The Wildfire Wake-Up Call: How Prop 103 Is Killing CA’s Insurance Market
Published Date: 07/05/2025
The Wildfire Wake-Up Call: How Proposition 103 Is Killing California’s Insurance Market
California is burning—literally and figuratively.
In recent years, wildfires have destroyed entire communities, displaced hundreds of thousands of residents, and cost billions in insured losses. Yet amid the physical devastation, another crisis is quietly raging: the collapse of California’s homeowners insurance market.
According to insurance expert Karl Susman, who’s spent three decades helping clients recover from disasters, the problem goes beyond climate change and wildfires. The true culprit, he argues, is California’s outdated insurance regulation—specifically Proposition 103.
What was once hailed as a consumer protection law has become, in Susman’s words, “a fax-era regulation strangling a digital-age market.” And the consequences are now being felt by homeowners, renters, investors, and even drivers across the state.
A Catastrophe Beyond the Flames
Before diving into policy, Susman starts with people.
In one of California’s recent megafires, more than 30 people lost their lives. Over 180,000 residents were forced to evacuate. More than 18,000 structures were destroyed. And perhaps most shocking of all: 1 in 10 homes had no insurance at all.
“We hear about acres burned and structures lost,” Susman says, “but what about the people? The families who had to leave with nothing, whose insurance—or lack of it—determines whether they can rebuild?”
His own agency had 141 clients who lost their homes completely and another 50 with partial losses, many still navigating smoke damage claims months later.
These statistics underscore what the insurance system is supposed to do: help people recover. But that system, he warns, is breaking down—because insurers can no longer operate under rules written nearly 40 years ago.
The Shrinking Bookshelf: When Insurers Stop Showing Up
As an insurance broker, Susman describes his job as finding the best coverage at the right price from a “bookshelf” of carriers. But that shelf, once full, is now nearly empty.
“Ten years ago, we had 20 or 30 companies we could go to,” he says. “Now? We’re down to almost none.”
Seven of California’s twelve largest insurers—including some of the most recognizable national brands—have either paused new policies or begun mass non-renewals of existing ones.
That means fewer options, higher prices, and lower coverage. Homeowners who once had dozens of choices now face the same grim decision: pay thousands more through the California FAIR Plan—or go uninsured.
“It’s not hyperbole to say there’s no property insurance market in California right now,” Susman warns. “If you compare it to any other state, we’ve got nothing.”
Proposition 103: The Law That Froze an Industry
So what happened? Why are insurers fleeing?
The short answer: Proposition 103, a 1988 voter initiative that completely reshaped California’s insurance regulation.
Originally marketed to voters as a way to cut auto insurance premiums by 20%, Prop 103 also imposed sweeping restrictions on how all types of insurance—home, auto, landlord, and even renters—could be priced, reviewed, and approved.
The law requires companies to obtain prior approval from the Department of Insurance before adjusting rates. That process, meant to protect consumers, often takes months or even years, leaving insurers unable to respond to inflation, reinsurance costs, or the escalating frequency of disasters.
Susman calls it a “fax-era law” still governing a modern, data-driven industry.
“Proposition 103 is from the age of fax machines,” he says. “I actually had someone recently ask me to fax over proof of insurance, and I told them, ‘I’m sorry, I can’t—I’m in 2025.’ But our insurance regulations are still stuck in the 1980s.”
When Good Drivers and Bad Drivers Pay the Same
Prop 103’s problems extend far beyond property insurance. One of its most surprising effects has been on auto insurance.
The law mandates that all drivers—regardless of their history—qualify for the same “Good Driver Discount” after just three years, even if they’ve had multiple accidents or serious violations.
To illustrate, Susman compares two drivers:
- Driver A: Three speeding tickets, multiple accidents, one fatality.
- Driver B: Perfect record—no tickets, no accidents.
Under Prop 103, both drivers receive the same “good driver” discount after three years.
“What message does that send?” Susman asks. “It rewards bad driving. And when bad drivers pay the same as good ones, the good drivers end up subsidizing them.”
The results are predictable: higher average rates for everyone and reduced incentives for safe driving.
In other words, Prop 103’s attempt at fairness created a system where risk doesn’t matter—a principle fundamentally at odds with how insurance works.
How Prop 103 Broke the Homeowners Market
Nowhere is the damage more evident than in the homeowners market.
To explain, Susman paints a picture: two nearly identical homes in the same ZIP code.
- Home A sits on a steep hill with a narrow, inaccessible road and no nearby fire hydrant.
- Home B sits at the base of the hill, next to a hydrant, with alarms, sprinklers, and zero claims.
Common sense—and modern risk modeling—say these homes should have vastly different premiums. But under Prop 103, they’re treated almost the same.
“If insurers have to charge the same rate for both homes,” Susman asks, “which one would you insure? The safe one, or the one surrounded by brush that a fire truck can’t reach?”
This rigidity has made California toxic to insurers. They can’t price risk accurately, can’t raise rates quickly enough to stay solvent, and can’t reward mitigation efforts like defensible space or fire-resistant materials.
The result? They stop writing new policies altogether.
The FAIR Plan: From Safety Net to System Default
When private insurers pull out, homeowners turn to the California FAIR Plan—a state-mandated pool funded by all insurance companies operating in the state.
Originally designed as a temporary safety net, the FAIR Plan offers basic fire insurance to those who can’t get coverage elsewhere. But as private carriers exit, it’s becoming the default insurer for entire regions.
In just five years, the FAIR Plan’s policy count has more than doubled.
Yet its coverage is limited. It only insures against fire, lightning, smoke, and internal explosion—no water damage, theft, or liability. To get full protection, homeowners must buy a separate Difference in Conditions (DIC) policy, often at a steep cost.
“The FAIR Plan was never meant to be the primary market,” Susman explains. “It’s fire-only, it’s expensive, and right now, nine out of ten claims we deal with are FAIR Plan claim problems.”
Legislative Overload: Ten Bills, Zero Solutions
At any given moment, there are multiple bills circulating through Sacramento aimed at “fixing” the insurance market. According to Susman, there are at least ten active proposals right now—most well-intentioned, but many missing the point.
“Their hearts are in the right place,” he says. “They want to make the claims process easier for consumers. But the reality is, you can’t simplify claims for policies that don’t exist. If there’s no product, there’s nothing to regulate.”
In other words, consumer protection laws don’t help if consumers can’t buy coverage in the first place.
The Ripple Effect: Renters, Landlords, and Beyond
Prop 103 doesn’t just affect homeowners—it ripples through every corner of the insurance ecosystem.
- Landlords are finding it harder to insure rental properties, leading to higher rents and reduced housing supply.
- Renters are facing price increases on contents policies.
- Condo owners are paying record-high association fees as building coverage costs soar.
And when property owners can’t get insurance, lenders pull back—threatening the entire housing market.
“This isn’t just about insurance,” Susman warns. “It’s about real estate, lending, construction, and the economy. The entire system depends on functioning insurance.”
Why Reform Can’t Wait
The wildfire crisis has exposed what many insiders have known for years: California’s insurance framework is broken.
Proposition 103, once seen as a shield for consumers, has become a barrier to market stability. Its rigid rules prevent insurers from adapting to modern risk, discourage competition, and push consumers into a costly, underpowered safety net.
If California doesn’t act soon, the exodus of insurers could become permanent—turning the state’s “temporary crisis” into a lasting market failure.
“We’re not just losing insurance companies,” Susman says. “We’re losing the ability to insure California itself.”
What Reform Could Look Like
Meaningful reform doesn’t mean abandoning consumer protections—it means modernizing them.
Policymakers and industry leaders are calling for:
- Faster rate approvals that allow insurers to respond to real-time risk and inflation.
- Use of catastrophe modeling and reinsurance costs in rate-setting, as most other states allow.
- Incentives for mitigation, rewarding homeowners who harden their properties.
- Transparency and accountability for both insurers and regulators.
These steps wouldn’t eliminate wildfires—but they could help rebuild a functioning insurance ecosystem capable of surviving them.
Final Thoughts: The Real Wake-Up Call
Wildfires may ignite the flames, but outdated regulation is what keeps them burning through California’s insurance market.
Proposition 103, born in the 1980s, was designed for a world that no longer exists—a world without climate change modeling, without $1 million rebuilding costs, and without decades of accumulated wildfire risk.
California now faces a choice: modernize its laws or watch its insurance market continue to crumble.
As Susman concludes:
“We’ve reached the point where reform isn’t about profit—it’s about survival. If we want to keep protecting people, homes, and businesses in California, we have to evolve the system that protects them.”
The wildfires are a wake-up call. Whether California listens may determine not just the future of insurance—but the future of homeownership itself.
Author