Insurance companies continuing to withdraw or limit the number of new policies in California is a situation that has not seen any improvement. With wildfires becoming more frequent in California, the premiums for homeowners are on the rise for more and more people, and some may face the risk of losing their insurance.
California’s largest insurance company, State Farm, recently notified the California Department of Insurance that they hope the department will allow them to raise the home insurance rates for millions of residents, or else they may be forced to stop providing coverage.
According to documents submitted by State Farm, they plan to increase home insurance rates by 30%, apartment insurance rates by 36%, and rental insurance rates by 52%. This request comes at a time when insurance costs are rising in California and the insurance industry is facing numerous challenges.
Similarly, Allstate Insurance, also known as Good Hands Insurance, is planning to raise home insurance rates as well.
According to the Insurance Journal, Allstate has submitted documents seeking an average 34% increase in its California home insurance rates. The California Department of Insurance stated that this will be Allstate’s largest rate hike request this year, expected to impact over 350,000 policyholders. The department is currently reviewing Allstate’s rate adjustment application.
These recent decisions by the two major insurance companies have made the situation in the California insurance industry even more severe.
Back in May of last year, California saw a wave of insurance companies exiting the market. State Farm and Allstate announced they would no longer accept new homeowner insurance policies in California, and Farmers Insurance, the state’s second-largest insurer, announced limitations on the number of new policies. Subsequently, more insurance companies declared their withdrawal from the California market, including canceling existing policies, leaving the public in a predicament where they couldn’t obtain insurance overnight.
The reasons behind this predicament are multifaceted. State Farm stated in a release in May last year that they were forced to withdraw due to reasons including “historic increases in construction costs exceeding inflation, rapidly rising disaster risks, and challenges in the reinsurance market.”
Statistics from the 2022 market share report of the California Department of Insurance show that insurance companies incurred losses in the billions of dollars.
Several industry experts previously interviewed pointed out that California’s policies are one of the fundamental reasons leading to insurance companies progressively exiting the homeowners insurance market: the state government controls insurance rates and forbids insurance companies from passing on the costs of “reinsurance” to customers, causing market imbalance.
Ricardo Lara, the Commissioner of the California Department of Insurance, is currently working on reforms to California’s insurance regulations by the end of this year, hoping to attract insurance companies back to the market.
The San Bernardino County Board of Supervisors unanimously passed a resolution urging the state government to take action to stabilize the insurance market, including mandating insurance companies to retain current homeowners’ insurance policies.
With California entering the peak wildfire season, many residents living in wildfire-prone areas struggle to secure homeowners’ insurance, with some facing difficulties in renewing their policies that are about to expire. In special cases, the state government may issue temporary mandates to assist some residents.
On July 2nd, the Thompson fire in Oroville, California caused thousands of residents to evacuate, and Governor Newsom declared a state of emergency for the entire county at the time. Subsequently, Ricardo Lara announced a one-year mandatory moratorium.
The content of this moratorium states that regardless of whether they have suffered losses, residents with homeowners’ insurance living in or near the Thompson fire area will not be denied renewal or have their insurance canceled by insurance companies for one year.