Allstate has received California’s blessing to raise homeowner insurance premiums 4%, but the state’s fifth largest home insurer said it has no plans to reverse its decision last fall to stop writing new policies.
That will mean higher bills for Allstate’s existing customers, and no relief for other homeowners in the state who are losing their coverage in areas ravaged by recent destructive wildfires, floods and landslides. For homeowners desperately seeking new policies, the news isn’t good: State Farm, California’s largest home insurer, said in late May it also would stop writing new policies, igniting fears of an insurance market collapse.
Allstate said it had applied for the rate increase in April 2021, before inflation hit last year, sending prices for new shingles, wood, insulation and labor soaring. With Proposition 103, the 1988 California initiative that requires the state to review and approve rate increases, Allstate said insurers cannot adjust their prices quickly in the state.
“We paused new homeowners, condo and commercial insurance policies in California last year so we can continue to protect current customers,” Allstate said in a statement. “The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums.”
But Prop 103 author Harvey Rosenfield of Consumer Watchdog called the approved rate hike an outrage that will saddle its covered homeowners with a combined $16 million in added costs. He accused Allstate of misleading regulators and the state’s elected Insurance Commissioner Ricardo Lara of letting the company get away with it.
“Commissioner Lara should not reward Allstate for secretly reducing access to insurance in California,” Rosenfield said. “By not requiring Allstate to show the impact of its withdrawal on rates, the commissioner is approving a rate increase that has not been justified, a violation of California law.”
But Gabriel Sanchez, a spokesman for the commissioner’s office, said Wednesday that the consumer advocate’s “claims aren’t based in law or fact.”
“Allstate’s action in November 2022 was reported in industry trade publications at the time, and California law does not require prior approval when a company pauses new policies,” Sanchez said. “Our department’s rate regulation experts carefully review all insurance company rate filings to protect Californians from unjustifiably high rates.”
State Farm’s May 26 announcement it would suspend new California homeowner policies sent shockwaves through the state’s insurance market, raising the specter of an insurance doom-loop like that in Florida. Despite the country’s highest insurance rates, Florida has seen national insurers withdraw, and more than half of insurers based in the state are on a financial health watch list and seven have liquidated in the past year and a half.
State Farm cited historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure and a challenging reinsurance market for not issuing new California policies. Insurers buy reinsurance on global markets to help cover their loss exposure from catastrophes, but California doesn’t allow insurers to pass those costs on to consumers.
State Farm is California’s largest home insurer, with more than 20% of the market and $2.6 billion in direct written premiums, according to Fitch Ratings, and even without writing new California policies, Fitch said State Farm will remain the state’s dominant home insurer. Farmers, CSAA, Liberty Mutual and Allstate round out California’s top five home insurers, Fitch reported.
Allstate, with 6.4% of California’s home insurance market and $792 million in direct written premiums, announced in its third-quarter 2022 earnings report in November that it would stop writing new California home policies. The company said last fall it was raising its insurance prices nationally due to inflation, 13.3% for home policies, and would expand plans to reduce insurance in states with “unacceptable auto and home insurance margins.”
Insurance industry representatives said California’s insurance market could be improved by allowing insurers to bill customers for reinsurance, and to base premiums on sophisticated computer-modeled loss projections.
The insurance commissioner’s office has said it cannot allow reinsurance to be included in premiums because the state can’t regulate it. Rosenfield, whose organization reviews rate increase filings, has argued rates should be based on actual loss experience, not computer model projections that could be wildly off.
Allstate in April filed for a 39.6% increase, which Consumer Watchdog said it is reviewing and would amount to $196 million in higher total homeowner costs.
The commissioner’s office has downplayed the significance of the insurance giants’ declining to write new policies, saying 115 other insurers continue to write residential policies throughout the state, even near fire-prone wildland areas.
“Historically, insurance companies have paused and then restarted writing policies as conditions change,” said Michael Soller, deputy insurance commissioner and a department spokesman, in response to State Farm’s new policy pause. He added that approval times for rate increase requests that aren’t challenged by consumer advocates averaged just over six months between 2015 and 2022.
“Many companies have increased their rates in recent years, driven by historic losses,” Soller said, “and we continue to review rate requests from several companies.”