California’s Sustainable Insurance Strategy Explained
Published Date: 11/21/2024
For years, California has faced an insurance crisis that no one could ignore — not homeowners, not insurers, and not state regulators. Skyrocketing premiums, disappearing coverage, and catastrophic wildfires have turned what was once the nation’s most robust insurance market into one teetering on the edge of collapse.
But that may finally be changing.
In a recent interview on KTVU’s On Your Side, insurance expert Karl Susman broke down the details of Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy — a sweeping modernization plan designed to stabilize California’s insurance landscape and bring major carriers back into the market.
“We’ve already fallen over the edge,” Susman said. “Right now, less than 10% of the insurance market is open for business. This plan is about bringing competition back — because without competition, rates will never come down.”
How California’s Insurance Market Reached a Breaking Point
Over the past decade, California’s insurance market has been hit by a perfect storm of mounting wildfire losses, outdated regulations, and a mass exodus of major insurers.
Historic wildfire seasons between 2017 and 2021 produced more than $25 billion in insured losses. Fires such as the Camp, Woolsey, and Tubbs destroyed entire communities and forced insurers to reassess whether they could continue operating under existing rules.
At the same time, California’s rate regulations — particularly Proposition 103 — required insurers to rely on historical loss data rather than forward-looking risk. In a climate-driven risk environment, that backward-looking approach made accurate pricing nearly impossible.
As losses and reinsurance costs soared, companies like State Farm and Allstate pulled back from writing new policies. With fewer private options available, the California FAIR Plan expanded rapidly, becoming the insurer of last resort for hundreds of thousands of homeowners.
“We have no competition,” Susman explained. “When you can’t shop around for a better rate, the few companies left can charge whatever they need to stay solvent.”
What the Sustainable Insurance Strategy Is Designed to Do
Commissioner Ricardo Lara’s Sustainable Insurance Strategy is intended to rebalance the market by making it viable for insurers again while preserving consumer protections.
At its core, the plan is a tradeoff. Insurers are given modern tools to assess and price wildfire risk more accurately. In exchange, they are required to expand coverage and write more policies in high-risk and underserved areas.
“They get the ability to properly underwrite,” Susman said, “and in exchange, they’re being told they have to write more insurance in distressed areas.”
Predictive Wildfire Modeling and How It Changes Underwriting
One of the most important changes in the strategy is allowing the use of forward-looking catastrophe (CAT) models.
Under the current system, insurers must rely on historical loss data — often the last 10 years — to set rates. That approach breaks down when climate patterns, drought conditions, population growth, and development have shifted dramatically.
The new models allow insurers to evaluate risk using:
- Weather and drought data
- Vegetation density
- Topography and wind patterns
- Simulated and historical fire behavior
“They’ll be able to look ahead,” Susman explained. “Even if an area hasn’t burned recently, they can use data to predict the likelihood of future fires.”
Once these models are reviewed and approved by the Department of Insurance, they can be used to support rate filings that reflect current and future risk, not just the past.
Why Higher Rates Are Likely at First
The transition to forward-looking models is expected to raise rates initially for many Californians.
“We’ll see a spike in rates right away,” Susman said. “But that’s not because insurers are being greedy. It’s because risks are higher — and prices need to reflect that reality.”
However, he believes those increases are temporary. As insurers regain confidence and re-enter the market, competition should return. Once multiple carriers are competing for the same customers again, market pressure is expected to stabilize — and potentially reduce — premiums.
“Right now, rates are artificially high because we have no competition,” Susman said. “Bring the carriers back, and they’ll start competing again.”
The Requirement for Insurers to Return to High-Risk Areas
The Sustainable Insurance Strategy does not allow insurers to only insure the safest, most profitable regions of the state.
To use the new modeling tools, carriers must expand their footprint and write more coverage in distressed and wildfire-prone regions. This prevents cherry-picking and ensures broader access to private insurance.
“They can’t just write in Beverly Hills and avoid Lake Tahoe,” Susman said. “They’re being required to insure all parts of the state if they want access to these new tools.”
Reinsurance Costs and Why They Matter to Your Premium
Reinsurance — insurance for insurance companies — has become one of the biggest cost drivers in the global market. Climate disasters worldwide have pushed reinsurance prices sharply higher.
Under current California law, insurers have not been allowed to include reinsurance costs in rate filings, even though those costs directly affect their solvency.
The new strategy allows reinsurance expenses to be factored into rate requests.
“If you can’t include your biggest expense in your rates,” Susman explained, “you can’t stay in business. This update makes it viable again.”
Faster Rate Approvals and a More Responsive Market
Another key reform is streamlining the regulatory approval process for rate changes and underwriting updates.
Today, approvals can take 12 to 18 months. During that time, insurers remain locked into outdated pricing while their losses continue to rise.
The Sustainable Insurance Strategy aims to shorten these delays, making the market more dynamic and responsive to changing risk conditions.
Faster adjustments help prevent sudden market withdrawals and disruptive coverage gaps for homeowners.
What the Strategy Means for Homeowners
For homeowners — especially those in wildfire-prone areas — the short-term outlook may still include higher premiums. But the long-term goal is a more stable and competitive market.
If successful, the reform could result in:
- More carriers returning to California
- More choices outside of the FAIR Plan
- Rates that reflect real mitigation efforts
- Fewer emergency non-renewal moratoriums after each fire season
“Right now, we’re stuck in a reactive system,” Susman said. “This plan is about creating a proactive one.”
Balancing Consumer Protection With Market Survival
Some critics argue that the Sustainable Insurance Strategy favors insurers by giving them more pricing flexibility. Supporters counter that without insurers, consumers have no market at all.
“You can’t protect consumers if there’s no one left to sell insurance,” Susman said.
California represents roughly one out of every eight homeowners policies in the United States. How the state modernizes its system could influence insurance regulation in other climate-stressed regions across the country.
How Quickly Homeowners May See Results
Commissioner Lara has indicated that Californians could begin seeing measurable changes by mid-2025, with insurers resuming broader new business as early as the first quarter of the year.
Susman agrees the timeline is possible, but warns expectations should remain realistic.
“This isn’t going to fix everything overnight,” he said. “But it’s the first serious plan we’ve had in decades — and it gives both consumers and carriers a reason to hope again.”
The Takeaway on California’s Insurance Reform
California’s insurance crisis developed over decades — and it will take time to resolve it. The Sustainable Insurance Strategy represents a fundamental shift toward aligning insurance regulation with modern climate science, real-world data, and economic reality.
Rates are likely to rise before they stabilize. But as experts emphasize, that adjustment is the price of rebuilding a functioning insurance market that rewards mitigation, restores access, and rebuilds trust.
“Once we have real competition again,” Susman concluded, “we’ll see rates come back down — not to where they were five years ago, but to where they should be in a sustainable, modern insurance market.”
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