Allstate has been approved to raise California homeowners premiums by 4%, but that’s not enough for the fifth-largest home insurer in the state.
The Illinois-based company said it has no plans to reverse its decision last fall to stop creating a new policy in California, The Whittier Daily News reports.
That would mean higher bills for existing Allstate customers, and no relief for California homeowners who lost their insurance in areas ravaged by wildfires, floods and landslides.
State Farm, the state’s largest home insurer, said in May that it would also stop writing new policies, raising fears of a collapse in the insurance market.
Allstate said it filed for a rate hike in April 2021 before inflation rose last year, sending prices for new shingle, lumber, insulation and labor soaring.
Proposition 103, a 1988 California initiative requiring the state to review and approve rate increases, Allstate said insurers could not adjust prices quickly enough to meet rising costs.
“We suspended California’s new homeowners, condo and business insurance policies last year so we can continue to protect our existing customers,” Allstate said in a statement. The higher cost of repairing the home and the higher reinsurance premium paid for the policy price.”
Allstate filings rose an additional 39.6 percent in April.
That would add $196 million in costs to homeowners, according to the nonprofit Consumer Watchdog.
It said the approved rate increases would cost Allstate-insured homeowners a total of $16 million in additional costs, a figure that was contested by state insurance commissioner Ricardo Lara.
State Farm shocked the state’s insurance market by announcing it would suspend new California homeowners policies.
The Illinois-based insurance company quote Historic increases in construction costs outpaced inflation, rapidly increasing catastrophe risks and a reinsurance market challenged by the non-issue of new California policies.
Insurers buy reinsurance in global markets to help them deal with catastrophe risks, but California does not allow insurers to pass those costs on to consumers.
State Farm is the largest home insurer in California with more than 20 percent market share and $2.6 billion in direct written premiums, According to Fitch Ratings. Allstate has a 6.4 percent share of the state’s home insurance market, with $792 million in direct written premiums.
Insurance industry representatives say allowing insurers to charge customers for reinsurance and base premiums based on computer-modeled loss forecasts could improve California’s insurance market.
The Office of the Insurance Commissioner said it cannot allow reinsurance to be included in premiums because the state cannot regulate it.
The commissioner’s office downplayed the significance of the insurance giant’s pause in writing new homeowners policies, saying 115 other insurers continued to write policies statewide, even near fire-prone areas.
— Dana Bartholomew