California Wildfire Insurance Crisis: Expert Karl Susman Shares Key Insights
Published Date: 01/11/2025
California’s Wildfire Insurance Crisis: Expert Insights on the Future of Coverage and Cost
California’s relationship with wildfire is no longer seasonal — it’s structural. With every passing year, the state faces blazes that grow in both intensity and economic devastation. The current wave of fires across regions like the Pacific Palisades is proving to be one of the most destructive yet, both in terms of property loss and insurance implications.
As insurance claims from these wildfires soar into the tens of billions of dollars, homeowners and insurers alike are grappling with questions about what comes next. How will this reshape California’s insurance market? Can homeowners in fire-prone areas still find coverage? And will rates continue to climb, or could new regulations actually stabilize the market?
To explore these questions, insurance expert Karl Sussman offers a rare dual perspective: one rooted in decades of experience within the industry and the other shaped by firsthand exposure to the risks Californians face every fire season.
Unprecedented Losses and the Industry’s Response
Sussman’s assessment of the current fires is blunt: “We’re already at a place where we’ve seen more total losses than we’ve ever seen from any type of fire before.” At just 8% containment after three days, the Palisades fire alone has already produced an unprecedented number of claims — and more are expected as damage assessments continue.
These large-scale losses send shockwaves through the insurance sector. When insurers face payouts in the billions, the financial pressure inevitably trickles down to policyholders in the form of higher premiums, reduced availability, and stricter underwriting standards.
But despite the challenges, Sussman emphasizes that insurers are preparing to “buckle down and start doing what they’ve been paid to do — pay those claims.” This underscores a key point often overlooked in the public debate: while insurers may tighten their risk exposure, the system still functions to fulfill its primary obligation — helping communities recover.
The Market at a Crossroads: Cost and Coverage Challenges
California’s insurance market is at an inflection point. Over the past four years, seven of the state’s top twelve insurers have either reduced their exposure or halted new business altogether in wildfire-prone areas. Among them, State Farm stands out for its sweeping non-renewals — including 1,626 homeowners’ policies in the Palisades alone. That neighborhood, Sussman notes, was the second most affected area in the state by non-renewals.
This mass exodus left thousands scrambling to find coverage, often at significantly higher prices or through limited options such as the California FAIR Plan. For many, the FAIR Plan became the only option — a policy meant as a last resort but now serving as a de facto mainstream insurer in high-risk zones.
The FAIR Plan’s exposure in the Palisades is now estimated at $5 billion, representing what it may need to pay out in claims if homes are declared total losses. For an entity that was never designed to handle such concentrated, high-value risks, that figure is staggering — and it exposes the fragility of California’s current insurance safety net.
New Regulations Aim to Rebalance the System
Despite this turmoil, Sussman remains cautiously optimistic about the new regulations introduced in December — part of California’s broader Sustainable Insurance Strategy spearheaded by the state’s Insurance Commissioner. These rules mandate that all carriers must write policies statewide, including in high-risk wildfire zones like the Palisades.
The intent is to restore competition to the market by preventing insurers from abandoning entire regions. “Since all carriers will be required to do it,” Sussman explains, “it should give us some competition.” That competition, he argues, is critical — not just for maintaining access to coverage, but also for moderating long-term premium growth.
While rates in high-risk zones will likely increase, the introduction of mandatory participation could also bring rate decreases in safer areas where competition is strongest. “It might sound surprising,” he adds, “but some areas could actually see rates go down from where they are today.”
This regulatory shift represents a key turning point. By ensuring that every major insurer shares some portion of the risk, California hopes to stabilize availability without overburdening a single player — a model somewhat akin to federal flood insurance risk-sharing frameworks.
The FAIR Plan Under Pressure
Perhaps the most pressing concern, however, is the sustainability of the California FAIR Plan itself. Designed as a temporary fallback, the FAIR Plan was never meant to handle widespread adoption or multibillion-dollar exposure levels. As more insurers retreat from wildfire-prone zones, the FAIR Plan’s growth has been exponential — and its financial capacity is being stretched to the brink.
Sussman acknowledges the public anxiety surrounding this issue: “It’s a great question and everybody’s asking. You’re right — we all depend on this plan when we can’t get insured by private companies.” The challenge now is ensuring that the FAIR Plan remains solvent and capable of paying claims amid escalating disasters.
If the FAIR Plan were ever to become overwhelmed, the repercussions would ripple throughout California’s housing market and economy. It underscores why systemic reform — not short-term fixes — is essential.
The Economics of Risk: Why Premiums Are Rising
Insurance pricing is fundamentally about predicting and distributing risk. However, as climate change accelerates, traditional actuarial models have become less reliable. Wildfires are burning hotter, faster, and in previously low-risk areas — forcing insurers to update their data and assumptions continuously.
When losses exceed projections, insurers must raise premiums or limit coverage to remain solvent. Regulatory constraints in California make rapid price adjustments difficult, meaning insurers often prefer to withdraw from markets rather than risk financial instability. This is why the new regulations requiring participation could be both a stabilizer and a stressor, depending on how effectively they’re implemented.
Sussman’s prediction is pragmatic: “We’ll see rates going up in the areas that are higher risk and rates coming down where they’re not as likely to burn.” In other words, California’s future insurance map will likely resemble a tiered risk landscape, with premiums aligned more tightly to real-world hazard data.
What Homeowners Can Do Now
For homeowners navigating this uncertain terrain, the key takeaway is clear: be proactive, not reactive. Sussman and other experts recommend several immediate steps to secure and maintain coverage:
- Review your policy annually. Ensure coverage limits reflect current rebuild costs, which have risen sharply due to inflation and supply shortages.
- Mitigate your risk. Clear brush, create defensible space, and follow insurer guidelines to make your property less vulnerable.
- Stay informed about your insurer’s status. Be aware of potential non-renewals and contact your broker or carrier early if your area has been designated as high-risk.
- Keep your FAIR Plan option ready. Even if you prefer private coverage, having an active FAIR Plan quote or policy can prevent lapses in protection.
- Document everything. In the event of a claim, comprehensive photo and video records of your home’s condition can accelerate processing.
The most important piece of advice, according to Sussman, is communication. “Reach out to your broker or insurance company before you have a problem,” he says. “If you’re in a wildfire area, make sure your policy is active and your payments are current — don’t wait until it’s too late.”
A Market in Transition, Not Collapse
While headlines often portray California’s insurance market as being on the brink of collapse, Sussman offers a more balanced perspective. The system is under immense pressure, yes, but it is also adapting. With new regulations forcing greater market participation and competition, there is room for cautious optimism.
Still, the underlying challenge remains the same: how to balance affordability, availability, and sustainability in an age of escalating climate risk. As Sussman points out, “The insurance industry is preparing to do what it’s supposed to do — pay those claims.” The question now is how to ensure it can continue doing so in the years to come.
Conclusion: Building a Resilient Future
California’s wildfire crisis is no longer just an environmental emergency — it’s an insurance and economic one. The billions in losses from fires like those in the Pacific Palisades will reverberate through the market for years to come. Yet amid the uncertainty, new regulatory frameworks and expert insights offer a roadmap toward resilience.
As Karl Sussman reminds us,
the system isn’t failing — it’s evolving. The challenge for homeowners, insurers, and policymakers alike is to adapt alongside it, creating a future where living in California’s natural beauty doesn’t have to mean gambling with financial ruin.
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