Hundreds of California renters may soon have to find new insurance, while thousands more could face double-digit rate increases for their renters insurance.
In early August, State Farm — the state’s largest insurer — asked the California Department of Insurance to approve a 38% rate increase for the company’s California Rental Dwelling Program. The insurer also alerted the department of its intention to non-renew more than 600 rental policies for residents in areas with fire risks, according to a State Farm filing.
In its filing, State Farm cited high losses and continued risk from wildfires — and fires following an earthquake — as its impetus for shedding policies in high-risk areas and increasing rates for other renters policyholders.
“In an effort to address concerns regarding State Farm General Insurance Company’s financial health, we are revising our underwriting guidelines to manage our risk tolerance,” the company stated.
Impact on California tenants
The proposed rate increase would affect more than 260,000 State Farm renters insurance customers, according to the insurer’s filing. Average rates after the increase will vary by location.
Lookout, in Modoc County, will see the lowest rates after the increase, at an average of $91 per year. Tenants in Malibu will see the highest rates, with a post-increase average of $3,509 per year and the maximum cost soaring to $16,225 per year.
Tenants in areas at high risk of wildfires or post-earthquake fires will see their State Farm policies dropped altogether. State Farm’s filing said the insurer intended to begin sending non-renewal letters for 643 renters insurance policies with renewal dates of July 3, 2024, and later.
These policies insure properties in areas that “represent the most substantial wildfire hazard, fire following earthquake, or are in areas of significant concentration,” the filing stated.
State Farm’s struggles in California
Large losses from natural disasters like earthquakes, wildfires, and severe storms, as well as consumer-focused insurance laws, have made it difficult for insurance companies to be profitable in California, industry advocates say. Multiple insurers have either exited the state altogether, limited their business in California, or sought large rate increases.
State Farm is also seeking a 30% rate increase for homeowners policies and 36% for condo insurance. The company is the state’s largest residential property insurer, covering about 1.2 million homes. Earlier this year, State Farm announced it wouldn’t renew 30,000 homeowners policies and 42,000 landlord policies in California.
What’s next: Regulator review
California’s Department of Insurance is reviewing State Farm’s latest proposal and could take a few different actions in response. The department could approve the insurer’s proposed 38% increase, but it’s common for regulators and insurance companies to negotiate rate increases to levels acceptable to both.
As recently as Aug. 13, the department requested additional information from State Farm on its justification for the requested increases.
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