For those in good hands, good luck.
Insurance giant Allstate Insurance Company is asking for a 34% average increase in homeowners’ insurance premiums in California, the largest – and latest – in a crisis that affects homeowners and renters statewide.
If approved, Allstate’s premium increase would affect about 350,000 policyholders – and be the largest hike by any homeowners’ insurance provider since 2021.
ALLSTATE HAS BEEN APPROVED FOR THREE RATE INCREASES SINCE 2019
Some Allstate customers could enjoy a rate decline, but many others – especially those in higher-risk areas – will likely endure a hefty increase. For example, two homeonwers noted in the application would receive rate increases of 647% and 385%.
The California Department of Insurance – already in the crosshairs from consumers, consumer groups and many lawmakers for recent rate increases – will review the request. Department officials could approve the full rate increase, lower the amount or deny the request. Insurance officials could make a decision by the end of the year or in early 2025.
Allstate has been approved for three rate increases for a total of almost 18% since 2019.
Allstate, the fourth-largest insurer in California, stopped writing new policies in the state in November 2022, citing the increased cost – and risk – of insuring homes.
“Our payments to help California residents recover from accidents and disasters have increased signifcantly in recent years due to higher repair costs, more frequent and severe weather, and legal system abuse,” the company said in a statement.
BLAME CLIMATE CHANGE AND INFLATION
Wildfires are the biggest risk for insurance companies, especially in recent years. CalFire has battled more than 3,600 wildfires this year through July 12 – already 600 more than in 2023.
Six of the state’s 20 most destructive wildfires, based on structures lost, have occurred since 2017, according to CalFire. The Camp Fire, the state’s largest that destroyed the city of Paradise in fall 2018, burned 18,800 structures and killed 85 people.
But climate change has also caused other risks. Damaging storms – especially those that bring heavy rain, hail and wind – have greatly affected homeowners and insurance companies.
Six of the 20 most destructive wildfires in California have occurred since 2017. ADOBE STOCK
And fast-rising repair costs also affects the bottom line. In 2023, Allstate paid about 64 cents for every $1 collected for premiums in California, about the statewide average, according to the Department of Insurance.
STATE FARM CANCELS 72,000 POLICIES AND SEEKS A 30% RATE INCREASE
Consumer Wathdog, a consumer advocacy group, has asked questions about Allstate’s models to determine potential risk and, in turn, possible losses in California. But Carmen Balber, executive director of Consumer Watchdog, acknowledges that Allstate’s previous rate increases have been smaller than other companies, according to a report in the San Francisco Chronicle.
For example, State Farm, California’s largest homeowners’ insurance provider, is seeking an average 30% rate increase. The request comes after the company hiked rates 20% in March 2023. State Farm has already canceled about 72,000 homeowners’ and renters’ insurance policies in California.
Several companies have either left or stopped writing new polices in California during the past few years. But more than 100 companies, including Geico and Progressive, continue to write new homeowners’ insurance policies in California.
Now, the cost for those policies could be a challenge for homeowners – and be a serious wakeup call. Californians with existing homeowners’ policies have some of the lowest annual premiums in the nation at $1,300 compared to $2,000 nationwide – and $4,000 in hurricane-ravaged Florida, according to the Insurance Information Institute.
LARGEST HOMEOWNERS’ INSURANCE PROVIDERS
- State Farm
- Farmers Insurance Group
- Berkshire Hathaway Group
- Allstate Insurance Group
- Liberty Mutual Group
- Travelers Group
- Auto Club of Southern California
- CSAA
- Mercury
- Chubb
But if the Department of Insurance continues to approve double-digit rate increases, that will change and could create a financial hardship for many homeowners – and possibly the state.
INSURER OF LAST RESORT ALSO FACES A HUGE FINANCIAL RISK
Some homeowners who cannot afford their insurance premiums or had their policies not renewed have bought coverage from the FAIR (Fair Access to Insurance Requirement) plan, an insurer of last resort in California. Insurers operating in the state and policyholders fund the program.
But even the FAIR plan faces financial troubles. With more homeowners opting for the FAIR plan, largely out of necessity, the program has a potential loss of $311 billion from claims, a dramatic increase from $50 billion five years ago.
Earlier this year, FAIR Plan Association president Victoria Roach told lawmakers that the plan only has about $200 million available to cover a catastrophe, further creating uncertainty for the state’s insurance industry.
“We grew another $10 billion in exposure in January and another $15 billion in February,” she said. “So the numbers just continue to climb, which is a concern. As those numbers climb, our financial stability comes more in question and we come closer to an assessment of the market should we, knock on wood, have a catastrophe.”
Feature photo: Flames from the Thomas Fire in Santa Barbara County. ADOBE STOCK
