Inside California’s Insurance Crisis and the Path to Reform

Published Date: 08/06/2024

California, long known for its innovation and resilience, is now facing an insurance crisis that threatens homeowners, businesses, and the broader economy. Premiums are rising, major insurers have scaled back new business, and the state’s regulatory framework—created more than 35 years ago—has struggled to keep pace with modern risks.

To unpack what’s driving these challenges and what’s being done to fix them, Karl Susman, host of Insurance Hour, sat down with Janet Ruiz, Director of Strategic Communications for the Insurance Information Institute (Triple-I). Their conversation revealed the data, history, and structural issues behind California’s insurance turmoil—and the reforms that could determine the market’s future.

Understanding the Triple-I and Its Role

The Insurance Information Institute is not a lobbying organization or a traditional trade group. As Ruiz explained, its mission is education and transparency.

“We don’t lobby. We provide credible data,” she said. “People use our website to understand storms, wildfire losses, and how much has been paid out across the country.”

For more than 60 years, Triple-I has served as a trusted source for journalists, lawmakers, and consumers. While it is supported by insurers nationwide, its primary purpose is to help the public understand how insurance works and why it matters—especially during times of crisis.

Proposition 103 and Its Long-Term Impact

Much of California’s current insurance instability can be traced back to Proposition 103, passed by voters in 1988. At the time, it was celebrated as a landmark consumer protection law. It required prior approval from the California Department of Insurance (CDI) before insurers could raise rates and created an “intervener” process allowing the public to challenge rate filings over 7%.

Over time, however, the rigidity of Prop 103 limited insurers’ ability to respond to inflation, climate change, and rising rebuilding costs.

“Prop 103 artificially held California to lower insurance rates that weren’t adequate,” Ruiz said. “For decades, companies filed small increases to avoid delays, but those increases didn’t keep pace with risk.”

As a result, insurers were paying out more in claims than they collected in premiums. In the decade leading up to 2021, Ruiz noted that companies paid out an average of $1.08 to $1.13 for every $1 collected—an unsustainable model.

Why California Became a Broken Insurance Market

California remains one of the largest insurance markets in the world, but insurers have struggled to operate profitably due to delays in rate approvals and rapidly escalating risks.

Wildfires, inflation, supply chain disruptions, and soaring construction costs have transformed the loss environment. Wildfire losses in California now rival hurricane losses in other disaster-prone states.

At the same time, California’s rate approval process is slow and unpredictable. Filings can take years to be approved. During those delays, insurers often pause new business or non-renew existing policies, leaving consumers with few options.

The Intervener Process: Protection or Bottleneck?

Under Prop 103, interveners can challenge rate filings and, if successful, are compensated by insurers. While intended to create public accountability, Ruiz explained that the process has become a costly obstacle.

“People have made a business out of intervening,” she said. “The numbers are now public, and lawmakers are starting to ask hard questions.”

This process can add months or years to rate approvals, preventing insurers from reacting in real time to changing risk.

Adequate but Not Excessive: The Regulatory Balancing Act

California law requires that insurance rates be “adequate but not excessive.” Ruiz emphasized that the system has focused on preventing excess while neglecting the need for adequacy.

“The adequate part got left behind,” she said. “That’s why companies avoided filing for full increases. It wasn’t sustainable.”

Chronic underpricing weakened insurer margins and contributed directly to today’s market contraction.

The Role of Catastrophe Models and Reinsurance Costs

Most states allow insurers to use forward-looking catastrophe models when setting rates. California, historically, has not.

“We need forward-looking catastrophe modeling,” Ruiz said. “And we need to use the cost of reinsurance, because insurers buy insurance themselves to make sure they can pay claims.”

Without these tools, rates are based on backward-looking data that underestimates modern wildfire and climate risk, discouraging insurers from writing new business.

AM Best Downgrades and Solvency Risks

Ruiz highlighted the financial warning signs facing major carriers, including the downgrade of State Farm by AM Best.

“Their surplus dropped from about $4 billion to around $1 billion,” she said. “Surplus is what pays claims. Solvency is everything.”

If an insurer becomes insolvent, the California Insurance Guarantee Association (CIGA) steps in to cover claims up to $500,000, funded by assessments on other insurers. That creates ripple effects across the entire market.

Why Rate Increases Are Becoming Unavoidable

Headlines about 30% rate increases often create panic, but Ruiz clarified that these are usually average or capped figures—not uniform increases for everyone.

“It depends on your location and risk,” she said. “A wildfire zone may see larger increases, while other areas might see none.”

She compared insurance inflation to everyday cost increases.

“I pay more for food, gas, and utilities than I ever thought I would. Insurance reacts to the same pressures because we have to pay claims—and we want to pay claims.”

She also urged homeowners to view premiums in the context of the value being protected.

“If my premium is $3,000 or $4,000, it’s still protecting my biggest investment. People often spend more than that on utilities or dining out.”

Admitted vs. Non-Admitted Carriers and the FAIR Plan

As insurers retreat, more Californians are being pushed into non-admitted or surplus lines markets.

“When that happens, you’re often paying more for less coverage,” Ruiz said. “You might need the FAIR Plan for fire and a second policy for everything else. That’s expensive.”

Admitted carriers provide broader coverage under strict CDI oversight. Restoring insurers to the admitted market is one of the central goals of current reforms.

The Sustainable Insurance Strategy and Signs of Recovery

Commissioner Ricardo Lara’s Sustainable Insurance Strategy is designed to modernize the system. Key reforms include:

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

Governor Gavin Newsom has introduced a trailer bill to accelerate implementation by the end of 2024.

“Allstate has publicly said they will come back when these changes take effect,” Ruiz confirmed. “Other companies have said the same privately.”

Even with reforms, she cautioned that recovery will take time. It could take a year or more for rate structures and renewals to fully reset.

The Importance of Mitigation and Community Resilience

Ruiz stressed that regulation alone will not solve the crisis. Mitigation—reducing losses before they happen—is just as critical.

“We need to make our homes and communities more resilient,” she said. “Defensible space, sensors, better materials—all of these reduce losses.”

Through the Insurance Institute for Business & Home Safety, insurers invest heavily in research on stronger building standards. Many carriers already offer discounts for homeowners who adopt proven mitigation measures.

Conclusion: A Market at a Turning Point

California’s insurance crisis took decades to develop, and it will not be resolved overnight. But momentum is finally building.

Legislators, regulators, and insurers are now aligned around the need for modernization, financial stability, and renewed competition.

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

If reforms succeed, Californians may soon see a more stable, competitive market—one where premiums reflect real risk, insurers remain solvent, and consumers regain meaningful choice.



After years of gridlock, that would mark a true turning point for California—and a national model for managing risk in an era of climate uncertainty.