California’s Insurance Crisis: Insights from Triple-I with Janet Ruiz

Published Date: 08/06/2024

California’s Insurance Crossroads: Inside the Crisis and the Road to Reform

Insights from the Insurance Information Institute’s Janet Ruiz

California, long known for its innovation and resilience, now finds itself in the midst of an insurance crisis that threatens both homeowners and the broader economy. Premiums are rising, major insurers have scaled back new business, and the state’s regulatory system—designed more than 35 years ago—has struggled to adapt to modern realities.

To unpack the complexity behind these challenges, Karl Susman, host of Insurance Hour, sat down with Janet Ruiz, Director of Strategic Communications for the Insurance Information Institute (Triple-I). Their discussion illuminated the history, data, and structural issues driving California’s insurance woes—and, importantly, what’s being done to fix them.

Understanding the Triple-I: The Industry’s Credible Voice

The Insurance Information Institute (Triple-I) isn’t a lobbying group or a trade association in the traditional sense. As Ruiz explained:

“We don’t lobby. We provide credible data. We’re well-known for that. A lot of people use our website to collect information—what’s the largest storm, how much has been paid out on wildfires, which years had the most hurricanes.”

For over 60 years, the Triple-I has been a trusted source for journalists, lawmakers, and the public, explaining complex insurance concepts and providing transparent data about risk and recovery.

While the Institute is supported by insurance companies across the U.S., it exists primarily to educate. As Ruiz put it, “We help the public—legislators, media, homeowners, and business owners—understand what insurance does and how it works.”

In a world where misinformation and politicization often distort the narrative, this educational mission is more vital than ever.

Proposition 103: From Consumer Victory to Industry Constraint

At the center of California’s current crisis is a decades-old law—Proposition 103, passed by voters in 1988. Initially hailed as a consumer protection measure, it required insurance companies to get prior approval from the California Department of Insurance (CDI) before raising rates. It also created an “intervener process,” allowing members of the public to challenge rate increases over 7%.

But over time, as Ruiz explained, the law’s rigid structure has hindered insurers’ ability to adjust to inflation, climate change, and rising rebuilding costs.

“Prop 103 artificially held California to lower insurance rates that weren’t adequate,” Ruiz said. “We saw this on the auto side as well as the homeowners side. For decades, companies would file small increases under 7% to avoid delays, but they weren’t keeping pace with risk.”

This meant insurers were often paying out more in claims than they were taking in premiums. In the decade leading up to 2021, Ruiz noted, insurers paid out an average of $1.08–$1.13 for every $1 collected. “That’s no profit on the underwriting side,” she said. “It’s not sustainable.”

Why California Became a “Broken Market”

The fundamental issue isn’t that insurers don’t want to do business in California—they do. The state represents the fourth-largest insurance market in the world and the fifth-largest economy globally. The problem lies in the inability to adjust rates fast enough to reflect real-world costs.

Ruiz described how inflation, supply chain delays, and wildfire risk have transformed the landscape:

“We’re seeing catastrophic losses like we’ve never seen before. Wildfire losses are now on par with hurricane losses in other states. The cost to rebuild homes, pay claims, and reinsure those risks has skyrocketed.”

However, California’s regulatory process remains slow and unpredictable. Rate filings can take years to be approved, and when they’re delayed, insurers often resort to non-renewing policies or pausing new business altogether—leaving consumers scrambling.

The Intervener Process: Accountability or Obstacle?

Under Prop 103, consumer advocacy groups known as “interveners” can challenge rate filings and are paid by insurers for their time if successful. The idea was to create public oversight. But according to Ruiz, it has sometimes morphed into a costly bottleneck.

“People have made a business out of intervening,” she said. “They really don’t like being targeted, but we’re finally seeing transparency. Legislators are asking how much interveners make, and those numbers are public.”

This process, while intended to protect consumers, can add months—or even years—to rate approvals, making it nearly impossible for insurers to react quickly to changing risk environments.

Adequate, But Not Excessive: The Balancing Act

One of the most important phrases in California insurance law comes directly from Prop 103: rates must be “adequate but not excessive.” Ruiz emphasized that this balance is the key to a functioning market.

“That statement is very important. We don’t want excessive rates—but the adequate part is what got left behind.”

For years, insurers avoided seeking full adequacy due to the bureaucratic burden of doing so. The result? Chronic underpricing, shrinking margins, and mounting losses. As Ruiz put it, “That’s not a sustainable way to do business.”

The Role of Catastrophe Models and Reinsurance Costs

One of the most debated reforms in California today involves the use of catastrophe (CAT) models—statistical tools that predict future disaster risk based on data and trends. Most states allow insurers to use these models when setting rates. California, notably, does not.

“We need to be able to use catastrophe risk modeling that is forward-looking,” Ruiz explained. “And we also need to use the cost of reinsurance—because insurance companies buy insurance for themselves to make sure they can pay claims.”

Without these tools, insurers are forced to rely on backward-looking data that underestimates today’s wildfire and climate risks. That, in turn, keeps rates artificially low and discourages new business.

AM Best and the Solvency Warning

Perhaps the most striking part of the conversation came when Ruiz discussed the downgrading of State Farm by AM Best, one of the most trusted insurance credit rating agencies in the world.

“Their surplus went from around $4 billion down to about $1 billion,” Ruiz said. “That’s critical because surplus is what you pay claims out of. Solvency is everything.”

A downgrade signals financial stress and can limit a company’s ability to underwrite new policies. If solvency declines too far, a company can become insolvent—unable to pay claims.

When that happens, the California Insurance Guarantee Association (CIGA) steps in to cover claims, up to $500,000. But as Ruiz warned, “That money ultimately comes from other insurance companies. So you don’t want to see carriers go insolvent.”

California hasn’t seen major insolvencies since the 2018 Camp Fire, when Merced Property & Casualty went bankrupt. But without reform, the risk could rise again.

Why Some Rate Increases Are Necessary

Many consumers balk when they see headlines about “30% rate increases,” assuming their bill will go up by that amount. Ruiz clarified that these figures are often averages or caps, not across-the-board hikes.

“It depends on the area you’re in and the risk near your home,” she said. “If you’re in a wildfire zone or an area with more crime, your rate may increase more. Others might see no increase at all.”

And while rate increases are never popular, Ruiz urged listeners to think in context:

“I pay more for food, utilities, and gas than I ever thought I would. Insurance is reacting to the same inflationary pressures because we have to pay claims—and we want to pay claims. That’s our promise.”

She also noted the irony that homeowners often overlook the value of insurance compared to discretionary spending:

“If my premium goes up to $3,000 or $4,000, it’s still worth it. I spend more than that on utilities—or even coffee and dining out each year. We forget that insurance protects our biggest investment.”

Admitted vs. Non-Admitted Carriers: The Price of Last Resort

As insurers pause new business, more Californians are finding themselves turned away from traditional “admitted” carriers—those regulated by the CDI—and pushed into non-admitted or surplus lines markets.

“When that happens, you’re paying more for less coverage,” Ruiz said. “You might end up with the California FAIR Plan, which only covers fire damage. Then you need a separate policy for water, theft, and liability. That’s two policies—and it’s expensive.”

Admitted carriers, by contrast, offer comprehensive coverage that’s typically cheaper and subject to state oversight. The goal of the current reforms, Ruiz emphasized, is to bring insurers back to the admitted market.

Hope on the Horizon: The Sustainable Insurance Strategy

Despite the current pain, both Ruiz and Susman expressed optimism. The California Department of Insurance (CDI), under Commissioner Ricardo Lara, has introduced a Sustainable Insurance Strategy to modernize the system.

Among its reforms:

• Faster approval timelines for rate filings
• Permission to use CAT models and reinsurance costs
• Streamlined intervener processes
• Incentives for insurers to write in high-risk ZIP codes

Governor Gavin Newsom has even introduced a trailer bill to accelerate these reforms, pushing for implementation by the end of 2024.

“Allstate publicly said they’ll come back when these changes take effect,” Ruiz confirmed. “Other companies have said the same privately. Everyone’s on board.”

Still, she cautioned that recovery will take time. Even once reforms are in place, it will take at least a year for rate structures and renewals to cycle through.

The Path Forward: Mitigation and Resilience

While regulation and rate reform dominate headlines, Ruiz also underscored the importance of mitigation—reducing losses before they happen.

“We need to make our homes and communities more resilient,” she said. “Whether it’s wildfire, water damage, or theft, homeowners can lower risk with sensors, defensible space, and safer materials.”

The insurance industry funds major research efforts through the Insurance Institute for Business & Home Safety (IBHS), which develops building standards proven to reduce losses. Many carriers already offer discounts for adopting these protections.

Conclusion: Rebuilding Trust and Stability

California’s insurance crisis didn’t appear overnight, and it won’t disappear overnight. But as Ruiz and Susman emphasized, momentum is finally building. Legislators, regulators, and insurers are working together to restore a balanced, sustainable market.

Ruiz put it best:

“We want to be in California. The insurance industry should be a healthy market here. We can be—and we’re all hands on deck.”

The coming year will be critical. If the reforms succeed, Californians could once again enjoy a competitive, stable insurance market—one where premiums reflect reality, companies stay solvent, and consumers have genuine choice.

After decades of gridlock, that would be a true turning point—not just for California, but for how the nation manages risk in an era of climate uncertainty.