The Collapse of California's Insurance Market: Are You Prepared? (with guest Amy Bach)
Published Date: 10/25/2024
The Collapse of California’s Insurance Market: What’s Really Happening — and How to Prepare
California’s homeowners are facing a new kind of crisis — one that’s not fueled by wildfires or earthquakes, but by the insurance industry itself. Premiums are skyrocketing. Policies are being canceled or not renewed. Carriers that once competed for business are now fleeing the market altogether.
To help make sense of this unraveling system, Insurance Hour host Karl Susman sat down with Amy Bach, Executive Director of United Policyholders, one of the country’s most respected consumer insurance advocacy organizations.
Their conversation revealed something that every homeowner, broker, and policymaker should hear: the crisis is far bigger than California — and the old rules of private insurance may no longer apply.
1. An “Unprecedented” Crisis — and Why No One Is Immune
Bach didn’t mince words:
“Everyone uses the same phrase — we’ve never seen anything like this.”
For more than 30 years, Bach has been a voice for insurance fairness, helping consumers recover after wildfires, floods, and disasters. But even with that perspective, she describes today’s market as “unprecedented.”
California’s private insurance system — built on competition between carriers — is breaking down. Where homeowners once had a choice of insurers, many now find no one willing to write a policy at all.
And it’s spreading.
“It’s like a virus,” Bach said. “Florida got it first. Then California. Now Colorado, Iowa, Georgia, Pennsylvania — nearly every state is seeing markets that no longer look like they used to.”
This isn’t just about wildfires or state politics. It’s a structural problem across the national insurance system.
2. The Perfect Storm Behind the Collapse
Bach and Susman agreed: there’s no single culprit. The crisis is the result of a perfect storm of overlapping forces that have made traditional risk modeling obsolete.
Climate Change and Catastrophe Risk
California’s wildfire losses are massive. The Camp Fire, Thomas Fire, and Woolsey Fire together destroyed more than 25,000 structures and caused tens of billions in damage. Drought conditions — fueled by climate change — have left 120 million dead trees along the Sierra Nevada, a tinderbox for future fires.
Technology and Risk Scoring
Modern insurers rely on sophisticated data analytics, satellite imagery, and drone mapping to identify high-risk properties — and many simply walk away from those risks.
“We’ve seen the rise of ‘insurance scores,’ like credit scores,” Bach explained. “They can now pinpoint exactly which homes they don’t want. That’s made competition disappear in some areas.”
Economic Volatility and Investment Losses
Insurers don’t make money from premiums alone — they invest those funds in financial markets. Inflation, interest rate shifts, and stock market instability have all reduced investment returns, shrinking insurers’ appetite for risk.
Regulatory Constraints
California’s regulatory framework, particularly Proposition 103, limits how and when insurers can raise rates. While intended to protect consumers, the rule has also slowed insurers’ ability to price accurately in a world where climate risk evolves faster than regulation.
The result? Carriers have chosen to stop writing policies rather than absorb unpredictable losses.
3. A System Built for Yesterday’s Risks
At the heart of the crisis lies a philosophical question: Can private insurance still function as a public safety net in the climate era?
“For decades,” Bach said, “we’ve relied on competition to serve all customers. That’s not working anymore.”
She draws an analogy between insurers and public utilities. Power companies must serve everyone who pays — they can’t refuse electricity because a neighborhood is at higher risk of wildfires.
But insurance companies can, and do, pick their customers.
“We’ve never treated them like utilities,” she said. “We regulate them, but we don’t require them to insure everyone. And now we’re seeing what happens when they decide not to.”
4. The Consumer Experience: Fear, Frustration, and Skyrocketing Bills
United Policyholders hears from hundreds of homeowners every week. The most common messages fall into three categories:
- “I can’t afford my premium.”
Homeowners who once paid $1,200 per year now face bills of $6,000–$10,000. - “The only policy I can find is the FAIR Plan.”
Many consumers are being pushed into California’s FAIR Plan, the state’s insurer of last resort. - “I did everything they asked — cleared brush, hardened my home — and I still got dropped.”
Even responsible homeowners are being penalized, leaving them feeling helpless and betrayed by the system they’ve supported for decades.
5. Practical Survival Strategies for Homeowners
Despite the chaos, Bach offered a roadmap for consumers struggling to maintain coverage.
Bundle and Save
Combining home and auto insurance can still yield discounts and increase renewal likelihood.
Raise Deductibles
Higher deductibles lower premiums and reduce the chance of being dropped for filing small claims.
Work With a Proactive Independent Agent
“Find an agent who isn’t just handing you the FAIR Plan,” Bach urged. “You need someone who’s beating the bushes — reaching out to new and regional carriers.”
Independent agents have relationships with multiple insurers and may find opportunities a captive agent (like State Farm or Allstate) cannot.
Trim Non-Essential Coverage
Though United Policyholders has long warned against underinsurance, today’s reality requires difficult trade-offs. Homeowners can safely reduce coverage on contents or other structures to control costs, while keeping full protection on the main dwelling.
Document Mitigation Efforts
Homeowners who install fire-resistant roofs, defensible space, or sprinklers should document and submit proof to their insurer. These records can trigger mandated discounts under California’s “Safer from Wildfires” rules.
6. The FAIR Plan: Safety Net or Future Risk?
The California FAIR Plan has become a household name — and a source of anxiety. Is it safe? Can it run out of money?
Bach clarified the structure:
“The FAIR Plan is not a government program. It’s an association of private insurers. Every company doing business in California must participate.”
Each insurer contributes to the FAIR Plan’s assets and liabilities based on market share. If a major disaster exhausts its reserves, the participating carriers are required to cover the shortfall — historically, 100% of it.
But a recent deal between the California Department of Insurance and FAIR Plan leadership changed that. Now, insurers would only cover 50% of any post-disaster deficit; the other 50% could be passed on to policyholders statewide.
That revelation sparked headlines — but Bach emphasized that it’s a “what-if” scenario, not an imminent threat.
“The FAIR Plan has about $2.8 billion in reserves,” she said, “and roughly $280 billion in total exposure. That sounds alarming, but not everyone will have a total loss, and not all at once.”
Still, transparency remains an issue. The FAIR Plan isn’t subject to public meetings or state sunshine laws, and little is known about its internal governance.
7. Preventing the Next Collapse
Both Susman and Bach agreed: the current model is unsustainable.
If insurers won’t voluntarily return to high-risk markets, California faces two choices:
- Treat insurers like utilities — requiring them to cover all paying customers, as the Affordable Care Act did for health insurance.
- Create a new public disaster insurance program, backed by government reinsurance or federal partnerships.
“We either tell insurers they must take the bad with the good,” Bach explained, “or we build something new — a public-private safety net that can handle catastrophic risk.”
Some steps are already underway. Commissioner Ricardo Lara’s office recently approved the use of catastrophe modeling in rate-setting, allowing insurers to factor in forward-looking risk instead of relying solely on historical data. In exchange, carriers have pledged to increase coverage availability in distressed areas.
It’s a start — but not a solution.
8. The Bigger Picture: Insurance in a Warming World
Bach’s warning extends beyond California: the traditional business of risk is colliding with a planet that’s becoming more dangerous and less predictable.
“We’re in an era where technology shows insurers exactly how risky we are — and they’re using that to say no,” she said. “If private insurance can’t serve everyone, we have to rethink what comes next.”
The U.S. may soon need a national resilience framework, combining state regulators, private carriers, and public reinsurers (like FEMA or a federal catastrophe fund) to share risk more sustainably.
9. What Homeowners Can Do Now
While lawmakers debate long-term reform, consumers still need to act today:
- Review coverage annually. Inflation and rebuilding costs change fast.
- Avoid small claims. They increase your risk of non-renewal.
- Keep mitigation records. Photographic proof of defensible space and upgrades can make or break renewals.
- Shop through independent brokers. They can access surplus lines and niche carriers.
- Stay informed. Organizations like United Policyholders (uphelp.org) provide unbiased resources for California homeowners.
10. The Takeaway: A System at a Crossroads
California’s insurance market is a warning for the nation. Private insurance — once the bedrock of post-disaster recovery — is now showing signs of strain under the weight of climate change, data-driven risk avoidance, and economic volatility.
“We’re in a moment of reckoning,” Bach concluded. “We have to decide whether insurance remains a private product or becomes part of public infrastructure — like utilities, like healthcare.”
For now, preparedness is the only policy no one can cancel.
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