State Farm will raise rates in California by an average of 20 percent per homeowner for renewals, after a recent approval by the state’s Department of Insurance. The new rates are set to take effect March 15, according to a State Farm spokesperson.
The insurance company said in an emailed statement to The Epoch Times the rate increases are necessary to protect ratepayers.
“These rate changes are driven by increased costs and risk, and are necessary for … [us] ... to deliver on the promises the companies make every day to their customers,” a company spokesperson said.
Earlier last year, State Farm announced it would stop accepting new business for casualty and property insurance but would continue to write new auto policies.
Allstate, around the same time, stopped issuing new policies for commercial and residential properties, according to media reports. Other insurers have joined the list, with some blaming California policies that limit rate increases, unlike other states.
“What’s happened over the years is the cost to build properties has outpaced inflation, but the regulations have kept the insurance premiums in California artificially low,” Janet Ruiz, director of communications for the Insurance Information Institute—a New York-based organization that provides insurance information to the consumer—told The Epoch Times.
According to a September report from the institute, insurers in California failed to collect more from their policyholders’ premiums than what they paid in claims between 2013 and 2022, with $1.08 spent for every $1 received.
Part of the issue, according to the institute, is a 1988 measure, Proposition 103, which does not allow insurers to use risk-based pricing. Such has prevented providers from anticipating rates, as they can only set them based on historical data, such as fires in the last 20 years.
Ms. Ruiz also said another issue under Prop. 103 is what’s known as the intervenor process, in which the state’s insurance department reviews all proposed rate increases that are 7 percent or greater, which can sometimes take years.
“The intervenor process takes a long time. There have been some rate requests that have taken two to three years,” she said.
According to the institute’s report, recent disaster-prone years have led to unprofitability, with fires in 2017 and 2018 costing insurers over $2 for every one they took in.
In 2018, the Camp Fire, the deadliest and most destructive wildfire in the state’s history, destroyed over 18,000 buildings in Northern California’s Butte County.
Excluding those two years, in the last decade, insurers spent 78 cents for every dollar received from premiums between 2013 and 2022—but the two bad years were enough to offset the rest, according to Ms. Ruiz—leading to an overall deficit for the 10-year period.
Also, disaster-prone states had higher national averages for homeowners’ insurance premiums in 2020, according to the most recent data available, compared to California, which Ms. Ruiz said is a result of Prop. 103.
The average yearly rate in California in 2020 was $1,240, while in Florida it was $2,165, with three other states averaging $2,000 or more.
But she said she estimates those numbers have jumped drastically, with Florida now at around $6,000 a year and California at about $1,700, leading to the pause on new policies by some providers such as State Farm and Allstate. She said this is because with insurers limited on raising premiums across the state—unlike in other states—they can’t take on as many new policies to safeguard existing customers’ insurance needs.
In an effort to promote the writing of new policies, California Insurance Commissioner Ricardo Lara said in a press release last September that changes were underway.
“The current system is not working for all Californians, and we must change course. I will continue to partner with all those who want to work toward real solutions,” he said.
He announced new rules to be implemented by the end of 2024 requiring insurers to write at least 85 percent of their policies in high-wildfire-risk communities, as part of a plan to expand insurance options in the state, which some industry experts call the biggest reform in over 30 years.
The rules also require people to receive discounts if they have implemented ways to mitigate wildfire risks—such as installing double pane windows—at their homes or properties.
Currently, insurance companies may not write policies for high-risk areas when a foreseeable fair return is not expected, according to the commissioner’s press release from last fall.
The state is currently offering, as a last resort, its so-called FAIR plan—which provides some basic coverage when other insurers aren’t available—but premiums are usually much higher.
Since 2022, 7 of the top 12 insurance companies in the state have either paused or restricted new policies despite approved rate increases given by the insurance department, according to Mr. Lara.
According to his plan, the department will consider allowing insurers to factor in reinsurance costs into their rates, which is when an insurer transfers some of its insured risks to another insurer, which is currently allowed in all states but California.
“[Forty-nine] states allow that at this time. So, it’s an important part of doing business in California,” said Ms. Ruiz, of the Insurance Information Institute.
