CBS - KCAL - The State of The California Insurance Industry

Published Date: 01/17/2024

California’s Insurance Crossroads: Why Premiums Are Rising and What Drivers Can Do About It

From homeowners losing coverage to motorists facing soaring auto insurance bills, California’s insurance landscape is shifting faster than many residents can keep up with.

In a recent segment on CBS KCAL’s On Your Side, reporter Christine Lazar sat down with independent insurance agent Karl Susman to discuss the state of the industry, the reasons behind the price hikes, and — perhaps most importantly — what consumers can actually do to save money in the middle of this turbulent market.

The discussion sheds light on a crucial truth: while inflation and disasters play a role, California’s regulatory framework — particularly the rate-approval process under the Department of Insurance — also contributes to the market’s volatility.

1. When Everything Costs More, So Does Insurance

Lazar opened the segment with the question everyone’s been asking: “Is it going to get better, or is it going to get worse?”

Susman didn’t sugarcoat it.

“Everyone knows at this point, everything is costing more money,” he said. “Gas prices, food prices, going to the movies — everything is up. So our insurance premiums are definitely in line with what’s happening as far as watching the price of everything increase.”

It’s not just inflation, though. Rising repair costs, more expensive vehicles, and higher claim payouts are compounding the problem.

• Auto parts and labor costs are at record highs.
• Accident frequency has rebounded since the pandemic, and many insurers report higher claim severity — meaning bigger losses per claim.
• Weather-related losses (floods, wildfires, and hail) have increased insurers’ overall exposure.

All of that adds up to a challenging environment for both insurers and consumers — and in California, where insurers can’t simply adjust rates freely, the system can take months or years to catch up to those realities.

2. California’s Rate-Approval Bottleneck

Under Proposition 103, California insurers must receive explicit approval from the Department of Insurance (CDI) before changing their rates.

This consumer protection law, passed in 1988, ensures that any rate increase is justified by “black and white” actuarial data — numbers that prove a company needs the adjustment to remain solvent.

In theory, this safeguards the public from arbitrary or excessive pricing. In practice, however, it can also lead to long delays that leave insurers operating at a loss during periods of rapid cost escalation.

Susman explained it this way:

“If you’re an insurance company and you want to increase premiums, you have to get approval from the Department of Insurance. They’re very consumer-friendly. They’ll only approve those rates if the numbers justify that they’re necessary to keep the company solvent.”

This process, while well-intentioned, creates a time lag. When inflation or loss costs rise quickly, insurers may go years without being able to adjust — until the financial strain becomes so great that they either pull out of the state or request large increases to catch up.

That’s why we’ve seen some startling rate filings recently. For example:

• Farmers Insurance requested a 39.1% increase for some auto lines and received approval for roughly 30%.
• Other major carriers, like State Farm and Allstate, have followed suit with double-digit filings.

To consumers, these numbers look shocking. But they represent years of suppressed rate movement compounded into one large correction — what Susman calls a “catch-up moment.”

3. When National Profits Don’t Reflect Local Pain

One of the most confusing aspects for consumers is the disconnect between insurer profitability headlines and local rate hikes.

Lazar noted that national earnings reports from major insurers seem strong — Allstate reported $13.9 billion in second-quarter revenue (up 14%), while Progressive showed $15.3 billion (up 33%).

So why, she asked, do these same companies claim they’re “not making money” in California or Florida?

Susman’s response cuts through the misunderstanding:

“Those numbers are for particular lines of insurance in particular areas. They’re not necessarily auto insurance in West L.A.”

In other words, an insurer’s national success doesn’t mean every market is profitable. California’s unique risk environment — high repair costs, dense urban traffic, wildfire exposure, and strict rate regulations — means insurers may still lose money here even while thriving elsewhere.

It’s a classic example of aggregate profitability hiding local stress.

4. How to Put Money Back in Your Pocket

While systemic issues like inflation and regulation are outside consumers’ control, there are still tangible steps Californians can take to reduce their personal insurance costs.

Susman offered several practical strategies during the broadcast — all of which can make a real difference when applied thoughtfully.

✅ 1. Revisit Your Deductibles

Higher deductibles lower your premiums because you’re taking on more of the risk.

“Take a look at your vehicle’s deductible,” Susman advised. “Sometimes increasing it even slightly can save a meaningful amount of money.”

✅ 2. Know When Accidents or Tickets Fall Off

Traffic violations and accidents can increase your rates for three to five years — but not all insurers automatically remove surcharges at the exact anniversary.

“It doesn’t just fall off at renewal like everyone thinks,” Susman warned. “If you’ve hit that time period, call your agent. You may be eligible to have the policy rewritten today.”

In other words, if you’re still paying higher premiums because of an old incident, don’t wait — request a review and rewrite once your record is clean.

✅ 3. Shop Around — But Smartly

With some carriers scaling back operations, it’s easy to assume there are no good deals left. But independent agents still have access to multiple markets.
Comparing quotes across several insurers can yield substantial savings, especially as new entrants test the California market.

✅ 4. Bundle and Pay Automatically

Combining home and auto coverage often results in multi-policy discounts.
Setting up auto-pay can also prevent accidental lapses — which can raise your rate classification and cost you even more in the long run.

5. The Path to Stability: Competition and Balance

Asked whether relief is in sight, Susman remained cautiously optimistic.

“I think we’re going to continue to see prices going up until we reach a stable level where competition can re-enter the market, and then we’ll start to see premiums lowering again.”

In other words, the solution isn’t just regulation — it’s competition.

When insurers feel confident they can price their products accurately and fairly, they’ll expand back into California. That, in turn, drives competition and ultimately pushes premiums down.

But for that to happen, California’s insurance environment must balance consumer protection with market sustainability. Too much restriction can stifle competition; too little can leave consumers exposed to runaway costs.

6. A Broader Economic Reflection

California’s insurance crisis mirrors a larger economic story — one where supply, demand, and regulation collide.

The same inflationary pressures that drive up grocery prices and housing costs also affect insurers’ bottom lines. The difference is that most industries can adjust prices dynamically. Insurers cannot — at least not in California.

That’s why the state’s system, though designed for fairness, often ends up reactive instead of proactive.

7. What Comes Next

Looking ahead, both regulators and insurers face a challenging balancing act. The California Department of Insurance continues to emphasize transparency and consumer protection, while insurers push for modernization — including the use of catastrophe modeling and forward-looking risk assessments to set rates more accurately.

Meanwhile, consumers remain caught in the middle — seeking affordability, reliability, and clarity in a marketplace struggling to provide all three.

Segments like CBS On Your Side play an important role in bridging that gap — giving homeowners and drivers the tools to understand the system, advocate for themselves, and make informed decisions.

“We all need ways to save money right now,” Lazar said as she closed the segment.

For many Californians, the first step toward savings may simply be awareness: knowing when to call your broker, when to question a rate, and when to demand better communication from both insurers and regulators.

Final Thoughts

California’s insurance industry is at a crossroads — squeezed between inflationary reality and regulatory restraint. While short-term pain is likely, experts agree that the long-term path to recovery runs through transparency, competition, and modernization.

Until then, Californians can protect themselves not just by shopping smarter, but by understanding the forces at play — because in a system this complex, information is the most valuable coverage of all.