California Insurance Crisis: What Homeowners Need to Know Now

Published Date: 09/03/2024

California’s insurance market is at a crossroads where rising risk, outdated regulation, and climate change collide. For homeowners and businesses alike, affordable and reliable coverage is no longer guaranteed — it now requires strategy, persistence, and adaptability.



In this episode of Insurance Hour, host Karl Susman examined the harsh realities of California’s ongoing insurance crisis, from the difficult decisions homeowners face to the reforms that could reshape the market. What emerges is a candid look at the tension between affordability and availability — and what consumers, agents, and regulators can do to stabilize a system under increasing strain.

A Crisis of Confidence in California’s Insurance Market

California’s insurance ecosystem, once considered one of the strongest in the nation, is now defined by uncertainty. Homeowners are facing non-renewals, steep premium increases, and a shrinking pool of available carriers. Major insurers such as State Farm, Allstate, and Farmers have significantly reduced new business, citing regulatory gridlock and escalating risk exposure.

According to Susman, this crisis is not sudden — it is the result of decades of misalignment between regulation and real-world risk.

“We’re dealing with 21st-century risks under a 1980s regulatory model,” he said. “The math doesn’t work anymore.”

Wildfire exposure, construction inflation, and global reinsurance pressures have all compounded the problem. Yet the rate approval process governed by Proposition 103 still moves at a slow and rigid pace.

“Imagine trying to adjust prices in real time when it takes 9 to 12 months just to get a rate filing approved,” Susman explained. “By the time the approval comes through, the numbers are already outdated.”

This regulatory lag, combined with restrictions on forward-looking catastrophe modeling, has made accurate pricing nearly impossible — forcing many insurers to pull back from the very areas that need coverage the most.

The FAIR Plan’s Expanding Role and Growing Risk

As private insurers retreat, more Californians are being forced onto the California FAIR Plan, the state’s insurer of last resort. Originally designed to provide basic fire coverage to properties that could not obtain insurance elsewhere, the FAIR Plan has become a primary source of coverage for more than 400,000 policyholders, representing over $390 billion in insured property value.

“The FAIR Plan isn’t a government-backed safety program — it’s a pool of private insurers,” Susman cautioned. “And if a major catastrophe hits, those same insurers — and their customers — are on the hook to pay the losses.”

This interconnected structure means that the financial health of the FAIR Plan affects every homeowner in California. A single catastrophic wildfire season could trigger multi-billion-dollar losses, rippling through the entire insurance market and driving premiums even higher statewide.

The Difficult Choices Facing Homeowners Today

With traditional insurance options shrinking and FAIR Plan premiums climbing, homeowners are being forced into hard financial decisions. Some are opting for higher deductibles to reduce premiums. Others are limiting their coverage to essential risks only. Many are turning to surplus lines carriers that operate outside the standard admitted market.

“Surplus carriers can provide the coverage you need when the admitted market won’t,” Susman said. “But those policies don’t include the same consumer protections or guarantees that standard insurance does.”

For many residents in wildfire-exposed or rural areas, surplus lines insurance may be the only short-term option. However, coverage terms, exclusions, and cancellation rights vary widely, making careful policy review essential.

Inflation and the Growing Risk of Underinsurance

Even homeowners who maintain coverage face another serious threat: underinsurance. Construction costs across California have soared more than 40% since 2020, yet many homeowners’ policies are still based on outdated replacement values.

“People think, ‘I’ve got $400,000 in coverage, I’m fine,’” Susman explained. “But in today’s market, that may not even rebuild half the house.”

Annual policy reviews, updated replacement cost estimates, and inflation guard endorsements are now more important than ever. Susman urges homeowners to request detailed coverage analyses each year and ensure their policies reflect current rebuilding realities.

“The worst time to find out you’re underinsured is after a disaster,” he said. “Spend the time now to make sure your policy actually reflects today’s costs.”

Practical Survival Strategies for Homeowners

While long-term reforms are still working their way through the system, Susman outlined several practical steps homeowners can take right now to improve their chances of maintaining coverage:

Start the renewal process early, ideally 60 to 90 days before your policy expires, due to growing underwriting backlogs.

Document all home improvements and mitigation efforts such as fire-resistant roofs, defensible space, and safety upgrades, as carriers increasingly require proof for discounts or eligibility.

Bundle policies when possible. Packaging home, auto, and umbrella coverage with one carrier can improve renewal prospects.

Consider coverage combinations. Pairing FAIR Plan fire coverage with a Difference-in-Conditions (DIC) policy can create broader protection when traditional policies are unavailable.

Work with an experienced independent broker who can access both admitted and surplus lines markets.

“This is not the time for a do-it-yourself approach,” Susman warned. “You need someone who understands the carriers, the filings, and the timing.”

Regulatory Reform and the Sustainable Insurance Strategy

Despite today’s instability, meaningful reform is underway. Insurance Commissioner Ricardo Lara has introduced the Sustainable Insurance Strategy (SIS), a comprehensive effort to modernize California’s insurance framework and draw private insurers back into the market.

Under this initiative, insurers will be allowed to:

Use forward-looking catastrophe models to assess risk more accurately.

Factor reinsurance costs into rate filings.

Re-enter the market in exchange for writing a proportionate share of policies in wildfire-prone areas.

Susman described this as the most promising development in decades.

“If these reforms roll out correctly, we could see companies returning as early as next year,” he said. “It’s the first sign of a market correction that actually makes sense.”

He cautioned, however, that implementation will take time, and market recovery depends on how quickly new rate filings are approved.

“2025 could be the year of stabilization — but only if we stay the course,” he said.

Restoring Balance Between Regulation and Reality

At its core, California’s insurance crisis reflects a breakdown in balance — between consumer protection and insurer solvency, between affordability and actuarial accuracy, and between regulation and innovation.

For decades, Proposition 103 helped suppress premium growth. But in doing so, it also limited the industry’s ability to adapt to rapidly changing risks.

“The intent of Prop 103 was good — to protect consumers,” Susman said. “But when laws stop reflecting reality, they stop working. And that’s where we are today.”

Rebuilding balance will require not only new regulations, but also a shift in mindset that treats insurance as a shared responsibility among regulators, carriers, and policyholders.

Preparing for the Long Road Ahead

For now, California homeowners face an uncomfortable reality: premiums will likely continue rising before they stabilize. However, availability — the ability to secure coverage at all — is expected to improve as reforms take effect.

“We have to be patient,” Susman concluded. “The system is finally moving in the right direction, but it takes time for change to reach the street level.”

In the meantime, homeowners can protect themselves by:

Reviewing coverage annually.

Investing in risk mitigation.
Staying informed about CDI and FAIR Plan developments.
Advocating for balanced insurance legislation.

Turning Crisis Into Course Correction

California’s insurance crisis is more than a pricing issue — it is a test of how a modern society manages shared risk in an era of climate uncertainty. While the challenges remain significant, the path forward is becoming clearer.

If reforms hold, insurers could begin returning to the market by mid-2025, reducing reliance on the FAIR Plan and restoring long-term stability. Costs will remain higher than in the past, but access to coverage may finally normalize.

“Insurance is fundamentally about resilience,” Susman reminded listeners. “The ability to recover after disaster depends on a system that’s strong, fair, and sustainable. That’s what we’re fighting to rebuild.”

For California, that work continues — but hope is finally re-entering the conversation.