The Rising Cost of Fire Insurance: Expert Karl Susman Weighs In | CBS News

Published Date: 01/13/2025

The Rising Cost of Fire Insurance: Understanding California’s New Reality

As the flames from California’s latest wildfire crisis continue to fade, a new kind of firestorm is emerging — one that burns through budgets, not forests. The cost of fire insurance is skyrocketing, and according to industry expert Karl Susman, this may only be the beginning of a long and painful recalibration of California’s insurance market.

Appearing on CBS News, Susman discussed how the recent Los Angeles wildfires — particularly those devastating areas like Pacific Palisades — are reshaping the way insurance companies, regulators, and consumers share the burden of disaster recovery. His insights reveal a complex balancing act between market solvency, consumer affordability, and the urgent need to adapt to a world where catastrophic wildfires are no longer exceptions but expectations.

1. The New Landscape: When Wildfires Reshape an Industry

California’s insurance market is being fundamentally redrawn by fire. With entire neighborhoods reduced to ashes in a single day, insurers are grappling with losses that can reach billions of dollars per season.

“This level of devastation — we’re not meant to deal with it as humans,” Susman said. “To be able to have a city wiped out in a day, it’s almost biblical.”

But while the emotional toll is incalculable, the financial impact is measurable — and unsustainable under the state’s existing insurance framework. As wildfires become more frequent and severe, insurers are facing unprecedented claims while being limited by regulations under Proposition 103, which restrict their ability to raise rates to match rising risk.

That imbalance has forced many major carriers, including State Farm and Allstate, to stop writing or renewing homeowners’ policies in wildfire-prone areas altogether. The result? Tens of thousands of Californians have turned to the California FAIR Plan, the state’s insurer of last resort.

2. The FAIR Plan’s Growing Pains: From Safety Net to System Strain

The California FAIR Plan was designed as a temporary solution for homeowners unable to find coverage in the private market. But as wildfires intensify, it has quietly become one of the state’s largest insurers — and one of its most financially vulnerable.

A map shown during the CBS segment revealed that FAIR Plan enrollment has increased by over 250% in just one year in some areas. Governor Gavin Newsom even noted that his own father’s home is covered under the plan.

“It’s very expensive,” the governor admitted. “And it’s not great coverage.”

The FAIR Plan is unique in that it isn’t funded by taxpayer dollars. Instead, it’s a collective pool of all admitted insurers in California, each responsible for a share of the plan’s losses based on their market presence.

However, as Susman and CBS explained, the FAIR Plan’s financial reserves are limited — only a few hundred million dollars, plus a small amount of reinsurance (essentially insurance for insurers). When a disaster’s costs exceed those reserves, the shortfall ripples across the entire insurance ecosystem.

3. A New Rulebook: How the State Is Changing the Way Insurers Pay

To prevent a complete market collapse, the California Department of Insurance recently enacted new regulations that redefine how losses are distributed after major disasters. Under these rules, insurers are responsible for paying the first $1 billion in FAIR Plan losses “out of pocket.” After that threshold, they are allowed to pass on additional costs through surcharges to their own policyholders statewide.

That means everyone — even those far from fire zones — may end up sharing part of the cost of rebuilding.

“People in the Bay Area may feel grateful that the fires aren’t affecting them,” CBS reporter John Ramos noted. “But that may not be entirely true.”

In other words, while residents of Los Angeles and Ventura counties may face direct destruction, every Californian could see the financial fallout reflected in higher premiums.

4. The Industry Reaction: Bracing for Uncertainty

Not everyone agrees on what these changes will mean.
Steve Young, representing the Independent Insurance Agents and Brokers of California, told CBS that while the new framework could be manageable, no one can predict the total cost.

“It’s going to be bad,” he admitted. “But we don’t know how bad.”

He noted that while the FAIR Plan has reserves on hand, those reserves are quickly depleted during catastrophic events. Insurers must then rely on second and third funding tiers — internal reserves, reinsurance, and eventual customer surcharges — to fill the gap.

Consumer advocates, including Consumer Watchdog, have been more critical. They argue that the new rules effectively make all policyholders responsible for industry losses, regardless of where they live.

“If people are on the FAIR Plan, it’s because the private insurance industry put them there,” a Consumer Watchdog representative said. “Now they’re asking everyone else to pay for it.”

Their fear is that this model could create a domino effect — where every major fire triggers statewide premium hikes, turning what was once localized risk into a shared financial burden for all Californians.

5. Karl Susman’s Take: Necessary Pain for a Sustainable Market

Despite the controversy, Susman defended the new regulations as a necessary step to prevent the collapse of California’s insurance market.

“If it weren’t for those regulations happening before this loss,” he said, “I think what we’d be seeing is a mass exodus of every carrier from the state. They would have no way of figuring out how to move forward from there.”

In short, the reforms are less about immediate relief and more about long-term survival.
They give insurers a predictable framework for handling massive losses — and, critically, the ability to adjust rates in high-risk areas using modern catastrophe models instead of decades-old loss data.

Without these tools, many insurers would likely follow State Farm’s lead and withdraw from California entirely, leaving the FAIR Plan — and by extension, all policyholders — exposed to even greater risk.

6. The Consumer Reality: Rising Rates Are Inevitable

While the reforms may stabilize the market, they come with an unavoidable side effect: higher premiums.

“Moving forward will invariably mean raising rates,” Susman acknowledged.

Under the new rules, insurers can charge more for policies in areas identified as fire-prone — a reasonable adjustment, given the outsized losses they face. The problem, Susman noted, is that defining which areas are truly “fire-prone” is no longer simple.

“Do we even know where those are anymore?” he asked.

With fire seasons now stretching nearly year-round, regions once considered low risk are increasingly vulnerable. The result is a statewide re-rating of policies — not just in forested mountain towns, but in suburban communities, coastal valleys, and even urban centers surrounded by chaparral and dry grass.

For many homeowners, especially those already struggling with high living costs, the insurance bill may soon rival their mortgage payment.

7. The Bigger Picture: Climate, Catastrophe, and Collective Risk

What’s happening in California is not an isolated crisis. Across the country — from Hawaii to Florida — insurers are reassessing their exposure to climate-driven disasters. Wildfires, floods, hurricanes, and heatwaves are challenging traditional actuarial models and forcing regulators to rethink how insurance works in an era of compounding risks.

In this sense, California’s new rules represent a test case for the nation.
Can a state balance consumer protection, corporate solvency, and climate adaptation — all without pricing millions out of coverage?

Susman believes it’s possible, but only with cooperation across every level of the system.

“We’re entering a new world when it comes to fire insurance,” he said. “We have to adapt — because doing nothing isn’t an option.”

8. What Homeowners Should Do Now

While the market adjusts, homeowners can take proactive steps to reduce both risk and cost:

• Review your policy annually. Ensure your coverage limits reflect true rebuilding costs, including inflation and code upgrades.
• Bundle FAIR Plan coverage with a “Difference in Conditions” (DIC) policy for comprehensive protection.
• Invest in fire mitigation. Insurers increasingly offer discounts for Class A roofs, ember-resistant vents, and defensible space landscaping.
• Document your home and contents. Maintain photos, videos, and receipts in a cloud-based file.
• Stay informed. Follow updates from the California Department of Insurance and your local fire district.

Knowledge — and preparation — remain the strongest defenses against both fire and financial loss.

Conclusion: Paying the Price for Protection

California’s wildfires are rewriting the rules of insurance. The new regulatory model will almost certainly mean higher premiums, but it also creates a foundation for a more sustainable market — one that can withstand the financial shock of billion-dollar disasters without collapsing.

For homeowners, the message is sobering but clear: fire risk is now everyone’s problem.
Whether you live in the hills above Malibu or the flats of the Bay Area, the costs of rebuilding, reinsurance, and resilience will be shared across the state.

As Karl Susman put it, this is the price of preserving access to insurance in an era defined by risk.
And while that price is rising, it remains far lower than the cost of being unprotected when disaster strikes.