California Insurance Market Struggles with Rising Risks and Regulatory Limits

California’s insurance market is navigating a difficult path as regulators work to modernize rules while insurers face mounting climate-related losses and pricing restrictions. The latest Triple-I Issues Brief highlights that while Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy has made progress, deeper challenges remain.

Key among California’s hurdles is the continued application of Proposition 103, a decades-old regulation that restricts insurers from using forward-looking catastrophe models or including reinsurance costs in their pricing. This has limited insurers’ flexibility to adjust to worsening climate conditions and driven many property owners into the state’s FAIR Plan — California’s insurer of last resort. As of late 2024, FAIR’s exposure reached $529 billion, a staggering 217% increase from 2021.

Even though California residents currently enjoy below-average insurance premiums relative to income, experts say these rates are unsustainable given the growing frequency and severity of wildfires, floods, and earthquakes. Without meaningful pricing reforms, insurers will struggle to expand coverage, forcing more consumers into the costly and limited FAIR Plan. Industry leaders stress that higher rates and reduced regulatory barriers are necessary to restore balance to the market.