California Insurance Reform and the Sustainable Strategy

Published Date: 06/18/2024

California’s insurance market is in turmoil. Homeowners struggle to find coverage, insurers are halting new business, and the state’s property insurance system is facing what many describe as a market collapse.



Amid the chaos, California is now rolling out a sweeping reform package designed to modernize outdated regulations and restore balance to the insurance ecosystem. At the center of this effort is the California Sustainable Insurance Strategy, led 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 misinformation and explaining how the new strategy aims to reshape California’s insurance landscape.

The Broken Market and Why Change Is Urgent

Anyone who has tried to secure homeowners insurance in California recently has likely experienced the crisis firsthand. Many homeowners report calling ten different carriers, only to hear repeated “no” responses. At best, one carrier might eventually provide a quote, often through a non-admitted carrier or the state’s FAIR Plan.

This is not a temporary problem. It is the result of years of mounting pressures, including rising wildfire losses, inflation-driven rebuilding costs, and regulatory delays that prevent insurers from adjusting prices and underwriting models fast enough to stay solvent.

Without reform, California risks losing even more private insurers and becoming increasingly dependent on the FAIR Plan—a program never intended to serve as primary coverage.

“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 California Sustainable Insurance Strategy

To address the crisis, Commissioner Lara introduced the California Sustainable Insurance Strategy (SIS), a comprehensive framework designed to stabilize the market, restore competition, and modernize decades-old regulations.

The strategy is built on four core pillars:

• Streamlining regulatory filings to speed up reviews of rate and product changes
• Allowing reinsurance costs in rate calculations
• Permitting catastrophe modeling for forward-looking risk analysis
• Requiring insurers to expand coverage in underserved and high-risk areas

Together, these reforms create a “give and take” system. Insurers receive better tools to manage risk, but in return must increase their participation in California’s market.

Streamlining Filings With Speed and Accountability

Currently, the process for insurers to file rate changes or product adjustments with the Department of Insurance (CDI) is slow and inconsistent. Filings can take months or even years to move through the system, paralyzing insurers and leaving homeowners with few options.

The Sustainable Insurance Strategy introduces a standardized checklist that clearly defines what insurers must submit with each filing. This reduces inefficiency and eliminates prolonged back-and-forth between insurers and regulators.

It also establishes firm timelines for CDI responses:

• 60 days for the initial review
• Up to two 30-day extensions
• A maximum of 120 days total

“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.”

This does not mean automatic rate increases. Every filing must still comply with Proposition 103, which requires rates to be “adequate but not excessive.”

Reinsurance Reform to Strengthen Market Stability

Reinsurance—often called “insurance for insurance companies”—allows carriers to spread risk globally and remain solvent after major catastrophes. While reinsurance costs have surged worldwide, California has not allowed insurers to reflect those costs in their rate filings.

That changes under the Sustainable Insurance Strategy. Insurers will now be permitted to partially include California-specific reinsurance expenses in their filings. This ensures that rate calculations reflect real operating costs and supports long-term market stability.

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

Full oversight remains with the Department of Insurance, and all filings must still meet Proposition 103’s standards.

Catastrophe Modeling to Look Forward, Not Backward

For decades, California has required insurers to base rates only on historical data. In today’s climate-driven risk environment, backward-looking data is no longer sufficient.

Catastrophe (CAT) models use large-scale data—weather patterns, vegetation density, topography, and building materials—to project future losses. These models allow insurers to better anticipate risk instead of relying on outdated loss histories.

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

Critics have labeled CAT modeling “black box underwriting,” but Susman emphasized that all models must be filed with and approved by the Department of Insurance, which has full access to all supporting data.

“There is no black box,” he said. “Regulators see everything. The only data not released publicly is proprietary company information.”

Mandatory Expansion in Distressed Areas

One of the most groundbreaking elements of the Sustainable Insurance Strategy is its mandatory expansion requirement.

In exchange for increased pricing flexibility and the use of reinsurance and catastrophe models, insurers must write more business in high-risk and underserved areas.

Insurers are now required to:

• Cover at least 85% of their statewide market share in “distressed” ZIP codes, or
• Increase coverage in those areas by at least 5%
• Expand commercial coverage by at least 5% as well

Distressed areas are defined as regions where more than 15% of policies are written through the FAIR Plan or where competition has severely declined.

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

Combating Misinformation Around the Reforms

Susman addressed several common myths surrounding the Sustainable Insurance Strategy.

One widespread claim is that rates will automatically rise within 120 days. In reality, the 120-day timeline only requires the Department of Insurance to respond—not approve—any filing. All rate changes still require full regulatory approval.

Another myth suggests that the public intervention rule for rate hikes over 7% is new. In fact, this rule has existed since the original passage of Proposition 103 and remains unchanged.

A third misconception is that catastrophe modeling eliminates oversight. In truth, every model and assumption must be submitted to the Department of Insurance for review.

“Read the documents,” Susman said. “Don’t just believe the headlines.”

The Trailer Bill and Fast-Tracking Reform

To accelerate implementation, Governor Newsom’s budget trailer bill includes the first phase of the Sustainable Insurance Strategy—specifically the filing checklist and timeline reforms.

If fully implemented, these changes would allow immediate improvements in regulatory efficiency, cutting delays that have plagued California’s market for years and marking a first step toward restoring competition and consumer access.

What the Reforms Mean for Consumers

For homeowners and business owners, the reforms offer cautious optimism. In the short term, prices may continue rising as insurers recalibrate risk. Over time, however, the strategy aims to:

• Attract more insurers back into California
• Restore competition and reduce pricing pressure
• Expand coverage in fire-prone and underserved areas
• Reward mitigation efforts such as defensible space and fire-resistant upgrades

The long-term goal is a balanced marketplace where insurers remain solvent and consumers can access fair, reliable coverage.

Looking Ahead at a Market in Transition

California’s insurance overhaul represents one of the most significant regulatory shifts in decades. Implementation will not be without challenges, but momentum is finally moving in the right direction.

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

If successful, the Sustainable Insurance Strategy could become a national model for balancing consumer protection with industry sustainability.

Final Takeaway

California’s insurance market did not break overnight, and it will not 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 reforms aim to help Californians once again find—and afford—the protection they deserve.

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