Wildfire risks will continue to drive up rates for California homeowners, insurance commissioner says

After a rough year in California’s home insurance market, policies will likely get more expensive, the state’s insurance commissioner said.

In 2023, seven of the 12 largest insurers doing business in California, including State Farm and Allstate, said they could no longer afford to cover new homes in the state due to wildfire risks. 

“Will Californians see increased insurance costs in the future? The only realistic answer is yes,” Insurance Commissioner Ricardo Lara (D) told members of the Assembly Insurance Committee during a hearing in Pasadena Wednesday. “Increasing availability of insurance is how we protect affordability.”

Lara did not say how much rates could go up or when they might begin to increase. As insurance commissioner, he is required to sign off on rate hikes and hold public hearings for proposed rate increases over 7%.

But after the high-profile exit of several large companies from California this summer, Lara said increases are necessary to stabilize the market.

State Farm and Allstate have pulled out of covering California wildfire insurance. Here’s why.

“Insurance companies will not return to California unless they’re able to charge rates that are justified to cover the risk and provide the opportunity to earn a fair return,” he said. 

State lawmakers acknowledged rate hikes may be necessary to keep the market alive in California. 

Assembly member Jim Wood, a Democrat who represents the North Coast, said it is “almost impossible to get homeowners insurance” in his Healdsburg zip code.  

“No one wants to pay more for anything,” he said. “But people will pay more for the certainty of having insurance versus not having insurance.”

Lara said the state’s existing insurance regulations do “not allow insurance companies to reflect the true cost of [doing] business here in California, and that is helping contribute to the current insurance availability issue.” 

In late September, under pressure from Governor Gavin Newsom, he unveiled a plan to stabilize the market. It includes requiring insurers to cover 85 homes in high-risk fire areas for every 100 other California homes covered by the company, as well as a streamlined rate application process.

The nonprofit Consumer Watchdog — which is funded in part through fees paid by insurers — has panned the proposal as “riddled with loopholes.” 

“In exchange for deregulating insurance in California, consumers would get no more than the bare bones coverage they are guaranteed today,” the group’s executive director Carmen Balber wrote in a letter to Newsom and legislative leaders in November. 

Harvey Rosenfeld, the author of Proposition 103, which requires the insurance commissioner to approve proposed insurance rate hikes, also signed the letter. 

Lara can implement many of his proposed changes without the Legislature. Under his proposals, he hopes the home insurance market will be more stable by the beginning of 2025.