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California’s insurance market is facing significant challenges. Homeowners are grappling with rising premiums, limited coverage options, and a wave of carrier withdrawals. Factors like wildfires, floods, inflation, and outdated regulations have contributed to the market’s volatility. However, as insurance expert Karl Susman explained in a recent FOX KTVU interview, there is cautious optimism for the future.
1. The Paradox: How Insurers Lose Billions and Still Make Money
While major insurers like State Farm and Allstate report record underwriting losses, they remain technically profitable. Susman clarified that the insurance industry operates on a global scale. While some states like California, Florida, and Texas are facing catastrophic claims and huge losses, other regions like New Hampshire and Ohio are generating healthy profits. Insurers offset losses from high-risk areas by gaining from lower-risk regions. However, when the losses in high-risk states become unsustainable, even the largest carriers must pull back.
“Huge losses in states like California, Florida, and Texas are why insurers are retreating,” Susman explained, noting the challenges insurers face in pricing policies for unpredictable risks.
2. Mother Nature and Market Reality: Why Insurers Are Leaving California
The primary reason insurers are pulling back in California is unpredictability. Wildfires, floods, atmospheric rivers, and other extreme weather events have created losses far beyond what insurers had anticipated. California’s outdated pricing models, which relied on historical data, are no longer effective in the face of changing climate patterns.
“These natural disasters are things carriers haven’t prepared for,” Susman noted. “They are paying out more claims than their models had priced in, so they’re retreating.”
This retreat was exemplified by State Farm’s decision in 2023 to stop writing new homeowners and business property policies in California due to rising catastrophe exposure and increased construction costs.
3. The Domino Effect: When 90% of the Market Pulls Back
With 90% of the market pulling back, the remaining 10% of insurers have a virtual monopoly and are free to raise premiums to compensate for their own rising costs. Additionally, the California FAIR Plan, which serves as the state-backed insurer of last resort, is now covering hundreds of thousands of properties—many of which would have qualified for private coverage just five years ago.
Susman described the consequences of this shift: "When you have 90% of the insurance market not offering policies, the price for the remaining 10% skyrockets."
4. The New Reality: “You’re Not Shopping Anymore — You’re Hunting”
Once, homeowners could shop around for insurance quotes and choose the best deal. Now, the process has become more like “hunting.” With fewer options available, policyholders are forced to secure coverage quickly when they find it.
“We used to say you can shop for insurance. Now it’s more like hunting,” Susman said. “You look, aim, and if you hit something, grab it and hold on tight.”
Susman urges homeowners to protect their existing coverage at all costs. If a policy lapses or is canceled, getting reinstated may be impossible due to the scarcity of available options.
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5. Inflation and the Insurance Equation
Rising inflation has been a significant factor in driving up premiums. Construction costs have surged, affecting replacement cost coverage, while reinsurance has become more expensive due to global catastrophes. These rising costs trickle down to consumers in the form of higher premiums and stricter underwriting.
However, Susman believes that the situation may soon stabilize. “We’re already at that point,” he said. “Carriers should start reentering the market before the end of the year.”
6. The Turning Point: California’s “Sustainable Insurance Strategy”
Amid this crisis, there is hope. In late 2023, the California Department of Insurance announced its Sustainable Insurance Strategy, a plan to modernize the state’s outdated regulatory framework. The strategy aims to allow insurers to use tools like catastrophe modeling and reinsurance cost indexing to predict and price risk more accurately.
By updating the regulatory system, the strategy hopes to bring insurers back into the market while maintaining transparency and consumer protection.
“As these new regulations take effect, we’ll start to see carriers return,” Susman said. “When that happens, competition will kick in.”
7. The Forecast: Stabilization Ahead
While premium hikes are likely to continue in the short term, Susman sees signs of improvement. “The future is bright,” he told KTVU. “After three or four years of gloom and doom, it’s nice to finally be able to say that the future is bright.”
He predicts that by late 2024 or early 2025, as new regulations take effect and insurers return to the market, competition will increase and could slow or reverse premium growth.
8. What Homeowners Can Do Right Now
While homeowners wait for the regulatory process to play out, they can take practical steps to protect their coverage and manage costs:
- Keep Your Policy Active: Set up automatic payments and avoid missed deadlines. Once a policy is canceled, reinstatement is unlikely.
- Review Coverage Annually: Ensure your coverage limits reflect current construction costs and inflation.
- Document Home Upgrades: Share any fire safety or home-hardening improvements with your insurer to possibly qualify for discounts.
- Explore the FAIR Plan Cautiously: The FAIR Plan can provide temporary coverage, but it has limited coverage and higher rates.
- Stay Informed: Keep up with updates on the Sustainable Insurance Strategy and how it could affect availability and pricing.
9. Final Thoughts: A Market in Transition
California’s insurance crisis has been years in the making and will take time to resolve. However, with new regulatory reforms, better risk modeling, and more transparency, the market is gradually moving toward sustainability. Homeowners should focus on stability by keeping their coverage active and preparing for gradual improvement rather than immediate relief.
“The future is bright,” Susman concluded. "We're at the point where things will start getting better." While this may provide small comfort to homeowners facing high premiums today, the prospect of a more competitive market ahead offers hope for the future.
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