(Airdate: 2024-07-15) CBS - KFMB - ALLSTATE looks to raise homeowners' rates by 34.1% on average

Published Date: 07/15/2024

Allstate’s 34% Rate Hike Request: What It Means for California Homeowners and the Future of the Market

California homeowners are bracing for yet another jolt to their wallets — this time from one of the nation’s largest insurance companies.

Allstate has officially requested permission from the California Department of Insurance (CDI) to raise its homeowners insurance rates by an average of 34.1%, a move that could affect more than 350,000 policyholders statewide.

If approved, this would represent the largest rate hike by a major insurer in California so far this year, surpassing State Farm’s recent 30% request. But according to industry experts, including insurance agency owner Karl Susman, this may not be as surprising — or as devastating — as it sounds.

In this installment of Insurance Hour and CBS 8 coverage, Susman breaks down why these increases are being proposed, what’s driving them, and what homeowners should — and shouldn’t — do right now.

Why Allstate Is Asking for a 34% Increase

Allstate’s filing comes after years of mounting financial pressure in California’s home insurance sector.

The company cited several key reasons for the increase:

• Rising repair and rebuilding costs due to inflation and labor shortages.
• More frequent and severe weather events, including wildfires and storms.
• Legal system abuse, referring to costly litigation and claims processes that drive up expenses.

Susman summed it up succinctly:

“It doesn’t surprise me to see Allstate taking some significant rates right now because they are way behind the eight ball as far as the industry is concerned.”

In other words, Allstate — like many carriers — has been operating at a financial disadvantage for years. Strict rate regulations have prevented them from adjusting prices to reflect actual risk and cost. The result? A growing mismatch between what insurers pay out in claims and what they collect in premiums.

The Broader Industry Context

Allstate’s move follows a series of major developments in California’s troubled insurance market:

• State Farm recently requested a 30% average increase for homeowners, plus 52% for renters and 36% for condo owners.
• Farmers Insurance and AAA have both scaled back or limited new business in high-risk regions.
• The California FAIR Plan, the state’s insurer of last resort, is expanding rapidly as private carriers pull back.

For years, California’s Proposition 103 — passed in 1988 — has required insurers to seek regulatory approval before changing rates. While this law protects consumers from excessive premiums, it also means that carriers often go years without the ability to adjust rates to reflect new realities.

“They’re not trying to gouge people,” Susman explained. “They’re trying to catch up.”

The Numbers Behind the Headline

While the phrase “34% increase” sounds alarming, it doesn’t mean every policyholder will see their premium rise by that amount.

“That doesn’t mean every Allstate client is going to get a 34.1% increase,” Susman clarified. “There’s a range. Some people are going to get a deduction — meaning their premium could actually go down by up to 57%. Others could see an increase of over 600%.”

That enormous range reflects how risk is distributed across the state.

For instance, a homeowner in a coastal suburb with modern construction, updated fire protection, and low wildfire exposure might see a modest change — or even a decrease. Meanwhile, a property deep in a wildfire-prone canyon, with older roofing or brush exposure, could experience a dramatic jump.

Allstate’s proposed average increase simply represents the weighted mean across its book of business.

What Happens Next: The Regulatory Review

Under Prop 103, Allstate cannot raise rates until the California Department of Insurance reviews and approves the request. This process is detailed and data-driven.

A CDI spokesperson told CBS 8:

“Under Proposition 103, insurance rates must be justified to ensure policyholders do not pay premiums that are excessive. The Department’s experts will review all relevant data and make fact-based decisions.”

The department’s review can take several months — meaning nothing will change for policyholders immediately.

“Hold on tight,” Susman advised. “You’re not going to be seeing your bill increase tomorrow.”

Why This Filing Matters for the Entire Market

While no one welcomes higher premiums, Allstate’s filing could actually be a positive signal for California’s long-stalled insurance market.

After pulling back in 2022, Allstate has said it would begin writing new policies again once new state regulations are in place. Those forthcoming changes, part of the Department of Insurance’s Sustainable Insurance Strategy, aim to give insurers more flexibility to price risk accurately — particularly for wildfire-prone areas.

A major component of the plan includes:

• Allowing insurers to use forward-looking catastrophe models.
• Offering discounts for wildfire mitigation and home hardening.
• Expediting rate approvals to prevent years-long delays.
• Securing commitments from carriers to expand coverage in high-risk regions.

If the system modernizes successfully, experts expect more insurers to return to California — restoring competition and ultimately helping to stabilize premiums.

“Once that happens,” Susman said, “more carriers will come back to California, and rates will go down.”

The Paradox of Rate Hikes: Short-Term Pain, Long-Term Stability

At first glance, a 34% increase feels like bad news. But in economic terms, these filings could represent the first steps toward market healing.

Here’s why:

1. Insurers re-entering the market.
   If companies can achieve profitability under revised rules, they’ll resume writing policies — meaning more choices for consumers.
2. Reduced FAIR Plan dependence.
   Fewer homeowners would be forced onto California’s costly “insurer of last resort.”
3. More accurate risk-based pricing.
   By allowing rates that reflect true wildfire or storm risk, the system discourages underpricing — which has driven many carriers out.
4. Incentives for mitigation.
   New reforms aim to reward homeowners who invest in defensible space, fire-resistant materials, and modernized infrastructure.

“Yes, it’s tough to swallow,” Susman acknowledged, “but where there’s activity, there’s hope. We’ve been waiting for movement — and this is it.”

What Homeowners Should Do Now

Until the Department of Insurance rules on Allstate’s request, homeowners should stay put and stay informed.

Susman’s advice was clear:

“Don’t shop around just yet. Wait it out. Stand by. Hold on tight.”

That’s because switching prematurely could backfire. Most insurers in California are facing similar pressures — meaning rate differences may be minimal. And if Allstate and other carriers return to writing new policies after regulatory updates, more competitive rates could reappear by early next year.

In the meantime, homeowners can:

1. Review their current policy limits.
   Make sure coverage reflects today’s rebuilding costs, which have risen sharply due to inflation.
2. Invest in mitigation.
   Improve your home’s fire resilience — clear vegetation, upgrade roofing, and install ember-resistant vents.
3. Document everything.
   Keep photos, receipts, and home improvement records. These may soon qualify for wildfire mitigation credits under new regulations.
4. Talk to your broker.
   Independent agents can monitor market developments and identify alternative carriers if necessary.

The Political and Economic Stakes

California Insurance Commissioner Ricardo Lara faces a monumental challenge: balancing consumer protection with market sustainability.

On one hand, homeowners are already struggling with affordability. On the other, insurers insist they can’t continue operating at a loss.

By law, Lara must ensure that rates are neither “excessive” nor “inadequate.” But the narrow space between those two definitions has become increasingly difficult to navigate in a state where wildfire claims alone have exceeded $13 billion in recent years.

The Sustainable Insurance Strategy, which Lara aims to implement by the end of 2024, represents the most significant overhaul of California’s insurance framework in decades. Its success — or failure — will determine whether California remains insurable for millions of homeowners.

The Takeaway: A Market in Transition

Allstate’s 34% filing is not just another headline about rising premiums — it’s a symptom of a system under reconstruction.

For years, California’s stringent regulatory framework has protected consumers but inadvertently frozen the market. Insurers stopped writing new business, risk spread narrowed, and premiums for those left behind soared.

Now, with regulatory reform on the horizon, carriers are cautiously re-engaging. These rate requests, though painful, may be the first signs of thaw.

“Hopefully by the end of the year,” Susman said, “when the Department of Insurance has their new guidelines coming out and we see the market reopen, it’ll be moot — because you’ll have options to go to.”

In other words, the storm may finally be breaking.

Final Thoughts

For homeowners, the key is perspective. The next few months may bring uncertainty — and possibly higher bills — but they could also mark the beginning of a more stable, modern insurance system for California.

So take Susman’s advice to heart:

“Hold on tight. Know that it’s not happening tomorrow. Change is coming — and it might just be for the better.”