The complicated but typically sedate world of insurance has become front-page news after the decision by some of California’s largest private insurers to stop writing new policies for homeowners or leave the state entirely.
Now, State Farm—the state’s top private insurer—will raise auto and home insurance rates for current customers by 21% and 20%, respectively, this year. The increases, which were approved by the state’s Department of Insurance, are expected to impact more than five million Californians.
Initially, State Farm sought to increase its auto insurance rate by 24.6% and its homeowners insurance rate by 28.1%, citing wildfire risks and skyrocketing construction costs.
State Farm was also approved to increase its rental insurance rate by 11.4% after requesting a 20% hike for 2024.
“Yes, there was a lot of inflation last year and costs went up, so some level of rate increase is justified,” said Carmen Balber, executive director of Consumer Watchdog, an advocacy group focused on the insurance market. “But what we’re seeing is that the industry is using the realities of climate change to push a political agenda that they’ve had for a long time, which is deregulation.”
Karl Susman, president of the Susman Insurance Agency in Los Angeles, took a more measured approach, arguing that the steep rate increases seen recently are due to rates being “artificially repressed” because of regulation and the pandemic.
“Carriers are playing catch up to rate—which everyone hates,” Susman told The Standard. “I hate it too. I don’t like getting clients calling about rates going up 20, 30, 40%.”
State Farm did not immediately respond to The Standard’s request for comment Monday.
Insurance companies have argued that increased liability—caused by inflation and climate change risk—has run headlong into what they characterize as an archaic regulatory system.
Gov. Gavin Newsom has directed Insurance Commissioner Ricardo Lara to determine a way to preserve the accessibility of insurance coverage by updating some of those rules. More detailed plans are expected in the coming months.
The dwindling number of private insurance providers in California has meant more consumers turning to the coverage provided by the California FAIR Plan, which is meant to offer insurance for high-risk properties.
The so-called “insurer of last resort” can’t turn properties down if it meets minimal underwriting requirements but offers only bare-bones coverage. However, brokers have reported that a mass influx of new applications, paired with a recently implemented technology system, has led to underwriting issues for Californians with few options for homeowners insurance.
Susman said he has been speaking with FAIR Plan officials on how to improve communication and training for the new system.
“When there were a few thousand brokers that used them, it wasn’t a big deal,” he said. “But when you’re in chaos like you are now and have tripled that number to 21,000, there has to be another solution.”
Car Insurance Challenges
Auto insurers have also been in the hot seat in recent weeks amid a growing number of complaints from Californians that companies have been delaying quotes or putting up barriers to coverage.
As opposed to homeowners insurance providers, auto insurers are legally required to write a policy for all “good drivers.” Last month, regulators issued an enforcement bulletin in response to complaints about waiting periods, questionnaires and other stalling tactics.
“These alleged passive-aggressive tactics by insurance companies to slow down drivers’ access to coverage are unacceptable, dangerous, and will not be tolerated,” Lara, the insurance commissioner, said in a statement.
One company that has changed its practices in response to regulator action has been Allstate, which ranks as the state’s fourth largest insurer. CalMatters reported in December that the company agreed to resume offering online quotes and provide new drivers the option to pay for their premiums monthly.
The Department of Insurance approved a 30% average rate increase from Allstate that will go into effect this year for its auto insurance policies. Geico also got the green light to raise its average car insurance rate by 12.8% after initially requesting a 20.8% hike. Those rate increases are expected to impact nearly three million drivers.
Susman said much of the rationale for higher auto insurance rates can be attributed to the rising cost and complexity of parts and repairs.
“There really is no such thing as a minor auto claim anymore,” he said. “The smallest claim is still often super expensive.”
