California regulators approved rate hikes for 660,000 customers across two major insurers due to the increasing costs from natural disasters like wildfires, with insurers emphasizing the necessity to address these higher expenses arising from more frequent and severe catastrophes.
Driving the news: Prior to the recent Los Angeles County wildfires, California was already experiencing a property insurance crisis, with regulators maintaining artificially low rates for residents while facing heightened risks of extreme weather events due to climate change, leading to difficulties in the state’s insurance market.
- Despite the rise in costs and increased exposure to catastrophes, major insurers in California have reduced coverage in recent years, leaving homeowners struggling to find alternative options, and experts express concerns that the impact of the Los Angeles wildfires could escalate the existing crisis to a new level.
The big picture: Mercury General, the fifth-largest property insurer in California, received approval to raise homeowners insurance policies by an average of 12% beginning in late March, impacting over 579,000 policyholders, including homeowners, condo owners, and dwelling rental policyholders.
- Safeco, a Liberty Mutual subsidiary and the fourth-largest insurer in the state, was allowed an average rate increase of 7.2% for 86,700 policyholders starting in May, with plans to discontinue all condo and rental policies statewide by 2026, while continuing to offer new homeowner policies.
- The average rate hikes per policyholder vary, with Mercury policyholders facing an average increase of 12.3 percent for homeowners, 9.4 percent for condo owners, and 7.5 percent for rental dwellings, while Liberty Mutual customers could observe rate adjustments between 2 percent and 15 percent.
Go deeper: Although the rate hikes are not directly connected to the recent wildfires in Los Angeles County, the insurers stated that losses resulting from the blazes have likely been substantial, demonstrating the ongoing financial impact on insurance providers in response to natural disasters.
- While State Farm, the largest insurer in California, requested an emergency rate increase post-fires, California Insurance Commissioner Ricardo Lara rejected the proposal, safeguarding homeowners from substantial hikes; however, most homeowners may face increased premiums due to a $1 billion bailout for the state’s insurer of last resort, the FAIR Plan.
