Why California's Insurance Rate Approval Process Is Driving Insurers Out - And What It Will Take to Fix It

# Why California's Insurance Rate Approval Process Is Driving Insurers Out - And What It Will Take to Fix It

*By Wyld Safe*

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California is home to the largest insurance market in the United States. It's also one of the hardest places in the country for an insurance company to do business. The reason isn't just wildfire risk - it's the regulatory machinery that governs how insurers are allowed to respond to that risk.

At the center of the problem is a single, stubborn fact: it takes an average of 10 to 12 months for an insurance rate filing to be approved in California. The national average is two to three months. That makes California the slowest - or very nearly the slowest - state in the country when it comes to getting rate changes through the door.

The second slowest? New York. And even New York moves considerably faster.

For homeowners in the wildland-urban interface - the WUI, where neighborhoods meet undeveloped, fire-prone land - this regulatory bottleneck isn't an abstract policy debate. It's the reason their insurance options are disappearing.

State Senator Ben Allen (D-Santa Monica), who is running for California Insurance Commissioner in 2026, has lived this crisis from the inside. When the Palisades Fire erupted on January 7, 2025, it tore through the community he has represented in the State Senate for over a decade - miles from his childhood home and current residence. He spent months on the ground helping neighbors navigate the insurance claims process, writing legislation to help wildfire survivors get paid, and working to bring state and federal leaders together. His policy platform for Insurance Commissioner - centered on science-based risk modeling, home hardening investment, consumer protection, and market accountability - represents the kind of thinking California's insurance system desperately needs.

## The Proposition 103 Problem

The roots of this crisis trace back to 1988, when California voters passed Proposition 103, the "Insurance Rate Reduction and Reform Act." The law did several things: it rolled back insurance rates by 20%, established a prior-approval system requiring the elected Insurance Commissioner to sign off on all rate changes, and created a unique "consumer intervenor" process allowing outside groups to challenge rate filings and recover their legal costs from insurers.

At the time, Proposition 103 was framed as consumer protection - a check on insurers who might otherwise raise rates unchecked. And for decades, it arguably worked. Between 1989 and 2015, California auto insurance rates rose just 12.5%, compared to a national average increase of 61.1%.

But the world has changed. Wildfire seasons are longer and more destructive. Rebuilding costs have surged - construction input prices have climbed nearly 40% since the start of the pandemic. Reinsurance costs have nearly doubled since 2017, with a 35% spike in 2023 alone. And under Prop 103's original framework, insurers were prohibited from using forward-looking catastrophe models to price wildfire risk, forced instead to rely on 20 years of historical loss data that no longer reflects reality.

The result: by the time a rate increase is approved, it's already out of date.

## The Numbers Tell the Story

According to data from S&P Capital, the five-year average delay for rate-change decisions in California from 2018 to 2022 was 236 days - making California the second longest in the country by that measure. Other analyses, including from the California Department of Insurance itself, paint an even worse picture. Without intervenor involvement, approvals averaged 256 days. When intervenors got involved, that number ballooned to 529 days - nearly a year and a half.

The law says the process should take 60 days. In practice, the CDI routinely asks insurers to waive that timeline. If they refuse, the department can trigger a public hearing - which can easily take a year or more. Most insurers simply waive and wait.

From 2020 to 2022, the average delay between filing and resolution climbed to 293 days, up from 157 days in the 2013-2019 period. The system isn't just slow - it's getting slower.

## The Intervenor Question

California is the only state in the country that allows outside groups to formally participate in the homeowners and auto insurance rate filing process and collect fees for doing so. The most prominent intervenor, Consumer Watchdog - founded by the author of Proposition 103 himself - has collected more than $12 million in intervenor fees over the past 13 years, including over $1.4 million in 2025 alone.

Consumer Watchdog argues that their involvement saves consumers money by pushing back against excessive rate increases. Critics counter that the intervenor system creates a financial incentive to delay, and that the fees ultimately get passed on to the very consumers the system is supposed to protect.

The debate is heated, but one thing is clear: the regulatory process, however well-intentioned, has not kept pace with the escalating reality of wildfire risk.

## Understanding the Insurance Ecosystem: Admitted, Surplus Lines, and Reinsurance

To understand why the California insurance crisis is so layered, you need to understand the different types of insurers operating in the state.

**Admitted carriers** are the big, well-known insurance companies - State Farm, Allstate, Farmers, Chubb, Mercury - that are licensed by the California Department of Insurance. Their rates are regulated under Prop 103, they must get approval before raising premiums, and critically, their policyholders are protected by the California Insurance Guarantee Association (CIGA). If an admitted carrier goes insolvent, CIGA steps in to cover claims.

These admitted carriers also carry **reinsurance** - essentially insurance for insurance companies. Reinsurance allows carriers to spread catastrophic risk across global markets so that a single wildfire season doesn't wipe them out. Reinsurance costs have nearly doubled since 2017, and until recently, California was the only state that didn't allow insurers to factor those costs into the rates they charged consumers. That's changing under the Sustainable Insurance Strategy, but it's been a major factor driving insurers out of the state.

**Non-admitted carriers**, also known as **surplus lines** or **excess and surplus (E&S)** insurers, operate under a fundamentally different set of rules. These carriers are licensed in other states but not in California. They don't have to get their rates approved by the CDI, which means they can price risk more freely - but it also means their policies aren't backed by the state guaranty fund. If a surplus lines carrier goes under, policyholders have no state safety net.

A common misconception is that surplus lines carriers are completely unregulated. They're not - they must meet financial solvency requirements and are overseen through California's surplus lines laws. But the consumer protections are materially weaker.

The real problem is what these policies often look like in practice. Surplus lines carriers have greater flexibility to design policies, which often translates to higher premiums, steeper deductibles (sometimes starting at $100,000, compared to around $10,000 for standard policies), and significant coverage exclusions. Some policies may exclude or limit coverage for smoke damage, landscaping, outbuildings, or additional living expenses - the exact kinds of losses that wildfire survivors face most often. As of 2025, the average E&S premium in California stands at around $5,500, with deductibles that can be ten times higher than traditional policies.

As admitted carriers have retreated from California, more and more homeowners have been pushed into the surplus lines market - not because their properties are unusual or uniquely risky, but simply because no admitted carrier will write them a policy. Allstate, for example, stopped writing policies as an admitted insurer in California, but its subsidiary North Light continues writing them as a surplus lines provider - meaning consumers lose their guaranty fund protection while the parent company sheds its obligation to contribute to the FAIR Plan.

## The FAIR Plan: From Civil Unrest to Wildfire Crisis

The California FAIR Plan - Fair Access to Insurance Requirements - was established in 1968 following the Watts riots of 1965 and the brush fires of the 1960s. As insurers fled neighborhoods devastated by civil unrest, particularly in South Los Angeles, the state created the FAIR Plan to guarantee that residents in areas abandoned by private insurers could still get basic fire coverage.

The FAIR Plan was never designed to be a primary insurer. It was meant as a temporary safety net - bare-bones coverage to bridge the gap until the private market returned. The plan covers only fire, lightning, internal explosions, and smoke damage. It doesn't include liability protection. Coverage caps at $3 million for residential properties. Homeowners who need more comprehensive protection must purchase a separate Difference in Conditions (DIC) policy to fill the gaps.

Today, the FAIR Plan has become something it was never meant to be: a de facto primary insurer for over 610,000 California homeowners as of mid-2025, more than triple the number from late 2020. It's overwhelmed, underfunded, and the target of mounting legal action.

## Who's Failing Homeowners: The Complaint Picture

Perhaps the most telling indicator of the crisis isn't in the policy documents - it's in the complaints from wildfire survivors who've lost everything and can't get their insurers to pay.

Following the devastating January 2025 Palisades and Eaton fires, surveys and investigations have consistently identified the same companies at the bottom of customer satisfaction. State Farm and the FAIR Plan, as the two largest insurers in California, have drawn the most dissatisfaction from policyholders for their handling of wildfire claims. Commissioner Lara has taken formal legal action against the FAIR Plan for systematically denying smoke damage claims, citing hundreds of complaints and at least 418 violations of California consumer protection laws. The Department is also conducting a Market Conduct Examination of State Farm for its claims handling practices.

The picture that emerges from wildfire survivors is consistent: the companies that are supposed to help rebuild lives are instead creating obstacles - delaying payments, undervaluing claims, denying smoke damage, and forcing policyholders into protracted legal battles at the worst possible moment. AAA and the FAIR Plan have been repeatedly cited by consumer advocates as among the most problematic for homeowners in fire-affected areas.

The irony is brutal: homeowners who were pushed onto the FAIR Plan because private insurers wouldn't cover them are now finding that the plan itself fights to avoid paying their claims.

## What This Means for the WUI

For communities in the wildland-urban interface, the consequences are concrete and devastating. When insurers can't adjust their pricing to reflect actual risk, they have two choices: absorb unsustainable losses, or leave.

They're leaving.

Since 2022, seven of California's 12 largest homeowners insurance companies have paused or limited new business in the state. State Farm, the state's largest home insurer, stopped accepting new property and casualty applications in May 2023, citing historic increases in construction costs, wildfire risk, and reinsurance expenses. Allstate, Farmers, USAA, Travelers, Nationwide, and Chubb have all either paused or limited new policies.

The fallout has pushed hundreds of thousands of homeowners onto the FAIR Plan - California's insurer of last resort - which was never designed to carry this volume. The FAIR Plan offers limited, expensive coverage and faces its own solvency questions. Between 2015 and 2024, nearly 7.6 million non-renewals were recorded statewide.

## The Reform Effort - And Why the Next Insurance Commissioner Matters

Insurance Commissioner Ricardo Lara has introduced the Sustainable Insurance Strategy, the most significant overhaul of California's insurance regulations since Prop 103 was passed. The strategy, first announced in September 2023, includes several important changes: allowing insurers to use forward-looking catastrophe models (which every other state already permits), incorporating reinsurance costs into rate calculations, and pushing for faster approval timelines.

In exchange, insurers who use catastrophe models must commit to writing more policies in wildfire-prone areas - a requirement unique to California.

The department has now approved three wildfire catastrophe models for use, from Verisk, Karen Clark and Company, and Moody's. Mercury Insurance, Allstate, and CSAA were among the first to announce plans to file new rates under the updated framework.

These reforms are overdue and welcome. But they don't change the underlying architecture of the prior-approval system. Rate filings still require CDI review. Intervenors can still intervene. And the cultural and procedural inertia of a 37-year-old regulatory framework doesn't evaporate overnight.

That's why who replaces Lara as Insurance Commissioner in 2026 matters enormously.

## The Policy Framework California Needs

Senator Ben Allen's platform for Insurance Commissioner offers a clear articulation of the policy shifts that would address the structural failures outlined in this article. Whether or not he wins the race, the ideas he's advancing deserve serious attention because they directly target the root causes of the crisis.

**Eliminating barriers to claims payouts.** Allen authored SB 495, the "Eliminate 'The List' Act," which became law on January 1, 2026. The law requires insurance companies to pay wildfire survivors 60% of their contents coverage - up to $350,000 - without requiring a detailed inventory of every item lost. For anyone who's ever tried to catalog the contents of their entire life from memory after a disaster, this is transformative. The law also gives policyholders at least 100 days to submit proof of loss, with potential extensions. It's a concrete example of policy that puts survivors first instead of creating bureaucratic obstacles at the worst possible moment.

**Home hardening and wildfire prevention as core insurance policy.** Allen has consistently supported efforts to establish home hardening standards that reduce wildfire risk and lower liabilities for the insurance market. His position is that insurance policy should be directly aligned with wildfire prevention and resilience investment - not treated as a separate silo. As he put it: "The costs of preventing losses are far less than the costs of rebuilding entire communities after disaster strikes. The billions spent helping communities like Paradise, Santa Rosa, Altadena and the Palisades recover would have been better spent, and would have gone further, preventing those disasters in the first place."

This is the exact philosophy behind proactive wildfire risk mitigation - that home hardening, defensible space, and exterior fire suppression should be the foundation of the insurance model, not an afterthought.

**Technology-forward, science-based risk modeling.** Allen has called for aligning insurance policy with science-based risk modeling that reflects climate change. The old system of backward-looking historical data is no longer adequate. Modern wildfire assessment technology - including property-level risk scoring, catastrophe modeling, and real-time mitigation tracking - should be integrated into how rates are set and how discounts are earned. This is how you create a system where homeowners who invest in resilience are actually rewarded for it.

**Independence and accountability.** Allen is not accepting campaign donations from the insurance industry - a meaningful signal in a race where the commissioner's job is to regulate the companies that might otherwise fund the campaign. He's pledged strong ethics standards, transparent decision-making, and a department that answers to the public rather than to insurers or intervenors.

These aren't fringe ideas. They represent a coherent vision for what California's insurance regulatory framework should look like in a world where wildfire risk is permanent, escalating, and demands a fundamentally different approach.

## Why This Matters for Proactive Risk Mitigation

Here's what gets lost in the regulatory shuffle: none of these rate approval delays account for what homeowners are actually doing to protect their properties.

Under the old system - and largely still today - a homeowner who invests tens of thousands of dollars in fire-resistant roofing, ember-resistant vents, defensible space, and exterior sprinkler systems sees little to no reduction in their premium. The rate-setting models historically haven't recognized these improvements. The insurance math has been backward-looking, aggregate, and indifferent to individual action.

The new catastrophe models promise to change this by incorporating mitigation data for the first time. Commissioner Lara's Safer from Wildfires regulation, introduced in 2022, created the nation's first mandatory wildfire insurance safety discounts. These are steps in the right direction.

But the pace of regulatory change remains fundamentally mismatched with the pace of wildfire risk. A homeowner who hardens their property today still has to wait for the insurance market to catch up - and in California, catching up takes longer than almost anywhere else in America.

## The Path Forward

California needs an insurance market where risk can be priced accurately, where proactive mitigation is rewarded in real time, and where insurers have the ability to respond to changing conditions fast enough to stay in the market. Right now, the state has none of these things.

The Sustainable Insurance Strategy is a start. But true reform requires more than regulatory patches applied to a framework designed for a different era. It requires rebuilding the relationship between risk, technology, and insurance from the ground up - using modern wildfire assessment tools, real-time property-level data, and models that reward homeowners and communities who invest in resilience.

The policy direction that leaders like Ben Allen are articulating - home hardening as insurance infrastructure, science-based risk modeling, consumer protection that actually works for survivors, and a regulatory framework fast enough to keep pace with the reality of wildfire in California - is the roadmap.

At Wyld Safe, we're building the technology and mitigation systems that this new insurance framework demands: proactive risk modeling, home hardening solutions, and exterior fire suppression systems for properties in the wildland-urban interface. The future of insurance in California must be built on resilience, not just recovery.

Because the alternative - a state where insurers can't price risk, homeowners can't find coverage, and communities in the WUI are left to fend for themselves - is already here. And it's unsustainable.