Allstate has gotten clearance to boost its California home insurance premiums by an average of 34% beginning in November, marking the highest rate rise this year amid the state’s insurance crisis.
State regulators authorized a rate rise earlier this month that impacts over 350,000 customers statewide and exceeds a 30% increase sought in June by State Farm, the state’s largest homeowners’ insurance. That request is still being reviewed.
According to the state Department of Insurance, Allstate, the state’s sixth-largest homeowners insurer, initially requested a 39.6% rate hike last year before amending its request to 34.1% in January.
“This home insurance rate approval allows us to continue protecting our existing customers as we work with the California Department of Insurance to improve coverage availability and create a more viable and sustainable homeowners insurance market for consumers in the state,” Allstate said in a statement, citing higher home values and repair costs, as well as more severe weather, as reasons for the rate increase.
The premium increase will also offer reductions for homeowners who make efforts to lessen wildfire risks on their properties, according to the business.
Allstate discontinued writing new California homeowner insurance coverage in November 2022, citing these issues. However, as part of this increase, the company committed not to participate in bulk nonrenewals of policies until the end of January, according to the department.
The nonrenewal suspensions were the result of a three-way agreement between Allstate, the department, and Consumer Watchdog, which had previously opposed the rate increase but has since changed its position.
Carmen Balber, executive director of the Los Angeles consumer advocacy group, stated that because inflation and reconstruction expenses have continued to rise after Allstate’s initial filing, the group felt that the increase was justified.
“That 34% rate increase was justified due to the company’s costs, as much as we don’t like to stomach that,” she told me.
The company is one among several California house insurers that have withdrawn from the market and requested premium increases in recent years, citing increased wildfire severity and other issues.
State Farm invoked an obscure part of the state insurance legislation in their June rate request, even though the insurer obtained a 6.9% rise in January 2023 and a 20% increase in March.
In March, State Farm said that it would not renew 72,000 property owner insurance statewide, joining Farmers, Allstate, and other businesses in not issuing or limiting new policies, as well as tightening underwriting requirements.
Consumer Watchdog sought a ban on nonrenewals from Allstate in part because of State Farm’s decision not to renew the policies despite obtaining a 20% rate rise, according to Balber.
Rising pricing and a scarcity of homeowners insurance have caused a crisis in California’s market.
With the assistance of Governor Gavin Newsom, Insurance Commissioner Ricardo Lara is attempting to stabilize the market through a series of executive steps known as the Sustainable Insurance Strategy, which should be implemented by the end of the year.
They are the most significant changes to California’s insurance legislation since Proposition 103 passed in 1988, which established an elected insurance commissioner with the authority to prevent rate increases.
The executive steps include permitting insurers to reflect the cost of reinsurance they purchase to protect themselves from catastrophes in the price of homeowners’ premiums.
Rates might also include the expected costs of future wildfires determined by powerful computer models, rather than relying solely on prior claims data.
In April, an Allstate executive stated at a state hearing that if the plan is approved, the company will resume writing new policies in California, if the approved rates are appropriate. It underlined its pledge in a statement issued on Thursday.