(Part 4 of 6) Mastering California Insurance: Insights, Tips & Listener Q&A

Published Date: 07/02/2024

When You Become the Risk: Understanding How Insurers Evaluate You — Not Just Your Property — in California’s Insurance Market

California’s homeowners are facing a crisis unlike anything the state has seen before. Between wildfire losses, soaring reinsurance costs, and rigid regulations, many insurers have stopped writing new business or are non-renewing policies altogether.

For consumers, that’s left one big, frustrating question:

“Is my home too risky to insure — or am I the risk?”

In a recent episode of Insurance Hour, industry expert Karl Susman addressed this very issue after a listener wrote in describing a difficult situation:

She had lost a second home to a wildfire, and her claim was still open. When she tried to renew the policy on her primary residence, her insurance company refused — despite that home being located elsewhere.

“Seems no admitted carrier will cover my primary home due to the risk,” she said. “Is it possible that insurers view me, not my property, as the risk? And is that even legal?”

Susman’s answer? Yes, it’s possible. And yes, it’s legal.

But there’s more to the story — and understanding it can help homeowners navigate California’s tightening insurance market more effectively.

Step One: The Two Sides of Underwriting — You and the Property

Susman began by explaining how insurers make decisions about coverage. When you apply for a policy, the company doesn’t just look at your house — it looks at you, too.

“When you are purchasing property insurance, there are two factors that the insurance industry looks at,” he said. “They’re going to look at that property, and they’re going to look at you.”

The property side includes familiar factors:

• The home’s location and wildfire exposure
• The year it was built and type of construction
• Its size, roof type, and updates
• Prior claims made on that specific property

The personal side includes your insurance history:

• How many claims you’ve made in the past
• What types of claims they were
• How recently those claims occurred
• Whether they suggest a pattern of risk-taking or neglect

“They’re going to look at prior claims on that property,” Susman said. “And they’re going to look at you — have you had claims in the past? What types of claims? Do you tend to have lots of claims?”

In short, insurers assess both the house’s risk and the homeowner’s behavior.

Example: Frozen Pipes and a Hot Market

To illustrate, Susman shared a relatable example.

Imagine a homeowner on the East Coast files a claim after pipes freeze and burst during a winter storm. Later, that same person relocates to Palm Springs, California — where freezing temperatures are practically nonexistent.

Should that past frozen-pipe claim affect their premium? It depends on the insurer.

“Some of them might look at that and say, ‘Yeah, that’s not going to happen again,’” Susman explained. “Some of them might look at it and say, ‘That was at a different house, we don’t care.’ And some might look at it and say, ‘This person doesn’t maintain their home well.’”

Three different companies, three different interpretations — and potentially three very different premium quotes.

That’s why competition among insurers matters so much. When multiple companies are writing policies, consumers can shop around for one whose underwriting philosophy aligns with their situation.

California’s Crisis: No Competition, No Options

Unfortunately, that’s not the reality in California today.

“Because we don’t have competition in California right now — because we simply do not have carriers offering coverage — you don’t have the ability to go to those three carriers and get three options,” Susman said.

This lack of competition is the root of much of the current chaos. When insurers freeze new business or pull back from writing homeowners coverage, consumers lose choice — and with it, fairness.

In a normal market, a homeowner who experienced one claim might find another insurer willing to overlook it. In California’s current climate, however, the few remaining insurers can afford to be selective.

The result: homeowners are being judged as risks not because they’re high-risk people, but because there’s nowhere else to go.

So… Can You Be Considered a Risk?

Yes — and in fact, it’s built into how insurance works.

Insurance is based on the principle of risk pooling. The goal is to spread the cost of potential losses across many policyholders. To do that fairly, insurers must evaluate each person’s likelihood of filing claims.

That includes considering:

• Frequency: Have you had multiple claims, even if they were small?
• Severity: Were your claims large or costly?
• Type: Were they related to negligence (e.g., water damage from poor maintenance) or uncontrollable events (e.g., wildfire)?
• Timing: How recent were they?

“If you are finding yourself having problems getting your property insured and you’re asking, ‘Is it me?’” Susman said, “yeah, it could be partially you — not you personally, but your claims history.”

Even if your past claim wasn’t your fault — say, a wildfire loss — it still becomes part of your risk profile.

The Unfairness of Risk Perception

Here’s where things get complicated.

In theory, insurance should be based on probability — the likelihood of future losses. But as Susman pointed out, that’s not always how it works in practice.

Some insurers take a “pattern-based” approach, treating any history of claims as evidence of higher future risk. Others use more nuanced modeling, distinguishing between controllable and uncontrollable events.

The problem? In a state where insurers are exiting, only the most conservative underwriting philosophies remain.

So even if your wildfire claim was a once-in-a-lifetime event — and even if your current home is far from any burn zone — some carriers may still classify you as “too risky.”

It’s not personal; it’s algorithmic. But the effect is the same.

When an Open Claim Raises Red Flags

The caller’s situation was made worse by the fact that her prior wildfire claim was still open.

“I am so sorry that you still have a fire claim open,” Susman said. “It should not be open this long.”

Open claims send a troubling signal to insurers. They suggest unresolved liability — meaning the final cost of the loss isn’t known. That makes it difficult for other insurers to underwrite new coverage, since they can’t accurately gauge your financial exposure.

Even if the open claim isn’t your fault — for example, if it’s tied up in disputes or rebuilding delays — it still shows up on industry databases such as CLUE (Comprehensive Loss Underwriting Exchange).

That data can follow you from property to property, impacting your ability to secure coverage elsewhere.

Legal or Not?

Yes, insurers are allowed to use prior claims and personal history when deciding whether to write or renew a policy.

California’s Proposition 103, passed in 1988, requires insurers to justify rate changes based on risk data — but it doesn’t prohibit them from considering a customer’s individual loss history.

In other words, while insurers can’t discriminate based on race, age, or income, they can evaluate you based on your claims record.

It’s frustrating but legal — and deeply entrenched in the underwriting process.

How Homeowners Can Respond

If you find yourself labeled as a “risky” customer, all is not lost. There are strategies to improve your insurability and demonstrate that you’re a responsible risk.

1. Resolve Open Claims Quickly

If you have an open claim — especially from a past property — push for resolution. Unresolved losses make insurers wary. Contact your adjuster or file a complaint with the California Department of Insurance if delays persist.

2. Maintain a Clean Claims Record

Avoid filing small claims when possible. Insurance is designed for catastrophic losses, not maintenance issues. Frequent claims signal higher risk.

3. Document Preventive Efforts

Show that you’re taking steps to mitigate future losses — from installing smoke alarms and maintaining defensible space to updating your roof or electrical systems.

4. Shop Beyond the Admitted Market

Consider surplus lines carriers, which aren’t subject to the same rate-approval delays as admitted insurers. While often more expensive, they may be your only option in high-risk areas.

5. Work with an Independent Broker

Independent agents can access multiple carriers — admitted and non-admitted — to find you the best available coverage.

A Market Out of Balance

Susman emphasized that California’s current crisis is systemic, not personal.

“You can be the most responsible homeowner in the world,” he said, “but because we don’t have competition, you’re at the mercy of whoever’s still writing.”

In the long term, fixing the system will require regulatory modernization — something that’s finally underway through Commissioner Ricardo Lara’s Sustainable Insurance Strategy.

By allowing insurers to use forward-looking catastrophe models and rewarding mitigation, these reforms aim to restore competition and stability.

Until then, however, homeowners must navigate a system that often feels unfair.

Final Thoughts: Taking Back Control

It’s easy to feel powerless when insurers view you as the risk. But as Susman reminds us, understanding the system is the first step to working within it.

“If you’re having trouble getting coverage and asking, ‘Is it me?’ the answer might be partially yes — but not because you’ve done anything wrong,” he said.

In most cases, you’re simply caught in a market that’s still recovering from years of regulatory stagnation and climate-driven losses.

The best defense is information — knowing how insurers think, what data they use, and how to position yourself as a desirable policyholder.

Because while you can’t control the wildfires, you can control your claims history, your documentation, and your diligence — and that can make all the difference in keeping your coverage.