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California’s largest insurer raises auto and home insurance rates by 20%

A house on fire with orange skies in the background.
California’s insurance chaos is leading to major rate increases for consumers. | Source: Ethan Swope/AP Photo

The complicated but typically sedate world of insurance has become front-page news after some of California’s largest private insurers decided 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 affect more than five million Californians.

The new auto insurance rates will go into effect on Feb. 26 and the homeowners insurance rate will go into effect on March 15.

Initially, State Farm sought to increase its auto insurance rates by 24.6% and its homeowners insurance rates by 28.1%, citing wildfire risks and skyrocketing construction costs.

“We continue to look for ways to maintain competitive rates and help our customers manage their risk,” a State Farm spokesperson wrote in a statement. “We are committed to working cooperatively with public policymakers and officials on reforms that promote market stability and the long-term interests of our California customers.”

State Farm was also approved to increase its renter’s 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.”

Two men in State Farm insurance shirts speak to woman in front of State Farm vehicle
State Farm Insurance agents speak with a resident at a makeshift office in San Diego in 2003. | Source: Sandy Huffaker/Getty Images

RELATED: State Farm Asks California for Huge Insurance Rate Hike as Home Coverage Halts

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%.”

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.

READ MORE: After State Farm’s and Allstate’s Exits, Farmers Insurance Sets Limits in California

The dwindling number of private home 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 they meet minimal underwriting requirements, but it 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.

Unlike 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.

Cars going into the city of San Francisco over the Bay Bridge.
Auto insurers in California are under fire for practices that some say put up unreasonable barriers for applicants. | Source: Jeremy Chen/The Standard

“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.”