Navigating the Insurance Landscape: Insights & Challenges || Insurance Hour w/Karl Susman (12-01-23)
Published Date: 12/05/2023
Navigating the Insurance Landscape: Why California’s Insurance Market Is Changing — and What Consumers Need to Know
The California insurance market is undergoing an upheaval unlike anything seen in decades. Rising premiums, stricter underwriting, fewer carrier options, and growing confusion have left homeowners and drivers alike wondering: What on earth is going on?
In a recent episode of The Insurance Hour, host and insurance expert Karl Sussman offered an in-depth look into what’s driving this crisis—and what steps both consumers and regulators are taking to adapt. His candid, practical insights shine light on the intersection between climate change, technology, and regulation, explaining why insurance feels so expensive right now—and what relief might be coming.
The Misunderstood World of Insurance
“Insurance isn’t complicated,” Sussman says. “There’s just a lot of misunderstanding about what it is and what it isn’t.”
At its core, insurance is a shared-risk system designed to protect against loss. But many consumers mistake it for a guarantee of low prices, or assume rates are arbitrary. In reality, insurance pricing depends heavily on data—and when that data becomes unreliable, the entire system breaks down.
That’s exactly what has happened in California.
The Climate Factor: When the Models Break
For most of the last century, insurance companies have based their pricing models on historical data. They used decades of claims history to predict the frequency and severity of future losses.
That worked—until climate change and extreme weather rendered those models obsolete.
Sussman points to staggering statistics: in 2018, California suffered over $145 billion in fire-related losses, wiping out more than a decade’s worth of profits for most insurers in the state. The following year, another $80 billion in wildfire damage hit. Even 2020 saw more than $12 billion in insured wildfire losses.
Traditionally, insurers assumed one major catastrophe every six or seven years. Today, they’re seeing them nearly every year. “It’s a massive shock to the system,” Sussman explains. “These are not things the industry was prepared or priced for.”
The result: carriers can no longer rely on past data to predict future risks. They’re flying blind in an era of escalating disasters.
Why Auto Insurance Costs Are Rising, Too
The crisis isn’t limited to property coverage. Auto insurance is facing its own wave of inflation, driven by technology and repair costs.
A simple fender bender that used to cost $700 to repair can now cost $3,000 to $5,000—thanks to the advanced sensors, cameras, and electronics embedded in modern bumpers. These components require specialized labor to replace, and post-pandemic labor shortages and supply chain delays have only worsened the problem.
Even the average time cars spend in repair shops has ballooned. Where once repairs took 10 days, Sussman says that today, “it can take up to a month—sometimes longer—before a car is fixed.” And every additional day means more rental car costs, which insurers must cover. Those added expenses ultimately push premiums higher for everyone.
The Privacy Tradeoff: Telematics and Data in Auto Insurance
One of the most interesting discussions during Insurance Hour revolved around telematics—the technology that tracks driving behavior to determine risk. Devices or mobile apps can record speed, braking, mileage, and time of day to assess how safely you drive.
In many states, telematics allows safe drivers to earn discounts. But in California, regulators prohibit insurers from using such data to set rates—even if the customer voluntarily agrees to share it.
For privacy advocates, that’s a relief. But for others, it’s a lost opportunity for fairness. “People who drive safely shouldn’t have to subsidize those who don’t,” Sussman notes. The challenge is balancing privacy and accuracy—a debate that will continue as technology reshapes how insurers assess risk.
Home Insurance in Crisis: Wildfires and Regulation Collide
While auto insurance faces rising costs, California’s homeowners insurance market is in far deeper turmoil.
Sussman explains that, as wildfire losses mounted, insurers began pulling back. “At one point, nearly 87% of property insurers were either not writing new policies or severely limiting how many they wrote.”
This retreat created a chain reaction. With fewer insurers competing, prices soared. Many homeowners—especially those in high-risk fire zones—were forced to turn to the California FAIR Plan, the state’s “insurer of last resort.” But the FAIR Plan only covers fire damage, not theft, water damage, or liability. For many, it’s incomplete protection at a premium cost.
The problem, Sussman argues, isn’t greed—it’s math. “If insurers are losing money on policies, they can’t keep writing them. And when fewer companies offer coverage, prices rise. That’s not politics—it’s economics.”
The Turning Point: California’s “Insurance Stability Plan”
The state has recognized the problem and is responding. The California Department of Insurance (CDI), in partnership with the Governor’s office, has introduced what’s being called the Insurance Stability Plan—a series of reforms designed to restore competition and stabilize rates.
Here’s how it works:
1. Requiring Broader Coverage in High-Risk Areas
Carriers will be required to write at least 85% of their new business in high-fire-risk zones—areas they previously avoided. The goal is to ensure residents in wildfire-prone communities can access real insurance, not just the FAIR Plan.
In return, insurers will gain more flexibility in how they calculate rates—allowing them to price coverage more accurately, based on modern risk models.
2. Encouraging Predictive Modeling
California is beginning to loosen its restrictions on how insurers use data. Carriers may soon be allowed to incorporate forward-looking risk models—including those using AI—to better estimate wildfire exposure and loss probability.
Currently, California law forces insurers to rely only on historical loss data, a method Sussman calls “archaic.” By modernizing this approach, insurers can re-enter the market with confidence, knowing their rates reflect actual risk.
3. Bringing Competition Back
When multiple companies compete for the same business, prices fall. The plan’s long-term vision is to reintroduce healthy competition, making California’s market viable again for both insurers and consumers.
“Right now, we have the exact opposite of competition,” Sussman says. “A handful of companies writing a handful of policies—and premiums have never been higher.”
The Airbnb Dilemma: When Sharing Economy Meets Insurance
Sussman also fielded a call from a homeowner wondering whether her policy would cover damages from renting out a room on Airbnb. The short answer: probably not—unless you tell your insurer.
“Never give an insurance company a good excuse to deny a claim,” Sussman warned. Renting out part of your home changes the property’s risk profile. Most insurers require an endorsement—a policy add-on—to provide coverage for short-term rentals.
The good news? It’s usually affordable. The bad news? Failing to disclose could mean losing coverage entirely if something goes wrong.
The lesson extends beyond Airbnb. Whether you’re adding a new driver, remodeling your home, or starting a side business, your insurance company needs to know. Transparency protects you.
Consumer Tips: Protecting Yourself in a Changing Market
Sussman offers clear advice for California consumers navigating this turbulent landscape:
- Be proactive. Don’t wait for your insurer to ask. Inform them of changes in your home, car usage, or household drivers.
- Avoid lapses. Never let your policy cancel for nonpayment—especially now. Reinstating coverage is harder than ever.
- Review your coverage. Many Californians are underinsured or unaware of coverage gaps, especially if they rely on the FAIR Plan.
- Ask about discounts. Programs rewarding fire-safe home improvements or higher deductibles can help reduce costs.
- Work with an experienced agent. Independent brokers can access multiple carriers and help you navigate the rapidly changing market.
The Big Picture: Change vs. Transition
At the heart of Sussman’s message is a critical distinction: change and transition aren’t the same.
“Change is easy,” he says. “Transition is hard.” California’s insurance market is going through a painful transition—rising premiums, reduced access, and consumer frustration. But this discomfort is part of a necessary correction.
When the reforms take hold and insurers re-enter the market, consumers will benefit from more choice, fairer pricing, and improved coverage.
Until then, understanding how and why the system is changing is the best protection Californians have.
Final Thoughts: A Market in Motion
California has always been a testing ground for national policy. Just as it led the country in environmental regulation and consumer protection, it’s now leading the charge to reinvent how insurance works in a changing climate.
The transition may be rough, but it’s steering the state toward a more sustainable and equitable system—one where insurers can price risk responsibly, and consumers can once again find affordable protection.
For now, as Sussman often reminds listeners, “Stay informed, stay insured, and never forget—the system works best when everyone plays their part.”
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