Allstate approved to raise home insurance rates by 34% in wildfire-prone California

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(Bloomberg) –Allstate Corp. is set to increase home insurance rates for California customers by an average of 34.1%, marking the biggest jump in premiums for a major insurer in three years as the state faces a deepening property insurance crisis.

The rate hike, which will take effect from November, will impact about 350,000 policyholders across California. Some customers will face premium increases of up to 650%, while others may see their rates drop by as much as 57%, according to company filings. 

The increase is part of the broader upheaval in California’s insurance market, with top insurers like State Farm, Farmers Insurance and others pulling back from the state, citing the escalating costs of wildfires and regulations that have capped rate hikes for decades. Allstate, which stopped issuing new homeowner policies in California in 2022, pointed to these growing financial risks when it first paused coverage.

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“Higher home values and repair costs coupled with more frequent, severe weather lead to higher payments to help customers recover, so we need to adjust rates to better reflect the cost of protecting our customers,” Allstate spokesperson Michael Passman said in an emailed response to questions. The San Francisco Chronicle earlier reported the rate adjustment and said the previous larger increase was in 2021 when Homesite Insurance was approved for a 38.2% hike.

The decision on Allstate follows a series of rate hikes for other insurers, including State Farm, which is seeking raise its rates by an additional 30% after already securing a 20% increase earlier this year. The Department of Insurance is still reviewing State Farm’s latest request, with Insurance Commissioner Ricardo Lara expressing concerns about the insurer’s “financial condition.”

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The rising premiums and reduced coverage are worsening the affordability crisis in California’s housing market and driving more homeowners to turn to the state’s FAIR plan, the last-resort insurer.

In an effort to stabilize the market, Lara is pushing for reforms that would allow insurers to factor in the costs of climate change and reinsurance when setting rates. In return, insurers would be required to offer more coverage in wildfire-prone areas, according to the commissioner.

Consumer Watchdog, an advocacy group that challenged Allstate’s new rate increase, in a blog post criticized the insurer for not disclosing the computer model used to determine surcharges based on wildfire risk. As part of the negotiations, Allstate agreed to introduce new wildfire mitigation discounts for homes that are fortified against burning and disclose how much a wildfire risk score contributes to premiums.