CBS - KCAL - Major Car Insurance Companies Getting Out Of California

Published Date: 01/17/2024

Why Major Auto Insurers Are Leaving California — And What It Means for Drivers

California’s car insurance market — once one of the most competitive in the nation — is showing serious cracks. Over the past year, several major auto insurers have scaled back or withdrawn from the state, citing unmanageable costs, regulatory gridlock, and higher claim expenses.

From Los Angeles to Sacramento, drivers are starting to feel the impact: rising premiums, shrinking availability, and longer waits for policy approvals. Yet, while insurers blame economic realities, regulators insist the problem lies elsewhere.

As CBS–KCAL’s recent report put it, this issue has become a “he said, she said” battle between the industry and California’s Department of Insurance — and the outcome will shape the future of driving in the state for years to come.

1. The Growing Exodus

In the past two years, a number of top national auto insurers — including State Farm, Allstate, and GEICO — have either paused writing new policies or sharply limited their California exposure.

While some have not formally exited the market, the pattern is clear: fewer quotes, stricter underwriting, and reduced marketing budgets for auto coverage.

“Major auto insurers are pulling back in the California marketplace,” the CBS report noted. “They say we’re just too expensive to insure.”

The phrase “too expensive to insure” captures a complex problem — one rooted in both economics and regulation.

2. Why California Has Become So Difficult to Insure

The reasons behind this exodus are multifaceted, but they all tie back to one fundamental imbalance: the cost of doing business is rising faster than insurers can adjust their rates.

Several forces are converging:

🚘 Rising Repair and Replacement Costs

As seen in earlier reports, the price of new and used vehicles has soared since the pandemic — up 26% for used cars and nearly 10% for new models. Repair costs have followed suit due to inflation, supply chain delays, and advanced vehicle technology.

⚙️ Labor and Supply Chain Shortages

California’s auto repair sector continues to face a shortage of qualified technicians. Parts delays mean cars spend longer in shops, forcing insurers to pay for more days of rental coverage and other supplemental costs.

🏛️ Strict Rate-Approval Regulations

Under Proposition 103, insurers must secure state approval for every rate change. These filings can take months or even years. During that time, carriers cannot adjust to inflation or increased claim costs — effectively locking them into outdated rates.

🔥 Higher Accident Frequency

As Californians returned to pre-pandemic driving levels, accident rates spiked. With more cars on the road, claim frequency and severity climbed together, further straining insurers’ balance sheets.

When all these factors collide, the financial math becomes unsustainable. As one industry insider put it, “You can’t spend $1.20 for every dollar you collect — not forever.”

3. The Regulatory Standoff

California’s Department of Insurance (CDI) — led by Commissioner Ricardo Lara — has maintained that insurers remain profitable overall and that their claims of financial distress are exaggerated.

The CBS segment captured this tension clearly:

“The state’s insurance commissioner says that’s not true,” reporter Christine Lazar explained.

In public statements, CDI officials have argued that many carriers are still earning investment income and that recent years’ losses reflect cyclical market adjustments, not systemic insolvency.

Insurers counter that delayed approvals and rigid rate-setting formulas have created a regulatory chokehold that makes long-term participation in California untenable.

“We’re a very consumer-friendly state,” Lazar said in the segment. “Before any rate implications, insurers are paying out more than they’re bringing in.”

That tug-of-war — between protecting consumers from excessive premiums and allowing insurers to stay solvent — has become the central fault line of California’s insurance policy debate.

4. “Do Insurance Companies Ever Not Make a Profit?”

The CBS anchors added a note of skepticism familiar to many Californians.

One joked, “Do insurance companies ever not make a profit? No, it’s a racket. I should have opened an insurance company.”

It’s a fair question — and one that highlights how misunderstood the insurance business can be. While insurers do earn profits over time, those profits fluctuate wildly depending on catastrophe losses, investment returns, and regulatory conditions.

In fact, data from the National Association of Insurance Commissioners (NAIC) shows that California auto insurers collectively lost money on underwriting in both 2022 and 2023, with combined ratios exceeding 105%. That means for every $1 collected in premium, insurers paid out $1.05 or more in claims and expenses.

While investment gains can offset short-term losses, they’re no substitute for a stable pricing system — especially when claim costs rise faster than rates can adjust.

5. The Consumer Perspective: Frustration on All Sides

For California drivers, the insurer retreat means fewer choices and longer waits for quotes. Some drivers report difficulty even finding a company willing to write a policy for a new vehicle.

At the same time, premiums are rising, creating what economists call the affordability-accessibility paradox:

• If regulators keep rates too low, availability collapses.
• If they allow rates to rise, affordability collapses.

Neither outcome is sustainable. The challenge for policymakers is to find a middle ground where insurers can operate profitably and consumers can still find coverage at reasonable rates.

Unfortunately, as the CBS anchors quipped, there’s plenty of blame — and frustration — to go around.

“We’re terrible drivers,” one said half-jokingly. “We all need to drive slower.”

Humor aside, that frustration is real. Californians are paying the price of a system that no longer balances cost, competition, and consumer protection.

6. The Broader Context: A Mirror of the Home Insurance Crisis

What’s happening in auto insurance mirrors the homeowners’ insurance crisis sweeping California. Major carriers have pulled back there too — not because they want to abandon the market, but because they can’t secure rate approvals that reflect actual risk.

Experts like Karl Susman, who has commented across multiple networks, explain that both auto and home insurers are facing the same regulatory headwinds:

“It’s not that companies don’t want to do business here. They literally can’t afford to.”

Both lines of insurance are governed by Proposition 103, and both are suffering from a lag between regulatory oversight and economic reality.

Until the state modernizes how rates are reviewed and approved, insurers warn that market participation will continue to shrink — and consumers will continue to bear the consequences.

7. The Path Forward: Reform or Retreat

What can California do to fix its auto insurance market before more carriers retreat? Industry experts and policy analysts offer several recommendations:

🔹 Modernize Rate-Approval Timelines

Set firm deadlines for CDI responses to rate filings, ensuring insurers can adjust to inflation and claim trends in real time.

🔹 Incorporate Predictive Modeling

Allow insurers to use modern actuarial models and forward-looking loss data — tools already standard in most other states.

🔹 Encourage Competition

Simplify market-entry rules to attract new carriers and innovative digital insurers.

🔹 Enhance Consumer Transparency

Ensure that consumers understand why rates are changing and how market dynamics — not just corporate profits — drive pricing.

🔹 Promote Safer Driving Initiatives

Invest in public safety campaigns, road maintenance, and infrastructure improvements that directly reduce accident frequency.

Each of these steps would bring California’s system closer to balance — where both carriers and consumers can coexist in a sustainable framework.

8. A Moment of Reckoning

California’s insurance crossroads has arrived. The state can no longer rely solely on its reputation as a consumer-friendly regulator if that same framework drives insurers away.

For auto insurance, this is not a crisis of choice but of necessity. Without reform, availability will continue to shrink, forcing more drivers into high-cost or limited-coverage options.

“At the end of the day,” the CBS anchors concluded, “this comes down to cost. And right now, California is just too expensive to insure.”

That reality, though inconvenient, is inescapable.

9. Final Thoughts: Balancing Protection and Pragmatism

Insurance exists to protect consumers from financial loss. But when regulation makes coverage unsustainable, everyone loses — insurers, regulators, and, ultimately, drivers themselves.

California has long prided itself on leading the nation in consumer rights and environmental policy. Now it faces a new test: whether it can lead in regulatory modernization as well.

To keep insurers — and competition — in the state, the system must evolve. That means faster approvals, data-driven decision-making, and a willingness to reconcile ideals with economics.

Until then, California drivers will continue to navigate a marketplace where coverage is harder to find, premiums are higher than ever, and the promise of protection feels increasingly out of reach.