State Farm’s newly approved emergency rate hike for homeowners insurance is triggering concerns about affordability and increased strain on the housing market.
The change is set to take effect beginning in June and State Farm has said it’s necessary to stabilize its finances after the recent devastating wildfires in Los Angeles.
“For homeowner’s alone right now it’s $5,600,” said Lindsey Smith, a State Farm policyholder. She’s grappling with a 30% increase in her annual premium over the past two years. The cost to keep her family’s home insured could soon go up significantly.
California’s insurance commissioner is allowing State Farm to increase rates: 17% for homeowners, 15% for renters and 38% for rental dwellings.
“I am wondering where that cap is going to end up being because it seems unsustainable,” said Smith.
The sharp increases will take effect before a full rate justification hearing.
Commissioner Ricardo Lara issued a statement that reads in part, “State farm must now justify its financial condition and detail its recovery plan in a full rate hearing before a neutral judge and my department’s experts.”
State Farm says its already paid out more than $3.5 billion in L.A. fire claims and charging more will help avoid not renewing more policies in California.
Real estate analyst Ken Kaplan says the situation is putting pressure on an already tight housing market. “Individuals have looked at properties that are in a severe fire hazard zone who’ve said, okay you know we’re not certain what we want to do,” he stated.
Smith’s community of San Elijo Hills is now 99.9% in a very high fire risk area, according to the most recent Cal Fire map. Some insurance companies aren’t willing to work with that. It leaves many homeowners turning to the state’s last resort option.
“You’ve got Fair Plan that’s got not as great coverage, but you don’t have any other choice and you’ve got a very high premium,” Kaplan explained.
Smith is taking steps to lower her risk and harden her home with plans to remove vegetation. As the head of her community’s fire council, she shares that advice with others to qualify for insurance discounts.
It’s a small win in uncertain times.
“I hope that they don’t end up dropping us, but at the same time there needs to be a more comprehensive plan about where we go from here,” Smith continued.
State Farm’s proposed rate hike will face a full rate hearing, where the company must provide a complete justification. That is tentatively set for October.