The Allstate Corporation plans to increase home insurance rates for California customers by an average of 34.1%, making it the biggest jump in premiums for a major insurer for three years as the state faces a property insurance crisis.
The hike, which will take effect in November, will affect around 350,000 policyholders across the state of California. According to company filings, some customers will face premium increases of up to 650%, while others may see their rate drop as much as 57%.
The increase is part of a broad upheaval in California’s insurance market, with top insurers such as State Farm, Farmers Insurance, and others pulling from the state, citing costs of wildfires and regulations that have capped rate hikes for decades.
Allstate, which stopped issuing new homeowner policies in California in 2022, has pointed to growing financial risks when it first paused its coverages.
“Higher home values and repair costs coupled with more frequent, severe weather lead to higher payments to help customers recover, so we need to adjust rates to better reflect the cost of protecting our customers,” Allstate spokesperson Michael Passman said in an emailed response to questions about their coverage.
The San Francisco Chronicle reported the rate adjustment and said a previous larger increase was in 2021 when Homesite Insurance was approved for its 38.2% increase.
The decision from Allstate follows a series of rate hikes for other insurers, including those from State Farm, which is seeking to raise its rates by an additional 30% after securing its 20% increase earlier this year. The Department of Insurance is still working to review State Farm’s latest request, with Insurance Commissioner Ricardo Lara expressing concerns about the insurer’s “financial condition.”
Rising premiums and reduced converge are worsening the affordability coverage in California’s housing markets and driving more homeowners to turn to the state’s FAIR plan, the last-resort insurer.
In efforts to stabilize the market, Ricardo Lara is pushing for reforms that would allow insurers to factor in the costs of climate change and reinsurance when setting rates. In return, insurers would be required to offer additional coverage in wildfire-prone areas, according to Lara.
Consumer Watchdog, an advocacy group that challenged Allstate’s rate increase, has criticized the insurer for not disclosing the computer model used to determine surcharges based on wildfire risk. As part of its negotiations, Allstate has agreed to introduce new wildfire mitigation discounts for homes that remain fortified against burning and disclose how much wildfire risk score contributes to home premiums.
According to an August 27 article from Mansionglobal.com, California wildfires, which have grown increasingly frequent and deadlier in recent years, have affected 715,000 acres per year on average between 2010 and 2020, which is 81% more than the 1990s. Wildfires also destroyed more than ten times as many structures, with over 4,000 per year damaged by fire in the 2010s, compared to the 355 in the 1990s, according to data from the United States Department of Agriculture.
These numbers are due to particularly destructive fires in 2017 and 2018, including the Camp and Tubbs fires, as well as the number of homes built in areas vulnerable to wildfires, per the USDA account.
The Camp fire in 2018 was the most damaging in California, destroying over 18,000 structures. However, the Mendocino Complex fire earlier in the same year was the largest in terms of area, but larger fires in 2020 and 2021 have since eclipsed it.
“While having insurance can help mitigate some of the costs associated with fire episodes, our results suggest that insurance does little to improve the adverse effects on property values,” the USDA report said.
