California's long-running insurance crisis took a dramatic turn in Sacramento this summer — and not the one many expected.
After weeks of tense debate, lawmakers failed to pass any major insurance reform bills before the legislative deadline, leaving both consumer advocates and the insurance industry frustrated.
The battle centered around a controversial proposal that critics said would have quietly given insurers broad new powers to raise rates and shift costs to consumers — a move described by watchdogs as a "backroom bailout."
As ABC 7's Michael Finney reported in his Seven on Your Side segment, "It was a wild ride. Consumer advocates were saying the insurance industry was working on a secret backroom deal to get a major bailout — and force consumers to pay for it."
Now, with the legislative window closed, the status quo remains — and that means continued instability for homeowners struggling to find coverage.
For weeks, rumors swirled around the Capitol that the insurance industry was quietly negotiating with state lawmakers to push through emergency legislation designed to speed up rate approvals and ease financial pressures on insurers.
Consumer groups warned that the proposal would:
Allow rate hikes without public disclosure of financial data,
Shift high-risk insurance costs from companies to consumers, and
Let insurers charge customers for what are currently considered business expenses.
"This is no way to run a country. This is no way for the state of California to conduct its business," said Robert Herrell of the Consumer Federation of California, speaking to ABC 7.
Consumer advocates, including Consumer Watchdog's Jamie Court, accused the industry of trying to sneak a reform package through the legislature without public hearings or debate.
"They may not have consummated the deal," Court said, "but they were clearly talking about a legislative plan. I think the sunshine was the best disinfectant here, and it kept this deal from happening."
When the final legislative deadline passed, it became clear: no deal had been made, and no major reform bill would move forward this session.
"Important legislative deadlines have just passed," Finney said. "So now we know what's going on — there will be no legislative deals cut this session."
While consumer advocates celebrated the collapse of the deal, the insurance industry's wish list reflected its growing frustration with California's decades-old regulatory system — one they argue no longer works in the era of climate-driven catastrophes.
According to Finney's reporting, insurers were seeking three key changes:
Faster Rate Approvals — Allowing companies to raise rates more quickly, without disclosing as much proprietary data.
Risk Cost Sharing — Shifting some wildfire-related costs from insurers to policyholders through higher base rates or assessments.
Expense Pass-Throughs — Allowing insurers to include ordinary business expenses in rate filings, which are currently disallowed under Proposition 103.
Industry leaders say these changes are essential to keep carriers solvent and prevent further withdrawals from the state.
The Personal Insurance Federation of California, which represents major insurers, declined to comment directly to ABC 7 about the negotiations but denied that any "secret deal" existed.
"We do not and have not had a legislative proposal," the federation said in a previous statement.
For consumer advocates, the industry's proposals represent the erosion of hard-won consumer protections dating back to Proposition 103, passed in 1988.
Prop 103 requires insurers to:
Get state approval for rate increases,
Publicly disclose their financial data, and
Justify all requested changes through a transparent process that includes public comment.
Former California Insurance Commissioner John Garamendi, now a U.S. Congressman, warned that bypassing that system would set a dangerous precedent.
"If they succeed," Garamendi said, "guaranteed, California policyholders are going to once again be screwed by the insurance industry."
Consumer groups say the failure of the backroom deal is a victory for transparency, even if it means continued market volatility in the short term.
"Hopefully," said Jamie Court, "future efforts will go through the regular legislative process."
The collapse of the reform talks leaves California's insurance market in limbo.
For insurers, that means continued frustration with slow rate approvals and restrictions on using forward-looking catastrophe modeling to price risk.
For consumers, it means more of the same:
Higher premiums,
More non-renewals, and
Increasing reliance on the California FAIR Plan, the state's insurer of last resort.
Insurance broker and industry expert Karl Susman told ABC 7 that the legislative stalemate will make it even harder for homeowners to secure coverage in the coming months.
"When the announcement came down that there was not going to be any type of arrangement," Susman said, "it made getting property insurance more difficult."
In other words: no reform, no relief — at least for now.
California's insurance crisis has been years in the making, but the pressure has intensified dramatically since 2023.
In the past 18 months:
State Farm, Allstate, Farmers, and other major carriers have paused or reduced new business in California.
More than 300,000 homeowners have been pushed onto the FAIR Plan.
Average premiums have risen 30% to 50% in some areas.
Insurers have warned that outdated regulations make the state "uninsurable" under current conditions.
At the core of the conflict is Proposition 103, which bans insurers from using predictive catastrophe modeling and requires all rate hikes to be based on historical losses rather than future risk.
That framework worked well for decades — until climate change upended the math.
Today, insurers say they can't price coverage accurately when wildfires, floods, and storms are growing more severe each year.
Regulators, however, remain wary of giving insurers too much latitude, fearing it would lead to excessive profits and consumer exploitation.
Governor Gavin Newsom has publicly called for faster reforms, saying California cannot afford to wait until the end of 2024 for relief.
"We need to stabilize this market," Newsom said in May. "We can't wait."
His administration has backed Insurance Commissioner Ricardo Lara's Sustainable Insurance Strategy, which would allow the use of catastrophe models and tie them to commitments for insurers to write in high-risk areas.
But without legislative backing, most of Lara's proposals are being implemented through regulatory channels, which take time.
Consumer advocates prefer it that way — arguing that backroom legislative fixes risk bypassing the public review process that Proposition 103 guarantees.
The result is a stalemate: insurers are holding back new policies, regulators are bound by outdated laws, and homeowners are caught in the middle.
The failure of this legislative session means homeowners should brace for more market tightening through the rest of 2024.
Here's what experts recommend:
Watch for announcements from the California Department of Insurance (CDI). New rate filings and approvals are being processed monthly.
Independent brokers, like Susman, can help homeowners navigate the shrinking marketplace, identify regional carriers, or pair FAIR Plan coverage with supplemental "Difference in Conditions" (DIC) policies.
Creating defensible space, upgrading to Class A roofs, and hardening homes against fire can make you more attractive to insurers — and may soon earn discounts under new CDI rules.
Until new laws or regulations take hold, coverage options will remain limited and expensive.
If there's one takeaway from this legislative episode, it's that secrecy fuels distrust — on both sides.
Consumer advocates accused insurers of operating in the shadows. Insurers accused regulators of ignoring economic reality. Both sides claimed to be protecting Californians.
But as Michael Finney observed, sunlight ultimately stopped the deal.
"The sunshine was the best disinfectant," Jamie Court said. "It kept this deal from happening."
The question now is whether policymakers can channel that transparency into constructive action — through open debate, public hearings, and modernized regulation that balances consumer protection with market viability.
California's insurance market remains trapped in a paradox:
Consumers demand affordability.
Insurers demand flexibility.
Regulators are stuck enforcing a law written for a world that no longer exists.
This legislative stalemate doesn't fix any of that. But it does underscore what's at stake — and why reform must be done in the open, not behind closed doors.
As Karl Susman put it, the lack of action only makes a hard market harder.
"It's a difficult situation," he said. "There's just not enough capacity. Until we see real movement, it's going to stay that way."
California's insurance future now hinges on what happens next — whether regulators, lawmakers, and industry leaders can finally align on a transparent, sustainable path forward.
Until then, for homeowners and agents alike, the message is clear: expect continued turbulence — and keep your eye on Sacramento.
