California home insurance rates unsustainable, watchdog group questions

OAKLAND, Calif. - With the Department of Insurance approving an average 34% increase across its 350,000 policyholders, Bloomberg News calculates that customers will see premium increases of up to 650%, while others may see cuts of as much as 57%. 

That is causing havoc not just with established homeowners, but for those seeking to buy and sell their homes. 

The question for California is a simple one: is this sustainable or is it time to consider big changes?  

Non-renewals, cancelations, and refusals to sell policies are not just driving hoards of current homeowners into the highly expensive and less quality FAIR Plan, they are also killing off home sales in areas insurers deem too risky.

"I've seen properties where insurance has come in at $30,000 a year," said Fif Gobadian, senior vice president of OriginPoint, a mortgage brokerage.  "It eliminates, certainly, a pool of buyers and it eliminates a pool of sellers." 

Unless you have all the cash in hand, lenders require not just the ability to pay the loan, but also the property taxes and adequate insurance.

"In certain cases, you just can't even get insurance and in certain cases it's astronomical," said Gobadian.

Astronomical rate hikes as well as cancelations and non-renewals portend homeowner disasters.

 "If you can't get insurance and maintain insurance on your home, your bank will foreclose on you," said Consumer Watchdog president and Proposition 103 author Harvey Rosenfield.

Consumer Watchdog says that even State Farm acknowledges, that current law states that it should be required to cut its rate by at least 9%.

But, Consumer Watchdog is now demanding a hearing because State Farm wants a 30% increase instead. 

That's on top of the 20% the Department of Insurance granted in March. 

"Rate increases that ultimately lead to billions of dollars in increases over the next few years that nobody is going to be able to pay," said Rosenfield.

That will add $1.3 billion a year in higher rates for at least the next four years, which Consumer Watchdog says is essentially a bailout of its California division. 

Consumer Watchdog says there's evidence that State Farm California sent headquarters $600 million in 2023. 

"There are a lot of questions here," said Rosenfield.  "The lawmakers were too indentured to the insurance companies. I think, you know, we're at the point now where we've got to come up with another solution," said Rosenfield.

In a statement, State Farm said: "Rate changes are driven by increased costs and risk and are necessary for State Farm General to deliver on the promises the company makes every day to its customers. We continue to look for ways to maintain competitive rates and help our customers manage their risk."