LOS ANGELES: In a move that mirrors State Farm’s recent actions, Allstate is seeking a substantial increase in its California homeowners insurance premiums. First reported by the Los Angeles Times, Allstate aims to raise rates by an average of 34%, marking the largest rate hike in the state this year. If approved by the California Department of Insurance, this increase will impact over 350,000 policyholders.
This latest development follows State Farm’s request for significant rate increases, including a 50% hike for renters and a 30% hike for homeowners. The six-largest homeowners insurer in California, Allstate, initially filed for a 39.6% rate increase last year, amending it to 34.1% in January.
“Our payments to help California residents recover from accidents and disasters have increased significantly in recent years due to higher repair costs, more frequent and severe weather, and legal system abuse,” Allstate said in a statement. The company ceased writing new homeowner insurance policies in California in November 2022 due to these challenges.
In recent years, Allstate has received approvals for several rate increases, including a 4% increase in 2023.
The latest request, first reported by the San Francisco Chronicle, has sparked opposition from consumer advocacy group Consumer Watchdog. “Allstate is using secret algorithms to decide whether homeowners are at high risk of wildfire and how much they will pay. We’re pushing the company to explain that pricing and disclose to consumers exactly what is raising their premiums,” said Carmen Balber, president of Consumer Watchdog.
The rate hikes are part of a larger trend of insurers withdrawing from the California market, influenced by the rising impact of wildfires and other contributing factors. In March, State Farm announced its decision to discontinue 72,000 property owner policies across California, a move that reflects similar actions taken by Farmers, Allstate, and various other insurers who are either suspending new policies or becoming more restrictive with their underwriting standard.
California Insurance Commissioner Ricardo Lara has pledged to closely scrutinize these rate increase requests. “The Department of Insurance’s top priority is to protect consumers. Under Prop. 103, insurance rates must be justified to ensure policyholders do not pay any premiums that are excessive,” said a statement from the Department.
With Governor Gavin Newsom’s support, Commissioner Lara is pushing for the most significant reform of California’s insurance regulations since Proposition 103 passed in 1988. The proposed Sustainable Insurance Strategy seeks to lure insurers back into the market by allowing them to include the cost of reinsurance and potential future wildfire costs in their pricing.
If this plan is adopted, Allstate has indicated it would begin writing new policies in California again, assuming the approved rates are adequate. This follows comments from an Allstate executive at a state hearing in April.
The ongoing insurance crisis in California underscores a critical need for balance—ensuring that insurers can operate sustainably while protecting consumers from exorbitant premiums. The outcome of these rate hike requests and regulatory reforms will significantly impact the state’s homeowners and renters, who already face substantial economic pressures.
Historical Context and Trends
California has a history of significant rate hikes influenced by natural disasters, economic conditions, and regulatory challenges. Major wildfires and other natural disasters have historically driven insurers to reassess their risk models and seek rate adjustments. Previous regulatory responses aimed at stabilizing the market have struggled to keep pace with these challenges.
In recent years, insurers like State Farm, Farmers, and Allstate have increasingly pulled back from the market, citing the rising impact of wildfires and higher operational costs. This trend has left consumers with fewer options and higher costs, emphasizing the need for transparency and fairness in insurance pricing.
Consumer advocacy groups have long pushed for more consumer-friendly practices and transparency in the insurance industry. Their efforts have resulted in some regulatory changes, but the ongoing crisis highlights the importance of continued vigilance and advocacy to protect policyholders.
What This Means for California Homeowners
For homeowners and renters in California, these proposed rate hikes could lead to significantly higher premiums, impacting household budgets and potentially making it difficult to maintain insurance coverage. If approved, the rate increases could exceed 30% for homeowners, marking the largest in the state this year, and 50% for renters.
The financial strain on policyholders could be substantial, and the trend of insurers pulling back from the market may further limit consumer choices, driving up costs for those seeking new policies. Consumer advocacy groups are demanding more data and transparency to protect policyholders from excessive premiums.
Regulatory Response
The California Department of Insurance is rigorously reviewing these rate increase requests to ensure they are justified and not excessive. This includes examining complex wildfire models and proposed discounts for homeowners who take steps to reduce fire risks on their properties. Commissioner Lara’s proposed reforms aim to stabilize the market and protect consumers by allowing insurers to account for reinsurance costs and potential future wildfire risks in their pricing.
With these efforts, the state hopes to lure insurers back into the market, ensuring that homeowners and renters have access to necessary coverage without facing crippling costs.
The outcome of these regulatory efforts and rate hike requests will be crucial for the future of California’s insurance market, offering a potential path forward for both insurers and policyholders in a challenging environment.