Three of the largest home insurers operating in California are raising rates by double-digits in a reflection of the state's growing wildfire risks and ongoing inflation and high construction costs. But changes could give consumers more insurance policy choices next year.
Higher rates implemented by USAA, Allstate and State Farm come as California prepares to roll out a sustainable insurance strategy designed in part to protect homeowners in wildfire-prone areas from losing coverage. The strategy also requires insurers to offer discounts to customers who mitigate fire risk on their properties. In exchange for these commitments, insurers gain more flexibility setting rates using the most current data available.
USAA, the Golden State's seventh-largest insurer, said in October it received the state Department of Insurance’s approval for an average rate increase of 26% to take effect at the end of the year. Some individual homeowners could see increases as high as 48%. In August, Allstate received approval for a 34% increase; State Farm’s 30% increase request last June is still pending at the insurance department.
“We are seeing increases in California property and casualty insurance premiums due to inflation, rising building costs, and increased risk of catastrophes such as wildfire [and] convective storms,” said Janet Ruiz, a spokesperson for the Insurance Information Institute, a U.S. industry research organization.
State Farm was the largest home insurer in the Golden State in 2023, according to the insurance institute, with Allstate ranking sixth. The institute’s list is based on the number of premiums written for California homeowners.
“We continue to look for ways to maintain competitive rates and help our customers manage their risk,” said Sevag Sarkissian, a State Farm spokesman.
Other states
California is far from the only state seeing significant hikes in the cost of home insurance, a trend the institute blamed in large measure on escalating construction costs in a June report. The group also noted that people continue to move to places such as the Southeast and Southwest that have a high risk of climate disasters.
In California, seven of the top 12 insurers have paused or restricted new business since 2022 even as they proposed rate increases, according to the state insurance department. Claims from wildfire-related disasters in the state were so high in 2017 and 2018 that insurers’ profits fell behind their losses, according to an insurance institute analysis. One such disaster, the 2018 Camp fire, destroyed the town of Paradise in northern California and resulted in the deaths of 85 people.
The wildfire problem is especially acute in the northern part of the state, where more people live adjacent to forested areas that tend to have the worst fires.
The state’s sustainable insurance strategy will require insurers to take into account safety measures such as upgraded roofs and windows, defensible space and membership in community initiatives to reduce wildfire risks like the National Fire Protection Association’s Firewise USA program.
At the same time, the state will allow insurers to use pricing that takes full account of the risk of natural disasters. Ruiz with the Insurance Information Institute said the state’s new strategy should lead to more insurance policy choices for consumers next year.