California’s insurance market is at a breaking point. Policies are being canceled, premiums are skyrocketing, and entire neighborhoods are finding it nearly impossible to secure coverage. On a recent episode of The Insurance Hour, host Karl Susman tackled this issue head-on, inspired by an open letter from several California legislators to Insurance Commissioner Ricardo Lara.
The letter — co-signed by Congressman John Garamendi and others — called attention to the “chaos” in the state’s insurance market and urged the Commissioner to stabilize rates and require carriers to provide affordable coverage across all regions. But as Susman points out, while the letter identifies the problem, it doesn’t present a solution.
And that, he argues, is where the conversation must begin: not just with complaints or political sound bites, but with practical, data-driven strategies to fix a system that’s been straining for years.
The Root of the Crisis: Risk, Regulation, and Reality
Susman begins by cutting through the noise: “Insurance is not complicated,” he says. “It’s just math.”
Insurance pricing is a balancing act — premiums must be high enough to cover claims and operating costs, but low enough to attract customers and comply with regulatory constraints. When either side of that equation falters, the system breaks down.
In California, the breakdown is severe. Over the past several years, carriers have withdrawn from writing new policies, citing unmanageable losses from wildfires, floods, and other extreme weather events. As of 2025, nearly 87% of insurers in the state have restricted or stopped writing new business altogether.
Between rising claim costs and outdated regulatory models, insurers cannot charge rates that reflect actual risk — and they are unwilling, and often legally unable, to operate at a loss.
“If you collect $1,000 and you pay out $1,200, at some point that game’s going to run out,” Susman explains.
A Perfect Storm of Climate, Catastrophes, and Costs
California’s crisis is part of a broader national pattern of rising weather-related losses. Wildfires, extreme heat, record rainfall, tropical storms, and other disasters are driving unprecedented insurance payouts.
As Susman notes, hundreds of thousands of emergency responders are working against thousands of active wildfires in California alone. Across the U.S., there have been dozens of separate billion-dollar weather disasters in a single year.
“This isn’t political,” Susman says. “It’s just math. The weather is creating significantly higher payouts that the insurance industry is paying. We have to accept that.”
If disaster frequency and severity increase, someone must absorb the cost. Either insurers lose money, consumers pay higher premiums, or governments step in with subsidies or backstops. Without reform, none of these options deliver long-term stability.
Outdated Rules for a New Reality
California’s regulatory framework is rooted in Proposition 103, passed in 1988. It requires prior approval for rate increases and limits how insurers can model risk.
While the intent was consumer protection, the result today is regulatory rigidity. Insurers are restricted from using modern climate analytics and predictive modeling to price risk accurately.
“We’re operating on rules that were put in place 20 or 30 years ago,” Susman explains. “They simply don’t work the way they did back then.”
This one-size-fits-all approach punishes lower-risk homeowners while making coverage nearly impossible for higher-risk areas. The system neither protects consumers effectively nor keeps insurers in the market.
The Misconception of Profit and the Myth of the ‘Evil Insurer’
Susman challenges the narrative that insurers are raking in massive profits at consumers’ expense.
“The average insurance company works on razor-thin margins,” he explains. “If a carrier collects $100 in premium, it hopes to pay out $97 or $98 in claims and expenses.”
When catastrophic losses surge, those margins disappear. Insurers cannot be forced to sustain losses indefinitely. When they do, they exit the market.
This has pushed many homeowners into the California FAIR Plan, the state-mandated last-resort insurance pool funded by private carriers. The FAIR Plan is now insuring tens of thousands of properties that once had private coverage.
It’s Not About Blame — It’s About Balance
According to Susman, the insurance crisis is not about choosing sides. Insurers want to sell policies. Consumers want to buy them. The conflict lies in the structure of the system.
Carriers need the ability to underwrite using real, current data. Regulators must protect the public from unfair pricing. The present framework does neither effectively.
“Same makes same. Change makes change,” Susman says. “If we agree that something has to change, then we have to actually make those changes.”
Possible Solutions for a Sustainable Market
While no single fix will solve the crisis, Susman outlines several practical steps:
Modernize underwriting regulations to allow the use of real-time climate data, wildfire modeling, and advanced analytics.
Encourage competition by creating conditions where insurers can operate profitably and re-enter the market.
Expand mitigation incentives for homeowners who invest in home hardening and defensible space.
Explore public reinsurance programs and catastrophe bonds similar to those used in Florida and Texas.
Increase consumer education on risk reduction and loss prevention.
These measures would not eliminate risk, but they could restore balance between availability, affordability, and solvency.
From Complaints to Collaboration
Susman’s central frustration with the legislative letter is not that it identifies a crisis — but that it stops there.
“Don’t come to me with a problem without a solution,” he says.
Pointing fingers at regulators, insurers, or climate change does little to fix a system constrained by economics and outdated policy. California’s recovery depends on cooperation among lawmakers, regulators, insurers, and consumers.
“If an insurance carrier refuses to write business — and that’s how they make money — they’re only doing it because they can’t make money,” Susman explains. “Nobody just stops doing what they profit from without a reason.”
Conclusion: A Call to Action for Insurance Reform
California’s insurance crisis is the product of outdated regulation, rising catastrophe risk, inflation, and structural imbalance. Acknowledging the problem is no longer enough.
Insurance is not politics. It is math. And until the state aligns its regulatory framework with economic reality, consumers will continue to bear the consequences.
The future of California’s insurance market depends on measurable reform, modern data, and genuine collaboration. Only then can insurance return to its intended role — not as a scarce privilege, but as a reliable promise of protection for every homeowner.
