Revolutionizing California Insurance: Navigating New Regulations and Market Changes

Published Date: 06/18/2024

Revolutionizing California Insurance: Understanding the Sustainable Insurance Strategy and Market Reforms

California’s insurance market is in turmoil. From homeowners unable to find coverage to insurers halting new business altogether, the state’s property insurance system is facing what many call a “market collapse.”

But amid the chaos, California is now rolling out a sweeping reform package designed to modernize the state’s outdated regulatory structure — and, hopefully, restore balance to the insurance ecosystem.

At the center of it all is the California Sustainable Insurance Strategy, spearheaded by Insurance Commissioner Ricardo Lara and backed by Governor Gavin Newsom’s administration.

In a recent episode of Insurance Hour, insurance expert Karl Susman broke down this ambitious reform plan, cutting through the noise and misinformation that have clouded the public conversation. This post unpacks those insights and explains how the new strategy aims to reshape California’s insurance landscape.

The Broken Market: Why Change Is Urgent

If you’ve tried to get homeowners insurance in California lately, you already know how bad things have gotten.

Most homeowners report calling ten different carriers — only to have eight immediately say “no.” One might take your information and never call back, and the lucky one might eventually offer a quote, often through non-admitted carriers or the state’s FAIR Plan.

This isn’t a temporary glitch. It’s the result of years of:

• Rising wildfire risk and catastrophic losses.
• Inflation driving up rebuilding costs.
• Regulatory lag that has kept insurers from adjusting prices or underwriting models quickly enough to stay solvent.

Without reform, California risks losing even more private insurers — leaving the FAIR Plan as the only option for many, which was never its purpose.

“We are far, far away from a competitive marketplace,” Susman said. “When there’s no competition, you not only can’t get quotes, but the prices you do get are astronomical.”

Introducing the Sustainable Insurance Strategy

To address this crisis, Commissioner Lara introduced the California Sustainable Insurance Strategy (SIS) — a multifaceted framework aimed at stabilizing the market, restoring competition, and modernizing decades-old regulations.

The Sustainable Insurance Strategy is built around four key pillars:

1. Streamlining regulatory filings — speeding up how rate and product changes are reviewed.
2. Allowing reinsurance costs in rate calculations — aligning California with national standards.
3. Permitting catastrophe (CAT) modeling — enabling data-driven, forward-looking risk analysis.
4. Requiring insurers to expand coverage in underserved, high-risk areas.

These reforms work together to create what Susman calls a “give and take” system — where insurers get more tools to manage risk, but in return, must write more business in California.

1. Fixing the Filing System: Speed and Accountability

Currently, the process for insurers to file a rate change or product adjustment with the Department of Insurance (CDI) is, in Susman’s words, “a little loosey-goosey.”

It can take months or even years for filings to move through the system — a bottleneck that paralyzes insurers and leaves homeowners stranded.

To fix this, the Sustainable Insurance Strategy introduces a standardized checklist system.

This checklist clearly outlines exactly what insurers must provide when submitting a filing — from underwriting data to financial models — and ensures CDI reviewers have all they need from the start.

This eliminates the inefficient back-and-forth that has long delayed approvals.

More importantly, it creates clear timeframes for CDI responses:

• 60 days for an initial review,
• Up to two 30-day extensions,
• For a total maximum of 120 days.

“At 120 days, the Department of Insurance is committing they will respond,” Susman explained. “They’re not guaranteeing an approval — just that there will be an answer.”

Contrary to viral misinformation, this does not mean automatic or fast-tracked rate hikes. Every change must still comply with Proposition 103, which requires all rates to be “adequate but not excessive.”

2. Reinsurance: Sharing Risk and Strengthening Stability

The next pillar involves reinsurance — insurance for insurance companies.

Reinsurance allows carriers to share risk by purchasing coverage from other insurers. This helps prevent insolvency after large disasters, spreading the financial exposure across global markets.

However, California’s current rules are an outlier: insurers cannot include reinsurance costs in their rate calculations, even though those costs have skyrocketed worldwide.

The Sustainable Insurance Strategy changes that — cautiously.

Insurers will now be permitted to partially include California-specific reinsurance expenses in their filings.

This doesn’t mean consumers will directly pay those costs; rather, it ensures the rate-making formula accurately reflects real operating expenses, creating a more sustainable system.

“We want to encourage reinsurance,” Susman noted. “It spreads the risk and strengthens the market. The change doesn’t raise rates automatically — it just modernizes how insurers can present their data.”

Again, CDI maintains full oversight. Every filing still must meet Proposition 103’s “not excessive” requirement.

3. Catastrophe (CAT) Modeling: Looking Forward, Not Backward

One of the most controversial — yet vital — updates is the introduction of catastrophe modeling.

For decades, California has forced insurers to base rates only on historical data — looking backward instead of forward.

But with climate change accelerating and wildfire behavior becoming more extreme, that approach no longer makes sense.

Catastrophe models use large-scale data — weather patterns, vegetation density, topography, and even housing materials — to project future losses.

“For any industry to be told to look backward when we can see the future looks so different is going to hurt consumers,” Susman explained. “You have to build pricing and protection based on what’s coming — not what used to happen.”

Opponents have called this “black box underwriting,” claiming insurers will use secret algorithms to raise rates. But Susman clarifies that’s simply false.

All catastrophe models must be submitted to and approved by the Department of Insurance, which has access to all supporting data.

“There is no black box,” he said. “Insurers must present all data to the Department of Insurance. The only thing the public doesn’t see is proprietary company information — just like Coca-Cola doesn’t publish its formula. But regulators see everything.”

In short: the models aren’t secret, they’re just scientific tools under strict oversight — a standard practice in nearly every other state.

4. Mandatory Expansion: Bringing Coverage Back to Distressed Areas

Perhaps the boldest part of the Sustainable Insurance Strategy is its coverage mandate.

In exchange for being allowed to use reinsurance costs and catastrophe models, insurers must write more business — especially in high-risk or underserved regions.

This is a first in California history.

The Department of Insurance now requires insurers to:

• Cover at least 85% of their statewide market share in “distressed” ZIP codes, or
• Increase coverage in those areas by at least 5% if already meeting that threshold.

For commercial policies, carriers must expand by 5% as well.

These “distressed areas” are determined by data — regions where more than 15% of policies are written through the FAIR Plan or where competition has evaporated.

“The Department of Insurance is telling private companies: you must take more exposure in areas you didn’t before,” Susman said. “It’s groundbreaking.”

This move forces insurers to participate in rebuilding California’s coverage network, ensuring residents in high-risk areas aren’t left behind.

Combating Misinformation: What’s True and What’s Not

Susman spent much of the episode pushing back against what he called “noise” and “half-truths” circulating online.

Here are three key myths he debunked:

❌ Myth 1: “Rates will automatically go up within 120 days.”

Fact: The 120-day timeline simply requires CDI to respond — not approve — filings. Every rate still needs explicit approval under Proposition 103.

❌ Myth 2: “The 7% rule is new.”

Fact: The rule allowing public intervention for rate hikes over 7% has existed since Prop 103 was written — by the same organization now criticizing it. Nothing in the Sustainable Insurance Strategy changes that.

❌ Myth 3: “Black box underwriting means no oversight.”

Fact: Every data model and rate assumption must be filed with the CDI. Regulators — including the elected Insurance Commissioner — have full access.

Susman’s message was clear: “Read the documents. Don’t just believe the headlines.”

The Trailer Bill: Fast-Tracking Reform

To speed up implementation, Governor Newsom’s budget “trailer bill” includes the first phase of the Sustainable Insurance Strategy — namely, the filing checklist and timeline reforms.

If passed, this would allow immediate rollout of the process improvements, cutting regulatory delays that have plagued the market for years.

This would mark a tangible first step toward restoring competition and consumer access.

What This Means for Consumers

For California homeowners and business owners, the reforms offer cautious optimism.

In the short term, prices may continue to rise as the market stabilizes and carriers adjust. But over time, these reforms aim to:

• Attract more insurers back into California.
• Increase competition, driving down costs.
• Expand availability in fire-prone and underserved areas.
• Reward mitigation efforts like defensible space and fire-resistant retrofits.

In other words, the Sustainable Insurance Strategy seeks to rebuild a functional, balanced marketplace — where insurers can stay solvent, and consumers can get fair, reliable coverage.

Looking Ahead: A Market in Transition

California’s insurance overhaul represents one of the most significant regulatory shifts in decades.

It’s not perfect, and there will be challenges — particularly in ensuring the reforms are implemented efficiently and transparently.

But as Susman emphasized, the state is finally moving in the right direction.

“I don’t take sides. I just want the correct information out there,” he said. “These reforms are about fixing the system, not abandoning consumers.”

If successful, the Sustainable Insurance Strategy could serve as a national model for balancing consumer protection with industry sustainability — proving that even in a high-risk, high-cost state, reform is possible.

Final Takeaway

California’s insurance market didn’t break overnight — and it won’t be fixed overnight. But through the Sustainable Insurance Strategy, the state is taking real, data-driven steps toward a healthier, more equitable future.

By modernizing regulation, enforcing accountability, and restoring competition, these changes could help Californians once again find — and afford — the protection they deserve.

“Competition brings lower prices,” Susman reminded listeners. “If we can get carriers writing again, everyone wins.”