CBS - KCAL - On Your Side - Auto Insurance Rate Changes

Published Date: 01/17/2024

California’s Auto Insurance Squeeze: Why Rates Are Rising — and What Comes Next

Californians are feeling it everywhere — at the grocery store, at the gas pump, and now in their car insurance bills.

According to a CBS–KCAL On Your Side investigation, auto insurance rates in California have surged by as much as 20%, with more increases likely on the way. For Los Angeles drivers, that means the average annual premium now tops $2,500 — and that figure could climb higher before the year ends.

What’s behind this sudden surge? Experts say it’s not a single issue but a convergence of economic pressures, behavioral shifts, and regulatory friction that’s been building for years.

As insurance agent and radio host Karl Susman put it,

“You can look at this like a crock pot — all of these things have been stuffed in for the last three or four years, and the pressure has gotten to the point where it’s starting to explode.”

1. A Perfect Storm of Rising Costs

The first piece of the puzzle is pure economics. Cars — both new and used — have become dramatically more expensive to buy, repair, and replace.

During and after the pandemic, vehicle prices spiked due to supply chain disruptions, microchip shortages, and inflation in materials and labor. Even today, the average repair cost is up double digits compared to pre-pandemic levels.

At the same time, accident rates have increased as Californians returned to the road. With traffic congestion back to pre-2020 levels — and, according to some data, worse driving habits — insurers are paying out more for both collision and liability claims.

Add it all up, and insurers’ loss costs (what they pay in claims per dollar earned in premium) have risen sharply.

“It’s either the carriers are leaving because they’re losing money,” Susman explained, “or the Department of Insurance has to start allowing them to raise rates.”

2. California’s Regulatory Lag

California’s insurance market operates under Proposition 103, a 1988 law that requires insurers to obtain approval from the Department of Insurance (CDI) before implementing any rate changes.

While designed to protect consumers, this system has also created a time lag between economic reality and regulatory response.

Insurers must file extensive documentation to justify their requests — and even when costs rise sharply, approvals can take months or years. In the meantime, carriers are stuck charging rates based on outdated data, unable to adjust for inflation or new claim trends.

The result? Carriers lose money, scale back operations, and apply for larger increases later — creating a “whiplash effect” that Susman says is now hitting the market all at once.

3. “The Whiplash Effect”: Playing Catch-Up After Years of Pressure

Susman describes the current situation as a “whiplash” caused by delayed rate adjustments.

For several years, insurers absorbed rising costs, hoping inflation and repair expenses would stabilize. When they didn’t, and with rate approvals delayed, the imbalance grew unsustainable.

Now that approvals are finally being granted, they appear steep — sometimes as high as 20% — because they’re compensating for multiple years of pent-up cost pressure.

In other words, the rate hikes we’re seeing today aren’t just for 2025; they’re the accumulated adjustments insurers couldn’t make since 2021.

4. Consumer Advocates Push Back

Not everyone agrees that the increases are justified. Amy Bach, Executive Director of United Policyholders, acknowledges that costs are up — but insists that insurers remain profitable in California.

“They’re making money in California,” Bach said. “This is a business strategy, and hopefully the Department of Insurance will hold the line, as they have been.”

Her argument reflects a broader tension between insurers and regulators: while the industry focuses on financial solvency and sustainability, consumer advocates prioritize affordability and fairness.

Both sides are technically correct — and that’s what makes the issue so difficult.

California’s insurance laws are structured to protect consumers from sudden price shocks, but that same framework can unintentionally delay necessary adjustments, forcing larger increases down the road.

5. What “Hard Market” Really Means

The term Susman used — “hard market” — has become increasingly common in insurance circles.

A hard market is a period when insurers tighten underwriting standards, reduce competition, and raise premiums to recover from past losses. It’s the opposite of a soft market, when carriers compete aggressively for business by lowering rates.

“We’ve been in a hard market,” Susman explained. “It’s a seller’s market — insurers are competing less and charging more.”

But there’s a silver lining. According to both Susman and Bach, hard markets are cyclical. Eventually, when profitability returns and new players re-enter the market, competition will push rates down again.

“We fully expect that the pendulum will come back,” Bach said. “When competition starts acting up again, companies will start lowering their rates to get business.”

6. How Drivers Can Protect Themselves

While consumers can’t control global inflation or regulatory cycles, they can take proactive steps to manage their own insurance costs.

Here are some of the key recommendations shared during the CBS–KCAL segment and echoed by industry professionals:

💡 1. Raise Your Deductible

If you can afford a higher out-of-pocket payment in the event of a claim, increasing your deductible to $1,000 or more can significantly reduce your premium.

🚗 2. Take a Defensive Driving Course

Most carriers offer 5%–10% discounts for completing certified driver safety or defensive driving programs.

🏠 3. Bundle Your Policies

Combining auto and home insurance — or even renters and auto — with the same carrier can yield meaningful multi-policy discounts.

🛠️ 4. Avoid Lapses in Coverage

This point, Susman stressed, is critical.

“If you don’t have auto-pay set up and you let your policy lapse, they’re not going to just pick back up your coverage and give you the same rate,” he warned. “You’ll be placed in a higher-risk tier — and you’ll pay more.”

Even a brief lapse can trigger higher premiums for years.

🛒 5. Shop Around

Carriers evaluate risk differently, and rates can vary widely. Independent brokers can compare multiple companies to find competitive pricing.

As Susman put it, “There’s a lot of options out there. Don’t be afraid to shop around.”

7. The Road Ahead: Short-Term Pain, Long-Term Correction

Both Susman and Bach believe that while the next 12 months may bring continued premium increases, the market is likely to rebalance within the next few years.

That’s because as rates rise and insurers regain profitability, competition will gradually return. New or smaller carriers — currently hesitant to enter California due to strict rate rules — may re-enter once the market stabilizes.

“When competition comes back,” Susman noted, “we’ll start seeing rates fall again.”

In the meantime, consumers should view today’s rate hikes not as price gouging but as part of a market correction that’s been years in the making.

8. Lessons from the Property Insurance Crisis

California’s auto insurance turmoil mirrors what’s happening in the homeowners’ insurance sector. Both markets are struggling with the same regulatory constraints under Proposition 103, and both have seen major carriers reduce new business or pull back coverage altogether.

The underlying issue is the same: costs and risks have evolved faster than regulation.

Until the Department of Insurance modernizes its rate-approval process — allowing forward-looking models and timely adjustments — both auto and property markets will remain under pressure.

9. Final Thoughts: Adapting to a New Normal

California’s auto insurance market isn’t collapsing, but it is undergoing a reset. For drivers, that means temporary pain — but potentially long-term gain as the system stabilizes and competition returns.

In the meantime, understanding what’s driving the increases can help consumers make informed choices and avoid unnecessary costs.

Susman’s “crock pot” analogy sums it up perfectly:

“All these pressures have been cooking for years. It’s not an explosion — it’s just finally bubbling over.”

That’s the reality for California’s auto insurance system today: a slow-boiling problem decades in the making, now demanding reform, recalibration, and renewed balance between consumer protection and economic sustainability.