California Insurance Reform: What the Trailer Bill Changes

Published Date: 06/06/2024

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 Escalating wildfire risks, inflation, and outdated regulatory rules have driven major insurers to scale back or halt new business across the state.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 the most significant insurance overhauls in decades.



As insurance expert Karl Susman explained in an interview with Spectrum 1’s Amrit Singh, this legislation could mark a true turning point — not because it accelerates rate hikes, but because it finally enforces long-overdue regulatory efficiency and modernization.

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

Why California’s Insurance Market Is Broken

The current crisis is the result of climate-driven losses colliding with bureaucratic delay.

In recent years, wildfires, soaring rebuilding costs, and restricted rate-setting have pushed insurers into sustained losses. As Singh summarized, insurers say they’re losing too much money in California to continue writing homeowners policies, in part because premiums cannot be adjusted quickly enough.

But Susman stressed that the deeper issue goes beyond pricing. Any change — including underwriting rules or coverage forms — must go through an approval process that can take months or even years.

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

That delay has frozen the marketplace. Rather than wait indefinitely for approval, many companies have simply stopped writing new business in California.

Proposition 103: The Law That Shapes the Market

At the center of California’s insurance system is Proposition 103, passed in 1988. It established strict consumer protections, including:

• Mandatory state approval for all rate changes
• Full public access to rate filings
• The right for consumer groups to intervene in rate cases
• An elected Insurance Commissioner, currently Ricardo Lara

While these safeguards remain important, their administrative processes have not kept pace with today’s risks.

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

This gap between the law’s intent and its actual execution has become one of the main drivers of California’s insurance breakdown.

Newsom’s Trailer Bill: Enforcing Existing Timelines

Governor Newsom’s trailer bill, introduced alongside the state budget, is designed to force compliance with the timelines that already exist under Proposition 103.

According to Susman, the bill’s core purpose is to accelerate part of the Sustainable Insurance Strategy by removing regulatory gridlock.

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

Under the new rule:

• The Department of Insurance must review a complete filing within 60 days.
• It may request up to two 30-day extensions, for a maximum of 120 days.
• After that, the Department must respond — approve, deny, or require modifications.

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

The goal is predictability and accountability, not automatic approval.

The Sustainable Insurance Strategy: Four Core Reforms

The trailer bill accelerates a wider modernization effort already underway through Commissioner Lara’s Sustainable Insurance Strategy. Susman outlined four primary components.

Clearer Filing Standards for Insurers

The first reform creates a standardized checklist for insurers submitting rate and policy changes.

“We’re going to give insurers a checklist,” Susman said. “We’ll tell them exactly what the Department needs to review their filings.”

This eliminates the endless back-and-forth that currently slows approvals and ensures both sides understand expectations from the start.

Catastrophe Modeling for Modern Risk

California is currently the only state that bars insurers from using forward-looking catastrophe models to price wildfire risk.

The new strategy would allow catastrophe modeling under strict Department of Insurance oversight.

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

The models remain confidential from competitors but fully transparent to regulators.

Including Reinsurance in Rate Calculations

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

Under current California rules, insurers cannot fully incorporate those rising costs into pricing. The reform would allow them to do so, aligning California with the rest of the country and strengthening financial stability.

Risk-Based Incentives for Homeowners

The strategy also introduces incentives for homeowners who reduce wildfire risk through mitigation.

Homeowners who clear defensible space, upgrade to fire-resistant roofs, or install ember-resistant vents could qualify for discounts or improved insurability. This shifts pricing from broad ZIP-code risk to property-level risk.

Political Debate and Industry Criticism

Governor Newsom’s decision to move reform through a trailer bill ensures speed but has drawn criticism from some consumer advocacy groups, including Consumer Watchdog, which argues the approach bypasses full legislative scrutiny.

Susman rejects that framing, noting that the goal is to bring insurers back into a market where they are currently losing money.

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

California remains one of the largest insurance markets in the nation. The issue, Susman explained, is not a lack of profit opportunity, but sustained underwriting losses under outdated rules.

Transparency and Regulatory Accountability

Critics of catastrophe modeling often warn of “black box” pricing. Susman pushed back on that concern.

“There’s no black box,” he said. “The Department can look at everything. What carriers don’t have to do is release it to competitors.”

Because California’s Insurance Commissioner is elected, voters retain direct oversight over how these tools are used. That political accountability remains a defining feature of the state’s regulatory framework.

Commitments From Insurers to Re-Enter the Market

Perhaps the most critical development is the commitment from insurers themselves.

During budget hearings, Governor Newsom confirmed he has been in active discussions with carriers, which have pledged to re-enter the market if these reforms are implemented.

“He said he’s talking to all of them,” Susman recounted. “They are committing to him that if these things are done, they will re-enter the market to compete.”

That competition is essential. When multiple carriers operate in a region, pricing stabilizes and availability expands.

What Homeowners Can Expect

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

• Faster approval of rate and policy updates
• More insurers returning to write new business
• Pricing that more accurately reflects real risk
• Discounts tied to fire-hardening and mitigation
• Greater transparency between insurers and regulators

“This isn’t about faster rate hikes,” Susman emphasized. “It’s about a system that finally works.”

Final Thoughts: Modernization With Accountability

California’s insurance crisis is the result of outdated systems colliding with modern climate realities. Governor Newsom’s trailer bill and Commissioner Lara’s Sustainable Insurance Strategy represent a long-overdue update — one built around speed, data, and enforcement without abandoning consumer protection.

Critics will continue to frame the reforms as an industry giveaway. But as Susman’s analysis makes clear, the core objective is balance: a market where insurers can operate sustainably, consumers can obtain coverage, and regulators maintain meaningful 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 will not only stabilize its own market — it could become a national blueprint for insurance reform in the age of climate risk.