The cost of living in California is steep, and that includes car insurance. Drivers pay some of the highest premiums in the nation. Insurers must contend with strict regulations that, depending on your perspective, keep rates artificially low or do just the opposite.
External factors also contribute. Nationwide, auto insurance rates are expected to continue rising in 2025. Tech-loaded vehicles take longer to fix and repair than ever, increasing insurers’ costs. Wildfires that ravaged portions of the state and destroyed homes and automobiles may push rates even higher over time.
All of this is enough to make a driver wonder: Is California in a car insurance crisis? Experts we spoke with say no, but things could be better.
Understanding California’s auto insurance market
California’s car insurance market operates the way it does because of the Reduction and Control of Insurance Rates Act – better known as Proposition 103 – which voters narrowly approved in November 1988. Notably, it required insurers to submit all rate increase requests to the CDI for state and public review. Before the act’s passage, California insurers could set rates at will without seeking regulatory approval.
Proposition 103 also reformed the office of state insurance commissioner – until then a political appointment – to make it an elected position within the Department of Insurance (CDI). In addition, it defined what risk factors carriers could and could not use to establish rates.
Insurers could consider a driver’s record, years of experience, and annual miles driven but could not factor in where a person lives. (Lawmakers later added gender and credit history to the list of exclusions.)
“Before Prop 103, insurance companies were refusing to sell even to good drivers in some places at any price, so good drivers were being redlined out of the system,” says Carmen Balber, executive director of Consumer Watchdog, a nonprofit advocacy organization that lobbies state lawmakers on insurance issues.
How insurance companies get rate increases approved
The system works like this: An insurer must submit a detailed outline with evidence to support its rate request, which the CDI will review. If the rate request is above 7%, a public hearing will be scheduled. Public intervenors, any individual or group demonstrating they represent consumer interest, can participate in the hearing and be compensated for their time by insurers.
Regulators will determine how much of a rate change – if any – is merited based on the evidence presented by the insurer, CDI analysis, and public intervenors. The process can take months. Hearings and rate determinations are conducted on a rolling basis throughout the year, and the CDI website posts rate filing lists online.
Critics, like the Independent Insurance Agents & Brokers of California (IIABC), say the law makes it impossible for carriers to cover their costs adequately.
“Auto insurance policies are becoming more and more expensive,” says Steve Young, IIABC senior vice president and general counsel. “If the Department of Insurance continues to reject or artificially suppress carriers’ need for adequate rates, then there could be availability problems.”
The California Department of Insurance could not be reached for comment.
California’s good driver discount definition may be too liberal
Another important provision of the law, known as “take all comers,” compels insurance companies to sell coverage at a 20% “good driver” discount off the rate that would otherwise be charged. Any licensed driver with no more than one moving violation on their record during the past three years qualifies, regardless of their past insurance history.
Consumer Watchdog, whose founder Howard Rosenfield spearheaded the Prop 103 initiative, says the “take all comers” rule prevents insurers from gouging customers or refusing to cover some drivers. Executive Director Carmen Balber estimates that its challenges to rate increases have saved drivers $4.1 billion from 2002 to 2024.
But others, like the IIABC, say the rule prevents insurers from charging high-risk drivers more for coverage.
“[It] requires insurers to issue, and continue to offer renewal in perpetuity, personal auto policies to any driver who meets a very liberal ‘good driver’ definition. This can be very problematic when the rates approved by the regulator are not ‘adequate’,” says the IIABC’s Young.
Post-pandemic auto insurance landscape in California
Like many other aspects of life, the Covid-19 pandemic affected California’s car insurance market. In 2020 and 2021, the Department of Insurance ordered insurers to issue refunds to consumers who were driving far less due to the pandemic, totaling $2.4 billion, according to the CDI.
Additionally, regulators balked at insurers’ requests to raise rates for two years, starting in 2020. When the pandemic began to ebb in 2022, and people began driving more frequently, inflation came roaring back and insurers’ costs skyrocketed.
“Rates that were already too low in many cases became even more inadequate when drivers returned en masse to the roads, and claim frequency started soaring,” Young says.
As a result, some carriers pulled back. Geico closed all of its local offices in 2022, laying off thousands and forcing customers to contact the company directly. Allstate in 2023 threatened to stop doing business in California unless state regulators approved a 35% rate increase.
Meanwhile, a handful of minor players like Kemper and Farmers Direct ceased doing business in the state. Others, like Liberty Mutual and Safeco, have said they will no longer insure high-risk drivers from 2026.
In response, California insurance regulators approved double-digit rate increases for most of the state’s largest carriers. In 2023, State Farm was granted a 21% increase – the insurer had sought 33.2%. The same year, Allstate was allowed a 30% increase. Other major carriers like Progressive, Amica, Geico and Wanasea were also permitted double-digit rate increases.
That trend continued in 2024, with regulators granting further rate increases to companies like State Farm (17.7%), Nationwide (19.5%), and Mercury (22.5%).
Experts we spoke with say whether insurers will seek similar rate increases in 2025 remains to be seen. But it’s a safe bet that drivers won’t see their rates decline.
Impact of vehicle repair and replacement costs on insurance
State regulation hasn’t been the only factor influencing the cost of car insurance in recent years. Experts say vehicles themselves are part of the problem, not just in California but nationwide. Newer models are crammed with features like collision-avoidance systems, rear-backup cameras, hands-free steering and more, all of which can cost a small fortune to repair or replace.
Repairs have become more time-consuming because high-tech parts take longer to repair. Damage to a side mirror, for example, may require not just replacing the part itself but also recalibrating the collision-avoidance sensors embedded within.
According to the latest data from CCC Intelligent Solutions Inc., an insurance technology company, the total cost of repair increased by 3.7% in the first half of 2024 compared to the same period in 2023. Labor rates rose by 4.9% year over year.
“Auto repairers and insurers may face continued cost increases in 2025, from parts and labor to administrative expenses,” says Kyle Krumlauf, a CCC director of industry analytics. “As vehicle complexity continues to grow, the rising number of replacement parts and labor hours per repair may further impact the repair industry. Repairers will likely need to manage more intricate, time-consuming repair processes, driving up costs and potentially extending cycle times.”
A shortage of trained personnel may also put pressure on repair and replacement costs.
“The collision repair sector alone will need tens of thousands of new technicians in the coming years to meet demand. With fewer skilled technicians available to manage the increasing volume of complex repairs, repair cycle times could lengthen, placing further strain on the industry,” Krumlauf says.
As a result, insurers may be more apt to declare a car totaled than pay for repairs.
“More replacement parts and labor hours per repair are making total losses more common, and while new vehicle prices are stabilizing, repair costs remain a primary factor in total loss decisions,” says Erik Bahnsen, another director of industry analytics at CCC.
Impact of natural disasters on car insurance rates
Natural disasters and extreme weather events like hail or flooding also can affect insurance prices. The state’s home insurance market is reeling after deadly wildfires ravaged millions of acres and destroyed thousands of homes in Southern California in 2024 and 2025, and major carriers like State Farm have sought state approval for emergency double-digit rate increases. However, experts say the impact on the auto insurance market has yet to be fully calculated.
“With the two major fires (Pacific Palisades and Eaton) only recently fully contained, it will be some time before the complete magnitude of insured losses is known,” Young said. “It stands to reason there will be significant auto losses, but it’s probably reasonable to assume it will be almost de minimis compared to the property losses.”
Janet Ruiz, director of strategic communications for the Insurance Information Institute (Triple-I), an industry research organization, agrees.
“Wildfires have not had a major impact on auto insurance in California,” Ruiz says.
What California drivers can do to navigate the insurance landscape
No matter what state you live in, there are some steps you can take to save money on car insurance, such as maintaining a clean driving record, avoiding unnecessary trips and seeking out discounts such as bundling your auto and home policies.
However, according to the Personal Insurance Federation of California, a lobbying group representing the state’s personal lines property and casualty insurance industry, some money-saving options, such as discounts for paperless billing, electronic payments, and accident forgiveness, aren’t available in California. Telematics programs, which monitor your travels and reward safe driving habits, are also prohibited in the Golden State because insurers cannot offer discounts based on driver behavior.
“CDI, as a matter of policy, continues to reject insurer requests to bring more discounts to the insurance market,” the PIFC says on its website.
If you can’t afford car insurance in California and if you meet basic income requirements, you may qualify for California’s Low Cost Automobile (CLCA) Insurance program. However, CLCA only offers liability insurance that meets minimum coverage levels, which may be insufficient if you’re involved in a major at-fault accident. And it doesn’t offer comprehensive or collision insurance to protect your own vehicle or passengers.
The road ahead for California auto insurance consumers
Because it would take a supermajority in both houses of the California legislature to modify Proposition 103, experts say it’s highly unlikely the state’s system of regulating insurance rates will change anytime soon.
With car insurance prices expected to continue rising in 2025, California consumers need to take an active role in monitoring their coverage. That means checking their policies regularly to ensure they’re maintaining the coverage amounts and deductibles they need and not paying for options they don’t need (such as rental car reimbursement).
Carmen Balber of Consumer Watchdog urges policyholders to pay particular attention when it comes time to renew to ensure that their carrier hasn’t changed their coverage rates or other details without informing them.
“We’ve heard that some insurance companies have been automatically increasing miles driven by 1,000 every year unless the driver says otherwise, or that people who might have been at 6,000 miles a year get reset at renewal to the base rate that companies use of 10,000 or 12,000 miles a year,” Balber says. “That’s the kind of practice that could drive up insurance rates for consumers unjustifiably.”
Remember, if you’re not satisfied with your coverage, don’t be afraid to speak to your local agent or a company representative. If they are unable or unwilling to negotiate your rate or modify your coverage to your satisfaction, shop around for a carrier that will. Experts recommend getting quotes from at least three different insurers to compare rates.
Sources
- PIFC.”Personal Insurance Federation of California.” Accessed April 2025.
- Mylowcostauto. “California’s Low Cost Automobile (CLCA) Insurance program.” Accessed April 2025.
- Cccis. “CCC Intelligent Solutions Inc” Accessed April 2025.
- California Department of Insurance. “Posts rate filing lists online.” Accessed April 2025.
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