California’s insurance market is experiencing one of the most dramatic upheavals in decades. Homeowners and drivers are facing rising premiums, stricter underwriting, fewer carrier options, and growing uncertainty. In a recent episode of The Insurance Hour, host and insurance expert Karl Sussman broke down what’s driving the crisis—and what consumers can expect as the market transitions toward reform.
His insights reveal how climate change, technology, and regulation are reshaping insurance in California, and why the system feels so expensive right now.
Understanding How Insurance Really Works
“Insurance isn’t complicated,” Sussman says. “There’s just a lot of misunderstanding about what it is and what it isn’t.”
At its core, insurance is a shared-risk system. Many consumers assume premiums are arbitrary or guaranteed to stay low. In reality, pricing is driven by data and probability. When the data becomes unreliable, the entire system destabilizes. That is exactly what has happened in California.
Climate Change and the Collapse of Traditional Risk Models
For decades, insurers relied on historical data to predict future losses. That model worked—until climate change and extreme weather made those patterns obsolete.
Sussman points to staggering wildfire losses:
• In 2018, California suffered over $145 billion in fire-related losses.
• In 2019, another $80 billion followed.
• In 2020, wildfire losses exceeded $12 billion.
Traditionally, insurers priced for one major catastrophe every six or seven years. Now, catastrophic losses are happening almost annually. These events wiped out years—sometimes decades—of profit for insurers. As Sussman explains, “These are not things the industry was prepared or priced for.”
With historical data no longer reliable, insurers are struggling to accurately assess future risk.
Why Auto Insurance Premiums Are Also Surging
The crisis extends beyond homeowners insurance. Auto insurance premiums are also climbing due to rising technology and repair costs.
A minor fender bender that once cost $700 to fix can now cost $3,000 to $5,000. Modern vehicles contain sensors, cameras, and electronics embedded in bumpers and body panels. Repairs require specialized labor, and post-pandemic labor shortages and supply-chain delays have driven costs even higher.
Repair times have increased as well. What once took 10 days in a body shop can now take a month or longer. Each extra day adds rental car expenses, which insurers must cover—pushing premiums higher for everyone.
Telematics, Privacy, and the Data Debate
Telematics technology tracks driving behavior through apps or devices that monitor speed, braking, mileage, and time of day. In many states, safe drivers can earn discounts by sharing this data.
In California, however, regulators prohibit insurers from using telematics data to set rates—even when consumers voluntarily opt in.
Supporters say this protects privacy. Critics argue it eliminates fairness by forcing safe drivers to subsidize riskier ones. As Sussman notes, the challenge is balancing privacy with accurate pricing—an issue that will only grow as technology continues to reshape the industry.
The Home Insurance Crisis and Insurer Withdrawals
California’s homeowners insurance market is under even greater pressure. As wildfire losses mounted, insurers sharply reduced their presence. At one point, nearly 87% of property insurers either stopped writing new policies or severely restricted them.
With fewer carriers competing, prices surged. Many homeowners—especially in wildfire zones—were forced into the California FAIR Plan, the state’s insurer of last resort. The FAIR Plan provides only limited fire coverage and excludes protections like theft, water damage, and liability.
“The issue isn’t greed,” Sussman explains. “It’s math. If insurers are losing money, they can’t stay in the market. And when competition disappears, prices rise.”
California’s Insurance Stability Plan and Market Reform
To address the crisis, the California Department of Insurance has introduced the Insurance Stability Plan, aimed at restoring competition and stabilizing rates.
Key components of the reform include:
• Mandatory coverage in high-risk areas: Insurers must write at least 85% of their new business in wildfire-prone zones. In exchange, they gain greater flexibility in pricing.
• Modern predictive modeling: Carriers may begin using forward-looking risk models and AI instead of relying solely on historical data.
• Restoring competition: As insurers regain confidence in pricing sustainability, they are expected to re-enter the market, which should put downward pressure on premiums over time.
Sussman emphasizes that today’s high prices reflect the absence of true competition. The long-term goal of the Stability Plan is to bring that competition back.
Short-Term Rentals and the Airbnb Insurance Risk
During the show, a homeowner asked whether damages from renting a room through Airbnb would be covered. Sussman’s answer was clear: probably not, unless the insurer is notified.
Short-term rentals change a property’s risk profile and usually require an endorsement to maintain coverage. These endorsements are typically affordable, but failing to disclose rental activity could result in claim denial.
The same principle applies to many life changes—new drivers, remodels, or home-based businesses. Transparency is critical to maintaining valid insurance protection.
How Consumers Can Protect Themselves Right Now
Sussman offers practical guidance for Californians navigating today’s uncertain insurance market:
• Don’t cancel your existing policy unless absolutely necessary.
• Use automatic payments to avoid lapses in coverage.
• Review your policy annually for gaps or underinsurance.
• Ask about fire-mitigation and safety discounts.
• Work with an experienced independent insurance agent.
• Proactively disclose any property or lifestyle changes.
In a tightened market, even a brief lapse in coverage can make it extremely difficult to obtain new insurance.
Change Versus Transition in California’s Insurance Market
Sussman draws an important distinction: “Change is easy. Transition is hard.”
California is currently in a painful transition phase. Premiums are high, options are limited, and frustration is widespread. But these hardships reflect a systemic reset driven by climate risk, outdated pricing models, and regulatory reform.
As predictive modeling expands and insurers regain confidence in the market’s profitability, competition should return. That competition is what will ultimately stabilize and, in some cases, reduce premiums.
The Road Ahead for California Insurance
California has long served as a national testing ground for regulation and innovation. Its insurance reforms may soon become a model for other states facing climate-driven insurance disruption.
The transition will not be quick or comfortable. But the direction is clear: toward a system that prices risk realistically, protects consumers more accurately, and supports long-term market solvency.
As Sussman often reminds listeners: stay informed, stay insured, and understand that insurance works best when both consumers and insurers adapt together.
