Spectrum 1 News Interview (06/05/2024) || New Newsom Legislation with ITI HostAmrit Singh

Published Date: 06/06/2024

California’s Insurance Reform Explained: Governor Newsom’s Trailer Bill and the Push to Stabilize a Shaken Market

California’s homeowners insurance market has been in crisis mode for years. Escalating wildfire risks, inflation, and outdated regulatory rules have driven major insurers to scale back or halt new business across the state. Now, with Governor Gavin Newsom’s new “trailer bill” and Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy, California is attempting one of its most significant insurance overhauls in decades.

As insurance expert Karl Susman explained in an interview with Spectrum 1’s Amrit Singh, this new legislation could be the turning point the state desperately needs — not because it allows insurers to raise rates faster, but because it finally enforces long-overdue regulatory efficiency and modernization.

Here’s what’s actually happening, what’s in the bill, and what it means for homeowners, insurers, and California’s future insurance landscape.

Why California’s Insurance Market Is Broken

The crisis begins with climate-driven losses and bureaucratic delays.

In recent years, insurers have reported losing too much money to justify operating in California. The combination of wildfire claims, surging rebuilding costs, and restricted rate-setting has made the state one of the hardest insurance markets in the nation.

“The insurance industry says they’re losing too much money in our state to keep insuring homeowners,” Singh summarized. “Part of it’s the premiums — they can’t hike them quickly enough.”

But as Susman pointed out, this isn’t just about raising premiums. The real issue is how long it takes for any policy change to be approved — whether it’s a rate adjustment, underwriting modification, or coverage revision.

“It’s not even just a matter of premiums,” Susman said. “It’s any type of policy change. It can take months or even years. I think the record is over three years for an underwriting change to go through.”

That’s because all rate and policy filings must pass through California’s Department of Insurance (DOI) under Proposition 103, the landmark 1988 law that governs how insurers operate in the state.

Proposition 103: The “Insurance Bible”

Proposition 103 was designed to protect consumers by requiring state approval for all rate changes and creating the position of elected Insurance Commissioner — currently held by Ricardo Lara. It also allows public participation in rate cases through a process called “intervention,” where consumer groups can weigh in on whether rate increases are justified.

While those safeguards are still important, the law’s administrative process hasn’t kept up with modern realities.

“Prop 103 dictates that these changes be done relatively quickly — about 180 days,” Susman noted. “But in reality, it’s taking years.”

This mismatch between what’s on paper and what’s happening in practice has paralyzed the market. Insurers can’t adapt fast enough to real-world risks, so instead of waiting for approvals, many simply stop writing new business in California.

Governor Newsom’s Trailer Bill: Enforcing the Rules We Already Have

Governor Newsom’s “trailer bill” — introduced alongside the state budget — is designed to force compliance with Proposition 103’s existing timelines and make the process more efficient.

“What the trailer bill does,” Susman explained, “is expedite part of the Insurance Commissioner’s Sustainable Insurance Strategy. It’s about making it faster for insurance carriers to put in changes to policies and start writing again.”

The new rule would require:

• 60-day DOI review window for rate or policy filings.
• Up to two optional 30-day extensions (total of 120 days maximum).
• After that, the Department must respond — approve, deny, or request modifications.

“Not that they have to approve it at that point,” Susman clarified, “but they have to respond. Right now, it can take years. This enforces the law we already have.”

By setting firm deadlines, the bill aims to unclog the regulatory bottleneck that’s kept insurers on the sidelines.

The Sustainable Insurance Strategy: Four Pillars of Reform

The trailer bill isn’t a standalone solution — it accelerates the broader Sustainable Insurance Strategy, Commissioner Lara’s long-term plan to modernize California’s insurance system.

Susman broke it down into four main components:

1. A Clearer “Checklist” for Insurers

Right now, carriers often face a confusing, back-and-forth approval process when submitting changes. The first reform would standardize that process.

“We’re going to give insurers a checklist,” Susman said. “We’ll tell them exactly what the Department needs to review their filings. That way, both sides know the expectations and things don’t drag on endlessly.”

Governor Newsom’s trailer bill would implement this checklist immediately, ensuring that insurers can start making compliant filings faster.

2. Catastrophe Modeling — Bringing Science to Pricing

California is the only state that prohibits insurers from using forward-looking catastrophe models to predict wildfire risk.

That’s like driving using only your rearview mirror.

The Sustainable Insurance Strategy would change that, allowing companies to incorporate catastrophe modeling — under strict oversight from the Department of Insurance.

“Catastrophe modeling basically means looking forward and predicting losses, not just looking at past weather and claims,” Susman explained. “AI can be a part of that. It’s not a black box — the Department of Insurance gets all the data.”

This modeling would remain transparent to regulators but confidential to competitors. That ensures accountability without compromising proprietary systems.

3. Accounting for Reinsurance Costs

Reinsurance — the insurance that insurance companies buy to protect themselves from catastrophic loss — has become dramatically more expensive.

Under current rules, California insurers can’t fully include these rising costs in their pricing models, leaving them underfunded when major disasters strike.

The reform would let insurers incorporate reinsurance costs into their filings, aligning California with the rest of the country.

4. Risk-Based Incentives and Transparency

Finally, the strategy would reward homeowners who invest in fire hardening and mitigation. Homeowners who reduce risk — by clearing vegetation, upgrading roofs, or installing ember-resistant vents — would qualify for discounts or improved insurability.

This creates a fairer, property-level pricing model instead of treating entire ZIP codes as equally risky.

The Political Push — and the Critics

Governor Newsom’s decision to introduce the reform as a trailer bill tied to the state budget ensures it moves quickly — but it’s also drawn criticism.

Consumer advocacy groups like Consumer Watchdog argue that the move bypasses full legislative debate and gives too much power to insurers.

Susman disagrees.

“People say it’s Ricardo Lara and Newsom’s plan, and they’re sort of in bed with the insurance companies,” he said. “To some degree, they are — because they want them to come back.”

He noted that California remains one of the largest insurance markets in the U.S. — and one of the most lucrative, if regulations function properly.

“California is the fourth-largest insurance market in the country,” he said. “There’s money here for them — they’re just upside down on it right now.”

In other words, the reforms aren’t about helping insurers make more money; they’re about creating a market where they can operate without losing it.

Transparency and Accountability: Who Watches the Watchers?

A recurring criticism of catastrophe modeling is that it could hide data behind “black boxes.” But Susman clarified that all modeling data will be reviewed by the Department of Insurance — the elected regulator responsible to voters.

“There’s no black box,” he emphasized. “The Department can look at everything. What carriers don’t have to do is release it to competitors. And since the Insurance Commissioner is elected, we as voters have the final oversight.”

That’s a crucial point: California’s commissioner is one of the few elected insurance regulators in the country. Voters can hold that office directly accountable for how these reforms are implemented.

A Deal Between the State and the Industry

Perhaps the most encouraging part of the current reform effort is the commitment from insurers.

During recent budget hearings, Governor Newsom confirmed that he’s been in active talks with the industry — and that carriers have pledged to re-enter the market if these reforms pass.

“He said, ‘I’m talking to all of them — they’re hearing from me,’” Susman recounted. “They are committing to him that if these things are done, they will re-enter the market to compete.”

That competition is exactly what California consumers need. When multiple carriers operate in a region, prices stabilize naturally.

What Homeowners Should Expect

If the trailer bill passes and the Sustainable Insurance Strategy continues on schedule, Californians could see:

• Shorter approval times for rate and policy updates.
• More insurers returning to write new business.
• More accurate pricing that reflects real risk — both good and bad.
• Discounts for fire mitigation and defensible space improvements.
• A more transparent process between insurers, regulators, and consumers.

“This isn’t about faster rate hikes,” Susman emphasized. “It’s about a system that finally works — one where insurers can operate, consumers can get coverage, and regulators can enforce accountability.”

Final Thoughts: Real Reform, Real Accountability

California’s insurance crisis is the product of outdated systems colliding with a new climate reality. Governor Newsom’s trailer bill and Commissioner Lara’s Sustainable Insurance Strategy represent a long-overdue update — one that brings fairness, data, and speed to a process that has fallen dangerously behind.

Critics will continue to call it an industry giveaway. But as Susman and Singh’s conversation revealed, it’s really about balance — a system where insurers can do business, consumers can afford protection, and regulators can maintain oversight.

“At the end of the day,” Susman concluded, “this is about making sure people can get insurance again. That’s what it’s all about.”

If California succeeds, it won’t just stabilize its own market — it could become a national model for climate-era insurance reform.