California Sustainable Insurance Strategy

Published Date: 11/28/2023

California’s insurance market is in crisis. From wildfire-exposed homeowners unable to find coverage to major carriers pausing new policies, the Golden State has spent the last several years grappling with an insurance ecosystem on the verge of collapse. Yet amid this turmoil, a new path forward is taking shape — one that promises to bring insurers back, increase competition, and protect consumers.



Known formally as the California Sustainable Insurance Strategy (also called the California Insurance Stability Plan), this sweeping reform effort could reshape not only California’s insurance system but also influence how other states respond to climate-driven insurance instability.

The Roots of the Problem: Proposition 103 and Market Paralysis

For more than three decades, California’s insurance system has been governed by Proposition 103, a 1988 ballot initiative designed to protect consumers from excessive rate increases. The law gave the Department of Insurance broad authority to approve or reject rate changes — a powerful safeguard at the time, but one that now acts as a bottleneck in a rapidly changing risk environment.

Under Prop 103’s rigid framework, insurers cannot quickly adjust prices to reflect real-world risks such as catastrophic wildfires, flood exposure, inflation, or rising reinsurance costs. Even minor underwriting updates — like offering new discounts for fire-resistant roofs — can take months or even years to receive approval.

As Karl Susman puts it, “In California, you can’t really shop for property insurance — you can only hunt for it.”

The result has been a mass withdrawal of insurers from the market. Many carriers either refuse to write new business or restrict coverage so tightly that homeowners are left with limited options.

The FAIR Plan: From Last Resort to Only Resort

The California FAIR Plan was created as a safety net — a true “insurer of last resort” for properties that could not obtain coverage through the private market. It provides basic fire coverage, not the broad protections of a standard homeowners policy.

Today, FAIR Plan enrollment has exploded. Homeowners aren’t turning to it because their properties are truly uninsurable — they’re turning to it because private insurers won’t take them.

As Susman explains, “It’s supposed to be where you go when you absolutely have no other choice — not where half the state ends up by default.”

A core goal of the Sustainable Insurance Strategy is to reverse this trend by restoring a functioning private market and returning the FAIR Plan to its original purpose.

Step 1: Depopulating the FAIR Plan

The first pillar of the strategy focuses on moving homeowners and businesses out of the FAIR Plan and back into private insurance. This requires creating conditions where insurers can once again write policies with confidence.

That means:

• Making it financially viable for insurers to take on California risk
• Restoring access to full-coverage policies, not just bare-bones fire protection
• Rebuilding competition across both residential and commercial markets

The FAIR Plan will remain in place, but only as a true backstop — not as a default solution for large portions of the state.

Step 2: Embracing Predictive Modeling and Climate Data

Historically, California required insurers to rely almost entirely on backward-looking historical loss data to set rates. But climate change has rendered those models unreliable. Wildfire behavior, storm severity, and catastrophic losses no longer resemble past patterns.

The new strategy allows insurers to use catastrophe modeling and climate-based predictive analytics to more accurately forecast future risk. These models incorporate weather trends, vegetation density, wind patterns, and fire behavior to better estimate potential losses.

Some consumer groups argue that charging for future risk is unfair. Susman counters that the alternative is worse: insurers that cannot account for predictable risk simply leave the market.

This reform aligns insurance pricing with scientific reality — not to inflate premiums arbitrarily, but to keep the market solvent so claims can be paid when disasters occur.

Step 3: Expanding Commercial Coverage for High-Value Properties

Under existing rules, the FAIR Plan caps commercial fire coverage at $20 million per location. For large condominium associations and multi-building properties, that limit often falls far short of true replacement cost.

The Sustainable Insurance Strategy raises this cap to $20 million per building. This change ensures that when FAIR Plan coverage is necessary, it can actually support realistic rebuilding after a catastrophic loss.

While it does not encourage dependence on the FAIR Plan, it prevents dangerous underinsurance for California’s high-value commercial properties.

Step 4: Accounting for Reinsurance Costs — Fairly

Reinsurance — insurance purchased by insurance companies — is essential for spreading catastrophic risk. Its cost has surged worldwide due to climate-driven disasters and inflation.

Previously, California law did not allow insurers to materially include reinsurance costs in their rate filings. That forced companies to absorb massive expenses or exit the state altogether.

The new strategy permits a California-specific reinsurance allowance. Insurers can now reflect reinsurance costs directly tied to California risk in their rate calculations — but not global reinsurance exposures.

This protects consumers from subsidizing losses in other states while allowing insurers to remain financially stable in California’s high-risk environment.

Step 5: Fixing the Broken Rate-Filing Process

One of the most severe regulatory bottlenecks has been the rate-filing approval process under Prop 103. While the public hearing system was designed to ensure transparency, it has increasingly been used to delay filings for months or even years.

In some cases, insurers have waited nearly a year just to receive approval to update a single classification plan. These delays prevent new products, discounts, and risk-reduction incentives from reaching consumers.

The Sustainable Insurance Strategy introduces major procedural reforms:

• Objections must now be justified with financial transparency
• Legal fee disclosures are required
• Additional Department of Insurance staff will be added to clear backlogs
• Approval timelines could be reduced from nearly a year to one or two months

This modernization benefits both insurers and consumers by accelerating access to new coverage options and discounts.

Step 6: Requiring Insurers to Write in High-Risk Areas

Perhaps the most controversial reform is the mandatory market participation rule. Under the new policy, insurers must write 85% of their property business in wildfire-prone areas proportional to their statewide market share.

For example, if a carrier insures 20% of homes statewide, it must also insure roughly 17% of properties in designated high-risk zones.

This prevents insurers from cherry-picking only low-risk neighborhoods while abandoning entire regions. While rates in high-risk areas may initially remain elevated, renewed competition is expected to stabilize pricing over time.

Step 7: Allowing FAIR Plan Recoupment Without a Bailout

Insurers participating in the FAIR Plan are legally required to cover losses if the program’s reserves are exhausted. The new rule allows insurers to recover a portion of those assessments gradually instead of absorbing the full cost at once.

Critics label this a bailout, but in reality it is a solvency safeguard. The FAIR Plan has never collapsed, but without a recovery mechanism, an extreme catastrophic loss could destabilize participating insurers across the market.

Recoupment keeps the system financially viable without transferring long-term risk to taxpayers.

Why Solvency Matters

Susman emphasizes a critical distinction: solvency is not greed — it is survival. An insurance company that suppresses rates below actuarial reality today may not be able to pay claims tomorrow.

Recent insurer failures in Florida highlight the danger of forcing artificially low pricing in high-risk markets. The Sustainable Insurance Strategy aims to avoid that outcome by balancing affordability with financial stability.

The objective is not simply higher premiums — it is a system capable of honoring its promises after disaster strikes.

Looking Ahead: California as a National Model

California’s reforms — modernization of catastrophe modeling, faster rate approvals, reinsurance inclusion, and mandatory market participation — are already being watched closely by other catastrophe-prone states, including Colorado, Louisiana, and Florida.

As Susman notes, “These laws were written 35 years ago — in a world that no longer exists. If we don’t change the system, we’ll keep getting the same broken results.”

If successful, California’s strategy could become a blueprint for climate-era insurance reform nationwide.

Final Thoughts

The California Sustainable Insurance Strategy represents a long-overdue recalibration of a system built for a different era. It will not fix the market overnight, and early rate adjustments may be difficult for consumers. But over time, increased competition, faster innovation, and realistic risk pricing are expected to rebuild market stability.

For consumers, this means more choice.
For insurers, it means solvency and predictability.
For California, it means a viable path out of crisis and toward a sustainable insurance future.

The market is transitioning — and while the transition is painful, the alternative is continued collapse.