(Part 3 of 6) Mastering California Insurance: Insights, Tips & Listener Q&A
Published Date: 07/02/2024
Why Home Hardening Still Isn’t Rewarded in California — And How the Sustainable Insurance Strategy Could Change That
It’s the most frustrating paradox in California’s insurance crisis: homeowners are doing everything right — upgrading their roofs, clearing defensible space, installing ember-resistant vents — and yet, their insurance rates are climbing or their policies are being canceled.
“We cut down every tree within 100 feet of our house and built a home that’s as fireproof as possible,” one Insurance Hour listener lamented in an email to host Karl Susman. “Concrete fiber siding, metal roof, surrounded by stone and gravel. But every agent still said no based on our address.”
Even after extensive mitigation, their California FAIR Plan premium didn’t budge. Why? Because, as Susman explained in this week’s episode, the state’s insurance system still rewards location over prevention.
Until now.
A State of Frustration
The conversation began with an acknowledgment of what many Californians already feel: anger, exhaustion, and disbelief.
“Premiums are high. Flexibility is low. It’s not what anyone wants,” Susman said. “And I don’t want to minimize that because it is a very frustrating circumstance.”
The state’s private insurance market has effectively collapsed, with many major insurers either pausing new business or non-renewing policies in high-risk wildfire areas. As a result, hundreds of thousands of homeowners have turned to the California FAIR Plan, the state’s insurer of last resort.
But unlike private carriers, the FAIR Plan isn’t designed to be competitive.
“We’re used to dealing with private insurance companies, and private companies compete based on service,” Susman explained. “When you’re in a situation where there are no private carriers offering new policies, there’s no incentive. There’s no reason for anyone to bend over backwards — because what are you going to do?”
That lack of competition has left homeowners stuck — and the FAIR Plan overwhelmed.
The California FAIR Plan: Safety Net or Strain?
The FAIR Plan Association, created in 1968, was intended to provide basic fire coverage to properties that couldn’t get insurance on the open market.
It’s not a state agency but rather a pool funded by private insurers. Every admitted carrier in California contributes to the FAIR Plan’s financial backing, spreading the risk of catastrophic losses across the industry.
In theory, the FAIR Plan is temporary — a fallback until the market stabilizes. But in practice, it’s become a permanent fixture of the insurance landscape, with enrollment nearly tripling in the past five years.
“Unfortunately, because competition is basically non-existent, the carriers that are still offering coverage — including the FAIR Plan — can have their way,” Susman said.
And that power imbalance has consequences.
Why Mitigation Efforts Aren’t Reflected in Rates
California homeowners are increasingly investing in home-hardening:
- Clearing vegetation within 100 feet of structures.
- Replacing wood roofs with metal or composite materials.
- Installing ember-resistant vents and fireproof decking.
- Using gravel or stone landscaping instead of mulch.
These steps significantly reduce the likelihood of wildfire damage. Yet, as Susman explained, the current regulatory and rating structure doesn’t properly account for them.
“The California FAIR Plan is heavily regulated,” he said. “The discounts they offer — and what qualifies for those discounts — are written into law. They can’t randomly change them.”
In other words, even if your home is far safer than your neighbor’s, the FAIR Plan’s hands are tied unless state regulators update the system.
And that’s exactly what the Sustainable Insurance Strategy aims to do.
The Promise of the Sustainable Insurance Strategy
Launched by Insurance Commissioner Ricardo Lara in 2023, the Sustainable Insurance Strategy is the most ambitious overhaul of California’s insurance framework in decades.
Its core goal: restore competition by modernizing risk assessment and rewarding mitigation.
Some key elements include:
- Allowing forward-looking catastrophe models. These tools use scientific data to predict future risks, rather than relying solely on past loss history.
- Incentivizing home and community hardening. Insurers would be required to offer discounts for verifiable mitigation efforts.
- Streamlining rate approvals. Speeding up the regulatory process to make it viable for insurers to operate profitably in California.
- Expanding FAIR Plan coverage options. Including commercial and condominium policies, to better serve high-risk regions while reforms take effect.
Susman expressed optimism that these reforms could bring meaningful relief.
“The new regulations coming out with the Sustainable Insurance Strategy are designed to do just that,” he said. “And I have every confidence that they actually will — in time.”
Addressing the “Address Problem”
One of the most common complaints Susman hears is about the “address problem” — when a home’s ZIP code or geographic coordinates matter more than its construction or mitigation.
“A dozen agents gave us a ‘no’ based on our address,” the listener wrote.
This happens because most insurers (and the FAIR Plan) still rely on broad geographic risk zones that don’t consider property-level details. These maps may be based on historical fire data, proximity to wildland areas, or even slope and vegetation density — but not necessarily on what a homeowner has done to reduce risk.
That means two homes just a few hundred feet apart can face wildly different outcomes — one fully insurable, the other rejected outright — even if the latter is built like a fortress.
Susman agreed that the system is unfair but emphasized that it’s structural, not personal.
“Actual fire risk doesn’t have much to do with who’s getting the insurance right now,” he said. “That’s because the FAIR Plan’s rules are dictated by law.”
Until regulators allow insurers to incorporate individual mitigation data into rate filings, location will continue to outweigh prevention.
The Irony: Overregulation Breeds Underprotection
California’s insurance market paradox is that laws designed to protect consumers are now limiting their protection.
Under Proposition 103, passed in 1988, all rate changes for admitted carriers must be approved by the Department of Insurance — a process that can take months or even years.
While that system was intended to keep rates fair, it’s now so restrictive that insurers can’t adapt quickly enough to account for inflation, reinsurance costs, or wildfire risk.
As a result, many have chosen to simply stop writing new business.
“We’ve regulated ourselves into paralysis,” Susman has said in past interviews. “Insurers can’t keep up, consumers can’t get coverage, and the FAIR Plan can’t absorb everyone.”
This is why the Sustainable Insurance Strategy’s emphasis on flexibility and data-driven modeling is so crucial. Without it, the state’s system remains stuck in the 1980s — while climate risks accelerate in real time.
What Homeowners Can Do Right Now
Even though regulatory reforms are in progress, homeowners still have tools to protect themselves and advocate for better treatment:
1. Document Every Mitigation Effort
Keep detailed records — photos, receipts, inspection reports — of everything you’ve done to harden your home. This documentation will be invaluable once new discount programs are in place.
2. Request a FAIR Plan Mitigation Inspection
The FAIR Plan offers limited mitigation discounts, such as for cleared vegetation or Class A fire-rated roofing. While small, these can still make a difference.
3. Work with an Independent Broker
Independent agents can access surplus lines carriers and specialty programs that may consider property-level mitigation even if major insurers won’t.
4. Stay Engaged with Policy Changes
The Department of Insurance is holding public workshops and hearings on new regulations. Submitting comments or attending sessions can help ensure consumer voices are heard.
5. Be Patient — But Persistent
Reforms take time, but awareness and documentation now will pay dividends once the Sustainable Insurance Strategy fully takes effect.
A Glimmer of Hope
Despite the frustration, Susman remains optimistic.
“We will do everything we can, hopefully as an industry, to get to a better place,” he said. “And I truly believe we will.”
The shift toward catastrophe modeling, data transparency, and mitigation-based discounts represents a once-in-a-generation reset for California’s insurance ecosystem.
If implemented successfully, homeowners who’ve invested in hardening their properties — those who’ve cleared defensible space, upgraded materials, and done everything right — may finally see recognition in their premiums.
Final Thoughts: From Desperation to Incentive
California’s current system unintentionally punishes the most responsible homeowners. But the tide is turning.
Through regulatory modernization, data-driven modeling, and renewed competition, the state can move from a culture of desperation to one of incentive — rewarding preparation instead of penalizing geography.
“It’s not perfect,” Susman acknowledged, “but the Sustainable Insurance Strategy is a start. And that’s what we need — a start.”
Until then, homeowners should continue doing what they’ve been doing: strengthening their homes, documenting their efforts, and staying informed. Because when the reforms take hold, those proactive steps will be the foundation — both literally and figuratively — of a more sustainable insurance future.
Author