate filing, the law allows that group to be compensated — by the insurer — for its time and legal costs.

Between 2018 and 2021, this single group received 90% of all intervener fees, totaling millions of dollars, including 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 added, is that this same group also championed making the Insurance Commissioner an elected position under Prop 103 — and is now criticizing the elected commissioner for exercising his authority.

Catastrophe Modeling: The Key to Fair Pricing

Another flashpoint in the reform debate is the use of catastrophe models — advanced computer systems that predict the likelihood and severity of disasters like wildfires or floods.

California is currently the only state in the country that bans insurers from using these models when setting rates. Instead, companies must rely solely on backward-looking data — a serious limitation in a time of accelerating climate change.

The Sustainable Insurance Strategy proposes allowing catastrophe modeling, with strict DOI oversight and transparency 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 be “tools for insurers to charge more.” Supporters argue the opposite — that better data will make pricing more accurate, restoring market stability and competition.

The Bigger Picture: Fixing a Broken System

At its core, the debate isn’t about politics — it’s about functionality.

California’s insurance framework hasn’t kept up with the world it regulates. Insurers face unpredictable delays, outdated data restrictions, and rising losses. Consumers face fewer choices, higher costs, and shrinking availability.

The Sustainable Insurance Strategy and trailer bill aim to fix that — not by stripping protections, but by enforcing them efficiently and intelligently.

Susman summed it up this way:

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

A Path Forward

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

The immediate goals are:

Speed up approvals for insurers to re-enter the market.
Modernize regulations to reflect real-world risk.
Restore competition that drives affordability.
Preserve consumer protections that keep the system fair.

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.”

The stakes couldn’t be higher. Every day of delay means more homeowners lose coverage, more businesses struggle to operate, and more communities face financial uncertainty.

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

Final Thoughts: Reform with Accountability

California’s insurance overhaul represents a turning point — a chance to modernize without compromising the values that made the state a national leader in consumer protection.

It’s not about deregulation or favoritism. It’s about updating the system so it works in today’s world — where climate risk is real, data is abundant, and delays cost everyone money.

The reforms reaffirm Proposition 103, strengthen 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.”

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