Allstate, one of California’s major insurance companies, has been approved to raise its home insurance rates by an average of 34.1% for its approximately 350,000 customers in the state. This increase, approved by the California Department of Insurance, is the largest for any major insurer in California over the past three years. However, the rate hike will not affect new policies, as Allstate has stopped writing new homeowner’s policies since late 2022 and is currently only renewing existing ones.
Within this average increase, some homeowners might experience rate changes ranging from a decrease of up to 57% to an increase of nearly 650%. For instance, the most significant increases are expected in counties such as Fresno, Madera, Mariposa, Sonoma, and Napa. In one extreme case, a homeowner in the 95325 ZIP code of Mariposa County will see a 385% increase, while rates in the 95442 ZIP code in Sonoma County are expected to rise by an average of 164%.
The reasons behind these drastic rate hikes include rising home values, increased repair costs, and the impact of more frequent severe weather events, which have led to higher payouts by insurers. The company claims these changes are necessary to better reflect the actual cost of protecting customers. However, the hikes also indicate a broader issue in California’s insurance market, where insurers have been struggling to accurately price the risk they are taking on, particularly in wildfire-prone areas.
California’s Proposition 103 requires insurance companies to obtain prior approval from the state before raising rates and bans the use of predictive models for assessing wildfire risk. Many insurers, including Allstate and State Farm, have argued that this regulation prevents them from charging rates that accurately reflect the risks. As a result, these companies have stopped offering new policies and have been pushing for reforms that would allow them to use more forward-looking risk models.
To address this crisis, California Insurance Commissioner Ricardo Lara has proposed the Sustainable Insurance Strategy, which is expected to be implemented by the end of the year. This set of reforms aims to adjust the formulas used for rate adjustments and expedite the approval process. While these changes might allow insurers to raise their prices further, they also come with the expectation that companies will offer more policies in the most affected areas.
In recent years, several other insurers have also received approval for rate increases. In March, Liberty Mutual subsidiary Safeco was approved for a 10.5% increase, and State Farm, California’s largest home insurer, increased its rates by 20% with another 30% rate hike request pending. Even the FAIR Plan, California’s “insurer of last resort,” has signaled that it will need a significant price increase soon.
Overall, the approved rate hikes reflect a growing tension between the need for insurers to remain financially viable and the necessity of making insurance affordable and accessible in a state increasingly prone to natural disasters. The insurance crisis in California remains a complex issue, with potential reforms and ongoing negotiations aiming to strike a balance between these competing demands.
