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California is burning, both figuratively and literally. With record-breaking wildfires and billion-dollar losses sweeping through Los Angeles, San Diego, and the Central Valley, homeowners across the state are asking the same question: Why is my insurance premium skyrocketing—and what can I actually do about it?
Insurance expert Karl Susman, host of Insurance Hour, addressed this urgent topic head-on in his recent broadcast, breaking down the real causes behind California’s insurance meltdown. His insights offer clarity for consumers, agents, and policymakers trying to navigate a system that’s been stretched to its limits.
The Perfect Storm Behind Soaring Premiums
For decades, California has been one of the hardest insurance markets in the nation to operate in. After multiple catastrophic wildfire seasons, the system is now approaching a breaking point.
Susman explained that recent fires, including the Palisades and Los Angeles wildfires, caused damage exceeding $50 billion in insured and uninsured losses.
“That’s with a ‘B,’” he emphasized. “And it’s only natural that when a $50 billion event happens, insurance costs will rise. That’s how risk-sharing works.”
But what makes California’s situation especially volatile is not only wildfire destruction—it’s the regulatory framework governing how insurers are allowed to price risk.
When Regulation Backfires on Consumers
Since the passage of Proposition 103 in 1988, California’s Department of Insurance has exercised strict control over how carriers calculate premiums. While designed to protect consumers from unfair rate hikes, the law has unintentionally distorted the insurance market.
“Imagine being told you can only charge $400 for something that costs $1,000 to produce,” Susman said. “That’s the reality insurers have faced in California for years.”
Carriers operating in wildfire zones were forced to keep premiums artificially low—often subsidized by lower-risk urban households. Over time, this made California an unprofitable market for many insurers.
“We like things to be fair in California,” Susman observed. “But fairness has to go both ways. You can’t force companies to lose money indefinitely and expect them to stay.”
Why Major Insurers Are Pulling Out of California
Major carriers such as State Farm, Allstate, and Farmers have frozen new policies or dramatically reduced exposure in high-risk regions. Smaller regional insurers have become insolvent altogether.
The result has been a massive shift of homeowners into the California FAIR Plan, the state’s last-resort fire insurance pool. Originally designed as a temporary safety net, the FAIR Plan has ballooned into one of the largest insurers in the state—yet it too is now underfunded.
According to Susman, the FAIR Plan recently admitted it needs another $1 billion to pay wildfire claims.
“That shortfall didn’t happen because the Plan was poorly run,” he said. “It happened because regulations didn’t allow them to charge enough to match the risk.”
What Happens When Insurers Can’t Charge the Right Price
When insurers cannot set rates that reflect real risk, the consequences are severe:
- Solvent carriers exit the market
- Remaining carriers face bankruptcy after major disasters
- Homeowners lose access to private insurance
- The FAIR Plan becomes overloaded
- Mortgage and real-estate markets become destabilized
“The carriers that stayed—like State Farm—did so even though they knew their rates were insufficient,” Susman explained. “Now they’re in financial trouble. Some lenders are even questioning whether State Farm policies meet collateral requirements for mortgages.”
Once banks doubt the reliability of an insurance policy, the ripple effects hit housing sales, refinancing, and property values.
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The Path Forward: Sustainable Insurance Reform
In December 2024, California enacted major rule changes under Insurance Commissioner Ricardo Lara to modernize how insurance can be priced.
Under the new Sustainable Insurance Strategy:
- Insurers may use catastrophe modeling
- Reinsurance costs can be factored into rates
- Rate filings have clearer approval timelines
- Pricing transparency remains mandatory
“We’re moving toward an honest system,” Susman said. “If you live in a high-risk zone, you’ll pay more. If you live in a safe area, you’ll pay less. That’s how insurance is supposed to work.”
Why Competition Is the Only Long-Term Solution
For years, California’s regulatory environment crushed competition. With fewer carriers operating, consumers lost choices and prices climbed.
“Competition built this country,” Susman said. “It drives innovation, lowers costs, and gives consumers power.”
The state’s goal now is to attract insurers back with fair, sustainable pricing rules. If successful, increased competition could stabilize the market over time and slow premium growth.
What Homeowners Should Do Right Now
While reforms take time, Susman urges homeowners to act immediately:
- Review Coverage Limits
Rebuilding costs have doubled in many areas from $400 per square foot to $800–$1,000+. Outdated policies leave homeowners dangerously underinsured. - Check Additional Living Expense Coverage
Many policies cover only 12–24 months of ALE, while rebuilding may take far longer. - Use Auto-Pay for Premiums
A single missed payment can trigger permanent non-renewal. - Beware of Post-Disaster Fraud
Verify all contractors, claims helpers, and relief contacts before sharing information. - Work Closely With Your Agent or Broker
Your agent can escalate claim disputes and access alternative markets if needed.
“If you’re not happy with your adjuster, ask for a supervisor,” Susman said. “This is your home and your health. Don’t be afraid to speak up.”
Rebuilding Smarter After the Fire
Despite devastation, Susman sees opportunity. Rebuilt homes will feature:
- Fire-resistant materials
- Hardened building codes
- Safer community layouts
- More defensible space
“These areas will never be the same,” he said. “But they’ll be safer—and hopefully the lessons we’re learning now will prevent future loss.”
Short-Term Pain for Long-Term Stability
There is no avoiding it—insurance premiums are rising. But Susman believes today’s financial strain is the cost of fixing decades of misaligned pricing.
“We’re paying now for 30 years of over-regulation,” he said. “But once competition returns, rates will eventually balance out.”
Final Takeaway: Knowledge Is the Best Insurance
California’s insurance crisis did not happen overnight, and it will not be resolved quickly. But informed consumers can protect themselves far more effectively than those who remain in the dark.
By reviewing policies, staying continuously insured, asking informed questions, and working with trusted professionals, homeowners can turn uncertainty into control.
“Insurance isn’t just about protecting property,” Susman reminded listeners. “It’s about protecting people—and that means helping them understand how the system really works.”
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