Allstate can raise rates 4%, not enough for new homeowner policies

Allstate has received a go-ahead to hike homeowner premiums in California by 4 percent, but that’s not enough for the state’s fifth-largest home insurer.

The Illinois-based company said it has no plans to reverse its decision last fall to stop writing new policies in California, the Whittier Daily News reported.

That will mean higher bills for Allstate’s current customers and no relief for California homeowners losing their coverage in areas ravaged by wildfires, floods and landslides. 

State Farm, the state’s largest home insurer, said in May it would also stop writing new policies, igniting fears of an insurance market collapse.

Allstate said it applied for the rate increase in April 2021 before inflation hit last year, sending prices for new shingles, wood, insulation and labor soaring. 

With Proposition 103, the 1988 California initiative that requires the state to review and approve rate increases, Allstate said insurers cannot adjust their prices quickly to meet rising costs.

“We paused new homeowners, condo and commercial insurance policies in California last year so we can continue to protect current customers,” Allstate said in a statement. “The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes and higher reinsurance premiums.”

In April, Allstate filed for an additional 39.6 percent increase. 

That would amount to $196 million in higher homeowner costs, according to Consumer Watchdog, a nonprofit advocacy group.

It said the approved hike will saddle Allstate’s covered homeowners with a combined $16 million in added costs, a figure disputed by state Insurance Commissioner Ricardo Lara.

State Farm’s announcement that it would suspend new California homeowner policies sent shockwaves through the state’s insurance market. 

The Illinois-based insurer cited historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure and a challenging reinsurance market for not issuing new California policies. 

Insurers buy reinsurance on global markets to help cover their exposure to catastrophes, but California doesn’t allow insurers to pass those costs on to consumers.

State Farm is California’s largest home insurer, with more than 20 percent of the market and $2.6 billion in direct written premiums, according to Fitch Ratings. Allstate, with 6.4 percent of the state’s home insurance market, has $792 million in direct written premiums.

California’s insurance market could be improved by allowing insurers to bill customers for reinsurance, as well as base premiums on computer-modeled loss projections, insurance industry representatives say. 

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Allstate announces halt to new homeowner policies in California

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The insurance commissioner’s office has said it can’t allow reinsurance to be included in premiums because the state can’t regulate it. 

The commissioner’s office has downplayed the significance of the insurance giants’ pause in writing new homeowner policies, saying 115 other insurers continue to write policies across the state, even near fire-prone areas.

— Dana Bartholomew