Insurance Challenges Amid Southern California Wildfires: Insights from Karl Susman
Published Date: 01/12/2025
Southern California is once again facing devastating wildfires — an all-too-familiar crisis that has displaced families, destroyed homes, and strained an already fragile insurance market. Beyond the smoke and flames, the financial aftershocks are spreading through California’s housing and insurance systems, forcing homeowners, insurers, and regulators to confront hard truths about how risk is priced, shared, and managed.
In this week’s Insurance Hour, host Karl Susman broke down what’s happening behind the headlines: how the insurance system works in times of disaster, what protections homeowners still have, and why recent reforms might finally stabilize a volatile market. His analysis cuts through the confusion, offering clarity in a time of uncertainty.
1. The Wildfire Emergency: A Human and Financial Catastrophe
The Southern California wildfires have burned through neighborhoods across Los Angeles, Ventura, and Orange counties, forcing more than 80,000 people to evacuate and leaving thousands of homes in ruins.
But as Susman emphasized, the fires’ impact isn’t just physical — it’s economic. Each destroyed home represents hundreds of thousands of dollars in insured losses, and when multiplied across entire communities, the result is a multi-billion-dollar catastrophe that ripples across insurers, reinsurers, and consumers alike.
“This is a terrible tragedy,” Susman said. “People are losing everything, and the insurance industry is once again being tested at its limits.”
Wildfires are now the single largest source of catastrophic insurance losses in California, surpassing earthquakes and floods. But unlike earthquakes, wildfire losses hit year after year — eroding insurers’ reserves and destabilizing the market.
2. State Farm’s Exit and the Broader Market Shock
Susman pointed to State Farm’s earlier decision to stop renewing thousands of homeowners’ policies in high-risk areas as a major factor in today’s crisis.
“This fire came just months after State Farm non-renewed 1,626 policies in the Palisades area alone — the second-highest number of non-renewals in the entire state,” he explained.
The timing couldn’t be worse. Families already struggling to find coverage in an overheated insurance market now face potential total losses.
Susman added, however, that a statewide moratorium issued by the California Insurance Commissioner will offer temporary relief.
“For the next year, those non-renewals are frozen,” Susman said. “That means if you were dropped because of fire risk, your carrier has to keep you covered while your community recovers.”
This moratorium provides breathing room, but it’s not a permanent fix. The underlying issue — a market that can’t accurately price wildfire risk — still looms large.
3. Understanding the California FAIR Plan: The Safety Net, Not the Solution
Many homeowners impacted by non-renewals have turned to the California FAIR Plan, the state’s insurer of last resort. But as Susman reminded listeners, the FAIR Plan is not a government bailout — and it comes with limits.
“The FAIR Plan isn’t funded by taxpayers,” he clarified. “It’s a pool of all the admitted insurance carriers in California. Every company contributes based on their share of the market.”
When FAIR Plan claims spike — as they inevitably do during fire season — those losses are shared among all participating insurers. This means that even companies not writing policies in high-risk areas still bear part of the financial burden, creating system-wide stress.
Moreover, FAIR Plan policies cover fire and smoke damage only. Homeowners still need to purchase a Difference in Conditions (DIC) policy to get full protection for liability, theft, or water-related losses.
“Think of the FAIR Plan as the foundation,” Susman explained. “The DIC policy is the roof that keeps the rain out.”
Despite its limitations, the FAIR Plan has become an essential lifeline, now covering over 350,000 homes statewide — triple its pre-2019 volume. That growth, however, signals deeper market dysfunction that California regulators are still racing to solve.
4. The Regulatory Reset: Rebuilding a Broken Market
For years, California’s insurance regulations under Proposition 103 have kept premiums artificially low by restricting how insurers can adjust rates.
While this was designed to protect consumers, it also made it nearly impossible for carriers to keep pace with soaring wildfire risks, reinsurance costs, and inflation.
Susman highlighted the Sustainable Insurance Strategy, a major reform package rolled out by the California Department of Insurance in late 2024, as a potential turning point.
“For the first time, insurers can now use forward-looking catastrophe models,” he said. “That means they can price for the risk that’s coming — not just the last 20 years of history.”
These changes also require insurers to write coverage statewide, ensuring that they don’t cherry-pick low-risk areas and abandon high-risk zones. In theory, this balance will expand availability while keeping the market solvent.
Still, Susman cautioned that it will take time for these reforms to work their way through the system.
“We’re not going to see an overnight fix,” he said. “Carriers will have to pay out billions in claims before they can rebuild their reserves and confidence.”
5. The Claim Process: What Every Homeowner Needs to Do Now
For those directly impacted by the wildfires, filing an insurance claim early is critical. Susman outlined several key steps homeowners should take immediately:
- File your claim now, even if you’re unsure of the full damage. Early filing locks in your claim date and triggers temporary housing benefits.
- Document everything. Take photos and videos of your property, both before and after the fire if possible. Keep a written inventory of personal belongings.
- Track all expenses. Temporary lodging, meals, fuel, and even pet boarding may be covered under Additional Living Expense (ALE) coverage.
- Communicate in writing. Keep all correspondence with your insurer and adjuster documented.
- Avoid unlicensed contractors and “public adjuster” scams. Only work with licensed professionals and verify credentials with the California Department of Insurance or CSLB.
“The moment you evacuate, your insurance coverage starts working,” Susman reminded. “Most policies include a loss-of-use benefit, so save your receipts — they matter.”
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6. The Hidden Threat: Post-Disaster Scams and Price Gouging
Disasters bring out compassion — but also opportunists. Susman warned that scams and illegal rent gouging are surging in disaster-declared zones.
“We’re already hearing about landlords telling evacuees to ‘name their best offer’ for short-term rentals,” he said. “That’s against California law.”
Under Penal Code Section 396, landlords can raise rent by no more than 10% following a declared emergency. Violating this law can lead to fines and prosecution.
Similarly, homeowners should beware of fake adjusters, door-to-door contractors, or “expedited rebuild” offers that demand large cash deposits upfront.
“If someone pressures you to sign right away or pay in cash, walk away,” Susman warned. “Legitimate contractors don’t work that way.”
The California Department of Insurance has set up hotlines for consumers to report suspected scams or unfair practices in affected areas.
7. The Rebuilding Phase: A Chance for Smarter Resilience
As families begin to rebuild, Susman urged homeowners to see this as an opportunity to rebuild stronger and smarter.
“We can’t stop the fires, but we can reduce how much damage they cause,” he said.
New building codes and “Safer from Wildfires” standards now encourage homeowners to install:
- Class A fire-resistant roofs
- Ember-resistant vents
- Tempered glass windows
- 100 feet of defensible space around properties
Insurers are increasingly offering discounts for mitigation, and these upgrades can significantly reduce both premiums and risk exposure.
“Rebuilding to code is no longer optional,” Susman added. “It’s the key to both safety and insurability.”
8. A Path Forward: From Crisis to Reform
Despite the overwhelming scale of losses, Susman expressed optimism that California’s insurance market is entering a new, more sustainable chapter.
“Carriers are going to take big hits from this fire, but the reforms that just took effect give them a reason to come back,” he said.
In other words, these fires may be the first major test of California’s post-reform insurance era — a moment where the balance between consumer protection and market viability will determine the system’s future.
For homeowners, that means one thing above all: stay informed.
- Review your policy limits annually.
- Ask your agent about mitigation credits.
- Bundle FAIR Plan and DIC policies if you’re in a high-risk zone.
- Keep digital copies of all insurance documents and home inventories.
“You can’t control the weather,” Susman said, “but you can control how prepared you are when it happens.”
Conclusion: From Fire to Future
The Southern California wildfires are a reminder that resilience is not built in a day — it’s built through understanding, preparation, and reform. As Karl Susman made clear, this crisis has exposed deep flaws in California’s insurance framework, but it has also sparked long-overdue changes that could finally stabilize the system.
For homeowners, the takeaway is simple: know your policy, know your rights, and plan ahead.
Because when the next wildfire season comes — and it will — those who understand their coverage won’t just survive the flames. They’ll recover faster, rebuild smarter, and help lead California toward a more insurable future.
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