California-Specific P&C Rules
California layers a thick set of state-only rules on top of standard property and casualty insurance. These rules grew out of catastrophic earthquakes, recurring wildfires, voter initiatives, and the Department of Insurance's long-standing consumer-protection mandate. Roughly three percent of the broker-agent exam tests this terrain, but the rules show up everywhere in day-to-day practice: every residential property quote, every auto policy issued in a wildfire ZIP code, every claim that drags past 40 days. This chapter walks through the eight California quirks that producers must know cold — from prior-approval ratemaking under Proposition 103 to the FAIR Plan, the California Earthquake Authority, the wildfire moratorium, the Fair Claims Settlement Practices Regulations, written UM rejection, the Auto Body Repair Bill of Rights, and the Low Cost Automobile Program.
Proposition 103 and Prior-Approval Ratemaking
Proposition 103, passed by California voters in 1988, transformed the state from an open-competition rating market into a strict prior-approval market for personal auto, homeowners, dwelling, and most other property and casualty lines. Under Cal. Ins. Code §1861.05, an insurer must file any proposed rate change with the Department of Insurance and may not implement the change until the Insurance Commissioner approves it. Approval is not automatic. A rate is presumed unreasonable if it produces an excessive profit, is inadequate to support solvency, or is unfairly discriminatory. The Department holds public hearings on large rate filings, and any member of the public — including consumer groups — may intervene and request compensation from the insurer if the intervention materially influences the outcome. Producers should remember three things: California is prior-approval (not file-and-use), the rate must be on file before it is charged, and the auto rating factors are limited by §1861.02 to driving safety record, miles driven annually, years of driving experience, and other factors approved by regulation.
California Earthquake Authority (CEA) and the Mandatory Offer
Earthquake risk is excluded from standard homeowner and dwelling policies in California, but the law does not let insurers walk away from the issue. Under Cal. Ins. Code §10081, every admitted insurer that writes residential property insurance must offer earthquake coverage to every applicant and policyholder. The offer must be in writing, must accompany every new policy and every renewal, and must disclose the premium and the basic terms. The California Earthquake Authority, established under §10089.5 et seq., is a publicly managed but privately financed entity that provides this coverage on behalf of participating insurers. A homeowner who selects CEA coverage gets a separate CEA policy issued through their existing insurer; the insurer collects the premium and forwards it to the CEA. CEA offers a base policy with high deductibles (often 15 or 25 percent of the dwelling limit), with optional buy-down endorsements. Cal. Ins. Code §10082 additionally requires that an earthquake disclosure pamphlet be delivered with every residential policy.
The California FAIR Plan: Insurer of Last Resort
The California FAIR (Fair Access to Insurance Requirements) Plan Association is an industry-funded syndicated pool created in 1968 to provide basic property insurance to applicants who cannot obtain coverage in the voluntary market. Codified at Cal. Ins. Code §10090 et seq., the FAIR Plan is not a government agency and not a private insurer — it is a joint reinsurance plan in which every admitted property insurer in the state must participate, sharing premiums and losses in proportion to their voluntary-market share. The FAIR Plan's core product is a basic 'dwelling fire' policy covering fire, lightning, internal explosion, and (with optional endorsements) extended perils such as vandalism. It does not cover theft and offers only limited liability. Most applicants are owners of homes in high-brush or wildfire-exposed areas where the voluntary market has declined to write. The FAIR Plan is meant to be a backstop, not a permanent solution: producers must show that voluntary coverage was sought and refused, and an applicant who later obtains voluntary coverage should move off the FAIR Plan.
Wildfire Moratorium: SB 824 and §675.1
California's wildfire seasons have driven a series of laws that protect homeowners from losing coverage after a disaster. Senate Bill 824, enacted in 2018 and codified at Cal. Ins. Code §675.1, requires the Insurance Commissioner to issue a bulletin listing the affected ZIP codes after the Governor declares a wildfire-related state of emergency. For one year from the date of the emergency declaration, no insurer may cancel or non-renew a residential property policy in those ZIP codes based on wildfire risk — regardless of whether that specific home was damaged. The moratorium covers both the structure inside a perimeter and properties within or adjacent to the affected area. The protection is automatic; the policyholder does not need to apply. It does not, however, prevent cancellation for non-payment of premium, fraud, or a substantial increase in the hazard within the insured's control. The moratorium runs one year, after which the insurer may again non-renew with the normal notice required by Cal. Ins. Code §678 (45 days for property, 60 days for auto).
Fair Claims Settlement Practices Regulations
The Fair Claims Settlement Practices Regulations, found at Title 10, California Code of Regulations, §2695.1 et seq., are the daily playbook for claim handling in California. Three deadlines are tested again and again on the broker-agent exam. First, within 15 calendar days of receiving notice of a claim, the insurer must acknowledge receipt, provide necessary forms and instructions, and begin any reasonable investigation. Second, within 40 calendar days of receiving a complete proof of claim, the insurer must accept or deny the claim in whole or in part, in writing, with the reasons stated; the 40-day clock may be extended for good cause if the insurer notifies the claimant in writing every 30 days thereafter. Third, once the claim is accepted and the amount agreed, payment must be tendered within 30 calendar days. Failure to comply can trigger administrative penalties and supports a bad-faith claim under common law and Cal. Ins. Code §790.03(h). Producers do not handle claims, but they must understand these deadlines because clients ask about them and because intentional misrepresentation of claim-handling timelines by a producer is itself an unfair practice.
Auto Cancellation, Non-renewal, and Written UM Rejection
California tightly restricts how a private passenger auto insurer may end coverage. Under Cal. Ins. Code §661, after a policy has been in force for 60 days, the insurer may cancel only for non-payment of premium, fraud or material misrepresentation, or substantial increase in hazard (such as suspension of the named insured's driver's license). For non-renewal at the end of the policy term, Cal. Ins. Code §662 requires at least 60 days' written notice; if the notice is short, the policy effectively continues for another term. Separately, every California auto liability policy automatically includes uninsured motorist bodily injury (UM/BI) coverage at the same limits as the bodily-injury liability coverage, unless the named insured rejects UM in writing on a form provided by the insurer (Cal. Ins. Code §11580.2). An oral rejection, or a rejection signed only by an unauthorized member of the household, is invalid — and the law imputes UM coverage at the policy's BI limits even though no premium was charged. The same statute also provides for uninsured motorist property damage (UMPD) coverage, which must be offered but may be rejected.
Statutory Interest, Bad Faith, and §790.03
When a claim is wrongfully delayed, California gives the policyholder real teeth. Cal. Civ. Code §3287, read with Article XV §1 of the California Constitution, fixes the statutory interest rate at 10 percent simple per year on damages that are certain or capable of being made certain — including a claim amount that has been agreed and then withheld. The same rate applies to many statutory awards. Beyond statutory interest, Cal. Ins. Code §790.03(h) lists fifteen specific 'unfair claims settlement practices,' such as misrepresenting policy provisions, failing to acknowledge claims promptly, and not attempting in good faith to effectuate a prompt, fair, and equitable settlement when liability is reasonably clear. Although §790.03 is enforced administratively by the CDI, it dovetails with the common-law tort of insurance bad faith first recognized in Gruenberg v. Aetna and Egan v. Mutual of Omaha; an insurer that unreasonably delays or denies a first-party benefit may be liable not only for the policy benefits but also for emotional distress, attorney fees, and (with malice, oppression, or fraud) punitive damages. Producers must understand the unfair-practices list because §790.03 also reaches conduct in marketing and policy issuance, not only claims.
Auto Body Repair Bill of Rights and the Low Cost Automobile Program
Two consumer-protection programs round out the California-specific landscape that producers should know. The Auto Body Repair Consumer Bill of Rights, mandated by Cal. Ins. Code §1874.85 and operationalized by §758.5, requires every claimant whose vehicle is being repaired through an insurance claim to be informed of certain rights: the right to select the repair shop, the right to a written estimate before work begins, the right to be told whether replacement parts are new, used, aftermarket, or rebuilt, and the right to a detailed final invoice. An insurer commits an unfair practice if it requires the use of a specific shop or suggests one without first disclosing the right of free choice. Separately, the California Low Cost Automobile Insurance Program (CLCA), established under Cal. Ins. Code §11629.7 et seq., offers limited-liability auto coverage at sharply reduced premium to income-eligible good drivers (generally those at or below 250% of the federal poverty level) who have a valid driver's license, are at least 19 years old, and own a vehicle worth no more than the program's cap. CLCA addresses the access problem: the financial-responsibility law requires every driver to carry liability insurance, but standard-market premiums place that coverage out of reach for many low-income Californians. Producers can refer eligible clients to mylowcostauto.com, where the policy is administered by the CDI in partnership with participating insurers.
Last updated: May 2026