Why Allstate and State Farm Are Seeking Major Rate Increases — and What It Means for California Homeowners

Published Date: 07/12/2024

California’s insurance market has been in crisis mode for years, and the pressure is only mounting. Now, two of the state’s largest insurers — 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 already facing soaring premiums, reduced coverage, and shrinking options, these proposals feel like another major blow. But insurance experts say these filings also signal something deeper: a possible turning point in California’s long-running struggle between strict regulation and insurer solvency.

In this episode of Insurance Hour, insurance expert Karl Susman explained what these unprecedented rate requests really mean, why they’re happening now, and why — paradoxically — they may hint at better days ahead for California’s insurance system.

How Big Are the Proposed Rate Hikes?

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

Allstate’s proposal includes:

• An average increase of 34%
• Some policyholders seeing small decreases
• Others facing increases of more than 600%
• Approximately 350,000 California policyholders affected

State Farm, California’s largest home insurer, has also filed for substantial increases:

• 30% average increase for homeowners
• 36% for condo owners
• 52% for renters insurance

Both filings are still under review by the California Department of Insurance (CDI), which must approve all rate changes under Proposition 103.

“Just because they’re asking for these rates doesn’t mean they happen tomorrow,” Susman emphasized. “Every part of this has to go through the Department of Insurance.”

Why These Massive Hikes Are Happening Now

California’s property insurance market is under historic financial strain. Over the past five years, insurers have faced:

• Record-breaking wildfire losses
• Construction and labor inflation exceeding 25%
• Exploding reinsurance costs
• Regulatory limits that prevent the use of modern catastrophe modeling

These pressures have pushed multiple carriers — including State Farm, Allstate, Farmers, AAA, and others — to pause or restrict new business, especially in wildfire-prone regions.

As ABC10 reported, insurers are limiting exposure because “the cost of doing business has fundamentally changed.”

In simple terms: the true cost of insuring California homes has skyrocketed, but the prices insurers are allowed to charge have not kept pace.

The Department of Insurance and Proposition 103

Under Proposition 103, passed in 1988, every insurance rate change must be reviewed and approved by the Department of Insurance. While the law was designed to protect consumers from excessive increases, it has also created a slow-moving approval process.

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

That delay forces insurers to operate with outdated pricing that doesn’t reflect current wildfire risk, inflation, or reinsurance expenses.

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

Why State Farm’s Filing Is Different

State Farm’s filing stands out because it is based on financial solvency rather than standard loss trends.

“They’re asking for this increase on solvency grounds,” Susman said. “That’s a different process.”

In effect, State Farm is telling regulators that without higher rates, it may not be able to remain financially stable in California.

The Department of Insurance confirmed that the filing raises “serious questions about State Farm’s financial condition.” Commissioner Ricardo Lara said his office will conduct a full investigation before any decision is made.

“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 a Solvency Filing Means for Homeowners

When an insurer files for a rate increase due to solvency, it is essentially issuing a warning: without additional premium revenue, the company may struggle to pay future claims.

That puts regulators in a difficult position. Denying the request could protect homeowners from immediate premium hikes — but it could also push the insurer to further restrict policies, or exit the state altogether.

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

This is the balancing act California now faces: keeping coverage affordable without driving insurers out of the market.

Why These Filings May Actually Be a Positive Sign

Even though 30% rate hikes sound alarming, Susman believes there is an important silver lining.

“As bad as it sounds, the fact that companies are filing rate requests again means the market is moving,” he said. “And where there’s activity, there’s the potential for change.”

For more than a year, California’s insurance market has been frozen:

• New homeowner policies paused
• Nonrenewals accelerating
• Carriers in retreat
• Homeowners trapped with limited options

The fact that Allstate and State Farm are engaging with regulators instead of fully exiting suggests they still want to operate in California — but under sustainable conditions.

If the Department of Insurance approves even partial increases, it could reopen the door for other insurers to re-enter the state. Over time, that renewed competition could actually help stabilize pricing and improve availability.

H2: The Sustainable Insurance Strategy and Future Reform

Commissioner Ricardo Lara’s Sustainable Insurance Strategy, introduced in 2023, is designed to modernize California’s outdated framework. The reform package aims to:

• Allow forward-looking catastrophe modeling
• Incentivize wildfire mitigation and home hardening
• Speed up rate approval timelines
• Require insurers to write more business in high-risk areas

These reforms are expected to be finalized by the end of 2024 and could fundamentally reshape how insurance works in California.

The goal is simple but difficult: balance consumer protection with insurer viability in a climate-driven risk environment.

What Homeowners Should Expect Next

For now, homeowners should understand two critical points.

First, nothing changes immediately. These rate increase requests are still under review, and even if approved, any new rates would take months to implement.

Second, more changes are coming. As regulatory reforms roll out, Californians should expect a period of transition — likely involving short-term pain in exchange for long-term market stability.

In the meantime, Susman advised homeowners to:

• Review rebuilding cost limits and update coverage
• Work with an independent broker to explore alternatives
• Document wildfire mitigation and home hardening efforts
• Prepare for potential FAIR Plan or surplus-line placements

The Bigger Picture for California’s Insurance System

For decades, Proposition 103 helped keep California insurance rates below the national average. But today, climate disasters, inflation, and reinsurance volatility are stressing the system beyond its original design.

Insurers argue they cannot survive without modern pricing tools. Regulators remain tasked with shielding consumers from sharp premium shocks. Both sides agree: the system must evolve.

“Change is coming,” Susman said. “It won’t happen overnight, but we are finally seeing movement — and that’s a positive sign.”

Final Thoughts — A Difficult but Necessary Adjustment

A 30% rate increase is painful for any homeowner. But viewed through the lens of long-term solvency and market survival, these filings may represent the uncomfortable step California must take to prevent total insurer retreat.

If regulators can modernize rate approval and insurers can price risk realistically — while rewarding mitigation — the state could finally return to a healthier, competitive insurance environment.

Until then, homeowners should stay informed, proactive, and engaged.

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

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