FOX - KTVU - Uncertainty Surrounds California’s Fire Insurance Drought

Published Date: 01/17/2024

Uncertainty Surrounds California’s Fire Insurance Drought: Inside the Fight Over Proposition 103 and Predictive Pricing

California’s insurance market has been under stress for years, but in 2024, it reached a breaking point. Homeowners in high-risk regions have seen non-renewals, rate hikes, and long wait times for policies — a crisis that’s left regulators, insurers, and consumers caught in a storm of competing priorities.

In a recent FOX KTVU report, veteran journalist Tom Vacar explored what many are calling a “fire insurance drought.” The story revealed a deep divide between insurers demanding modernization and consumer advocates warning of deregulation.

At the center of it all sits Proposition 103, the 1988 voter-approved law that controls how insurers set rates — and whether they can raise them at all.

1. A System Built for the 1980s, Not the 2020s

Under Proposition 103, insurers must justify any rate increase to the California Department of Insurance (CDI) through an exhaustive public review. Rates are based primarily on historical loss data — how much insurers have paid out in the past — rather than predictive modeling of future risks.

That worked decades ago, when wildfire patterns were relatively stable. But as Vacar explained, “a rash of unforeseen wildfires, climate change, and far higher replacement costs” have broken that model.

Today, insurance carriers say they can’t price risk accurately using the tools Proposition 103 allows.

“All of the models they had been using to come up with those figures are basically not working anymore,” the segment reported.

Insurers now want permission to use forward-looking catastrophe models — similar to those used for hurricanes and floods in other states — to project future losses.

But opponents say that change could give insurers too much control, allowing them to set rates with proprietary algorithms that regulators — and consumers — can’t easily challenge.

2. The Industry’s Case: “This Isn’t Politics. It’s Math.”

Independent broker Karl Susman, who represents both consumers and insurance carriers, offered a grounded perspective in the report.

“What I try and explain to people whenever I have this conversation,” Susman said, “is that this really isn’t politics. This is really just math.”

Susman’s point reflects a growing frustration within the insurance community: carriers simply can’t absorb the rising cost of claims while premiums remain frozen.

• Construction inflation has driven rebuilding costs up more than 30% in five years.
• Reinsurance costs — the insurance that insurers buy — have doubled or tripled globally.
• Climate volatility means that past losses are no longer predictive of future events.

Without reform, many insurers argue they have no choice but to stop writing new business, a trend already visible across California.

“Insurers want a situation where they can increase rates to offset costs and claims they experience,” Vacar explained, “without the many restrictions Prop 103 places on them.”

Susman and others have repeatedly warned that maintaining outdated pricing rules will keep driving carriers away — deepening what’s already become a coverage drought.

3. The Consumer Advocate Response: “A Massive Deregulation Effort”

Consumer Watchdog founder Harvey Rosenfield, who authored Proposition 103 in 1988, sees things very differently.

In his interview with FOX KTVU, Rosenfield accused insurers of engineering a crisis to pressure lawmakers into gutting consumer protections.

“They’re going to go for a massive bailout and deregulation of insurance rates,” Rosenfield said, “and then ramrod it through the legislature in the waning hours of the session.”

According to Rosenfield, insurers are deliberately restricting coverage availability to create panic and gain leverage — all to win approval for the predictive modeling tools they’ve been lobbying for.

He warned that letting insurers use “self-created computer rate pricing models” could open the door to unchecked rate increases, since those models are proprietary and not subject to the same public scrutiny.

From his perspective, Proposition 103 remains essential for protecting Californians from “excessive or arbitrary” rate hikes.

4. The FAIR Plan in the Crossfire

The debate doesn’t stop with rate filings. Insurers and legislators are also eyeing the California FAIR Plan, the state’s insurer of last resort, as part of broader reform.

Vacar’s report revealed a proposal that would radically change how the FAIR Plan is funded and administered.

Currently, the FAIR Plan is jointly supported by all admitted insurers in California. When losses exceed reserves, participating companies must pay the difference — essentially sharing the burden across the private market.

The new proposal, however, would shift that liability away from insurers and onto consumers.

“The insurer-controlled FAIR Plan would no longer require insurers to pay claims that the FAIR Plan cannot cover,” the report explained. “Instead, the cost would be passed through to every homeowner, renter, and condo owner in the state, no matter where you live, in the form of a surcharge.”

In other words, Californians in low-risk coastal areas could end up subsidizing wildfire coverage for those in high-risk inland or foothill regions.

For critics, that’s a nonstarter — a shift from private accountability to public expense.

5. A Legislative Deadline — and a Governor’s Decision

As the FOX report outlined, the legislative timeline is tight.

“The governor will have 30 days to accept or reject whatever the legislature comes up with,” Vacar said. “If they come up with anything, that’ll be by September 14th, and he’ll have to decide by October 14th.”

The stakes are high. The California Legislature is under intense pressure to deliver reform that restores market stability without unraveling decades of consumer protection.

The Insurance Commissioner’s Sustainable Insurance Strategy, introduced earlier in 2024, already attempts to strike that balance — allowing limited use of predictive models, coupled with transparency requirements and new consumer safeguards.

But with multiple proposals in play, and lobbying from both sides intensifying, the outcome remains uncertain.

6. Lessons from Florida: A Cautionary Comparison

During the broadcast, anchor Heather Holmes asked the question on everyone’s mind:

“Hey Tom, does any other state actually have a similar plan in action here?”

Vacar’s answer was blunt:

“Yes. It’s called the state of Florida.”

Florida’s experience, he explained, serves as both a warning and a model. Like California, Florida has struggled with catastrophic weather events, insurer insolvencies, and skyrocketing premiums.

To stabilize its market, Florida allowed greater flexibility in rate filings and predictive modeling — but the results have been mixed.

“The problem there,” Vacar noted, “is that insurance companies are leaving in droves.”

While reforms gave insurers temporary breathing room, they also led to consumer backlash and affordability concerns, with average homeowners premiums now among the highest in the nation.

California is watching closely, hoping to modernize without repeating Florida’s mistakes.

7. Between Panic and Policy: The Human Cost

Behind the policy debates and legislative timelines are millions of Californians facing uncertainty.

Some have been dropped by long-time insurers and forced onto the FAIR Plan, paying higher premiums for less coverage. Others have found themselves underinsured, unable to afford adequate replacement cost coverage amid inflation.

Susman, who works daily with these homeowners, sees the human toll firsthand.

“I live in the world between the companies I represent and what my customers can afford to pay,” he said.

For him, the crisis isn’t theoretical — it’s personal. Every week, he fields calls from policyholders asking the same question: “Why can’t I just get normal insurance anymore?”

The answer, as this episode underscores, lies in a tangle of outdated laws, rising risks, and political gridlock.

8. The Road Ahead: Balancing Risk and Fairness

Whether California can find a path forward depends on whether lawmakers can balance actuarial realism with consumer protection.

• If reforms go too far, insurers could gain unchecked pricing power, hurting affordability.
• If reforms fall short, carriers will continue to withdraw, pushing more homeowners into the FAIR Plan.

As Susman often says on The Insurance Hour, the solution isn’t about taking sides — it’s about making the math work for everyone.

“You can’t legislate away risk,” he says. “You can only manage it better.”

For California, that means embracing innovation — predictive modeling, mitigation incentives, and smarter regulation — without abandoning the fairness principles that Proposition 103 was built on.

Final Thoughts

California’s “fire insurance drought” is more than a market disruption. It’s a referendum on the state’s regulatory philosophy — whether to preserve one of the nation’s strictest consumer protection laws or adapt it to a new era of climate-driven risk.

As the debate intensifies in Sacramento, one thing is certain: doing nothing is no longer an option.

“Maybe we’re going to have to make some of these changes,” Susman said in the FOX segment, “to get the industry going again.”

Whether those changes bring relief or more turmoil will depend on how well California can reconcile the math of insurance with the values of fairness and transparency.