(Airdate: 2024-07-12) ABC - KXTV - California's biggest home insurers ask to raise rates by ~ 30%

Published Date: 07/12/2024

California’s Insurance Shake-Up: Why State Farm and Allstate Want 30% Rate Hikes—and What It Means for Homeowners

California’s insurance market has been in crisis mode for years — and the pressure is only mounting. Now, two of the state’s biggest players, Allstate and State Farm, are asking regulators for permission to raise homeowners insurance rates by an average of 30% or more.

For the 7.5 million homeowners who already face soaring premiums, limited coverage, and shrinking options, these proposals may feel like yet another blow. But experts say these filings also represent something deeper — a potential turning point in California’s long-running tug-of-war between regulation and solvency.

In this episode of Insurance Hour, insurance expert Karl Susman broke down what these massive rate requests mean, why they’re happening, and how they might actually hint at better days ahead for California’s insurance landscape.

The Numbers: How Big Are These Rate Hikes?

According to the San Francisco Chronicle, Allstate is requesting the largest homeowners insurance rate hike by a major insurer in the past three years.

• Allstate’s proposal:
• Average increase: 34%
• Range: Some policyholders could see small decreases, while others could face increases of over 600%.
• Scope: Roughly 350,000 policyholders affected.

Meanwhile, State Farm, California’s largest home insurer, has filed for:

• Average increase: 30% for homeowners.
• 36% for condo owners.
• 52% for renters.

Both filings are still pending approval from the California Department of Insurance (CDI), which has the legal authority under Proposition 103 to review and approve — or deny — any rate changes.

“Just because they’re asking for these rates,” Susman reminded viewers, “number one, it’s not going to happen tomorrow. And number two, every single part of it has to go through the Department of Insurance.”

Why These Hikes Are Happening Now

California’s property insurance system is under extraordinary strain. Over the past five years, insurers have faced:

• Record wildfire losses.
• Construction and labor inflation exceeding 25%.
• Soaring reinsurance costs — the price insurers pay to insure themselves.
• Regulatory limits that prevent them from using modern catastrophe models to predict risk.

These pressures have forced multiple carriers — including State Farm, Allstate, Farmers, and AAA — to pause or limit new business in California, especially in high-risk wildfire zones.

“Insurers are pausing or limiting business, citing rising costs and risk,” ABC10’s Becca Habegger reported. “Policies are becoming more expensive and harder to find.”

In short, the cost of insuring homes in California has skyrocketed, but the price insurers are allowed to charge hasn’t kept up.

The Role of the Department of Insurance

Under Proposition 103, passed in 1988, California requires every insurer to get regulatory approval before raising rates. While the law was designed to protect consumers from unfair increases, it’s also created a system where rate changes can take months—or even years—to process.

In Allstate’s case, its latest filing was originally submitted in April 2023 and is only now approaching review.

That regulatory lag means insurers often operate with outdated pricing models that don’t reflect current costs. The result: companies lose money on every claim, and many eventually stop writing new business.

“It’s not that insurers don’t want to write policies,” Susman explained. “It’s that they literally can’t do it profitably under the current system.”

State Farm’s Filing: A Matter of Solvency

What makes State Farm’s filing different is its justification. Unlike most rate requests, which are based on inflation or claims data, State Farm’s 30% increase is rooted in financial solvency — essentially, the company’s ability to remain financially stable in California.

“State Farm’s request is slightly different,” Susman noted. “They’re asking for their increase not based on anything other than solvency — which is a slightly different process.”

In other words, this isn’t just about higher costs — it’s about survival.

The Department of Insurance has confirmed that State Farm’s filing “raises serious questions about its financial condition.” Commissioner Ricardo Lara said his office would investigate the company’s situation, citing potential impacts on millions of Californians.

“This has the potential to affect millions of consumers and the integrity of our property insurance market,” Lara said. “We’re going to lead with facts to make sure Californians are protected.”

What “Financial Solvency” Means for Policyholders

When an insurer files for a rate increase on solvency grounds, it’s essentially saying: If we can’t charge more, we can’t afford to stay in business here.

That’s a sobering message — but also one that regulators take seriously. An insolvent insurer can’t pay claims, which would be disastrous for homeowners and the broader economy.

So while approving such a large increase is politically difficult, denying it could be far riskier in the long run.

“If the state denies the request and State Farm can’t maintain solvency,” Susman warned in earlier interviews, “millions of policyholders could be at risk of losing coverage altogether.”

That’s the balancing act California regulators now face: approving rate hikes that keep companies solvent, without pricing homeowners out of coverage.

Why These Requests Could Actually Be a Good Sign

While “30% rate hike” sounds alarming, Susman encouraged listeners to look for a silver lining.

“As bad as it is to hear about rate increases being submitted,” he said, “there should also be a part of you that says, OK, there’s activity. And where there’s activity, there’s the potential for change.”

He’s right. For months, California’s insurance market has been frozen — with major carriers halting new business, regulators under pressure, and consumers stuck in limbo.

The fact that companies like Allstate and State Farm are filing rate requests suggests that they want to stay in California — they just need a sustainable path forward.

If the Department of Insurance approves these filings (even partially), it could restore market movement, encourage other insurers to return, and eventually increase competition. And competition, in the long term, could mean more availability and more stable pricing.

The Sustainable Insurance Strategy: California’s Path Forward

The Department of Insurance is already working on reforms to modernize the system. Commissioner Ricardo Lara’s Sustainable Insurance Strategy, unveiled in September 2023, aims to:

• Allow insurers to use forward-looking catastrophe models (like other states do).
• Incentivize homeowners who invest in wildfire-hardening and defensible space.
• Speed up rate approval timelines.
• Encourage insurers to write new business in high-risk areas.

Lara’s goal is to finalize these regulations by the end of 2024 — a move that could dramatically reshape how California’s insurance market operates.

“These new regulations would give insurers more and better tools for accurately pricing premiums,” Habegger explained. “And in turn, customers would see improvements in the availability of coverage.”

It’s a delicate balance — ensuring consumer protection while giving insurers the flexibility to price risk realistically.

What Homeowners Should Expect Next

For now, homeowners should understand two key things:

1. Nothing changes immediately.
   These rate filings are still under review. Even if approved, it will take months for new rates to take effect.
2. More changes are coming.
   As regulatory reforms roll out, Californians can expect a period of adjustment — with some rate increases now but potentially more competition later.

In the meantime, Susman advised homeowners to:

• Review their current policy — make sure coverage limits match today’s rebuild costs.
• Work with a broker — they can help find alternative markets or surplus-line carriers if your insurer exits.
• Mitigate risk — clear brush, install fire-resistant roofing, and document home improvements. These steps may soon qualify for new discounts under the Sustainable Insurance Strategy.

The Bigger Picture: Fixing a Broken System

California’s current system, shaped by Proposition 103, has successfully kept consumer rates lower than the national average for decades. But in an era of record wildfires, inflation, and climate volatility, it’s showing its age.

Insurers argue that without modern pricing tools and faster rate adjustments, they can’t remain viable. Regulators, meanwhile, are under immense pressure to protect homeowners from unaffordable premiums.

Both sides agree on one thing: the system must evolve.

“Change is coming,” Susman said. “It’s not going to happen overnight, but we’re seeing movement — and that’s a positive sign.”

Final Thoughts: A Necessary Adjustment

Yes, a 30% rate increase sounds harsh. But viewed through the lens of solvency and sustainability, it may be the bitter medicine California’s insurance system needs to survive.

If regulators can modernize the process and insurers can price risk fairly — while rewarding homeowners for resilience — the state could finally move toward a healthier, more competitive market.

Until then, homeowners should stay informed, stay proactive, and remember: even in crisis, progress often starts with discomfort.

“Where there’s activity,” Susman said, “there’s the potential for change.”

And in California’s insurance market, change can’t come soon enough.