Home and Car Insurance Increases in California: Good News for Uninsurable Homes?

California is highly affected by natural disasters, compared with other states, so it’s not surprising that homeowners and car insurance rates have soared due to climate risk. Just in the past year, insurance giants State Farm, Allstate, Farmers, USAA, Travelers, Nationwide and Chubb limited the number of new home insurance policies in California. AmGUARD, Falls Lake, The Hartford, Tokio Marine Insurance Co, and American National followed suit. This all comes after a year over year increase in rates.

California is inhabited by 40 million people, more than half of whom own a home.⁽¹⁾ Since 2023, prospective homeowners have hit a roadblock in taking out a mortgage because insurers wouldn’t take the risk of insuring their homes and Prop 103 prevented them from raising rates.

The main risks that make many California homes uninsurable are wildfires, other types of severe weather patterns, the inflationary costs of rebuilding and higher reinsurance premiums for insurers. Homeowners in wildfire-prone areas have been forced to turn to the California FAIR Plan, a state-run insurance policy offering very little coverage.

However, in late summer 2024, the California Department of Insurance finally allowed insurance companies to raise rates. The move will pinch consumers’ wallets but is expected to stabilize an unwieldy insurance market in the state. Here’s what you can expect if you’re a home and car owner.

Why Didn’t Insurers Just Raise Rates Instead of Leaving California?

Because of Prop 103, insurance companies have to report any increases over 7% for approval by the California Department of Insurance. Insurers are unable to use recent wildfires to better inform rate models used today, so rates are still relatively low. It’s also a lengthy process and it’s the reason why insurers left the state.

In August 2024, California’s Department of Insurance finally approved Allstate’s request for the largest homeowners insurance rate increase the state has seen in years, with policy rates going up an average of 34%. Other insurers are expected to follow their lead, and State Farm has already put in a request for a 30% hike.⁽²⁾

Consumer advocates recommend comparing home insurance rates, especially if the policyholder lives in areas of California that have been dramatically affected. If they have not seen an increase, they will most likely see a large one come renewal. Otherwise, the insurance company makes less money because of higher reinsurance rate increases.⁽²⁾

The Department of Insurance says that auto insurance rates are also rising, mainly due to people in California driving more after the pandemic, the high cost of medical bills due to a rise in accidents, an increase in claim filings and inflationary prices on vehicles and repairs.⁽³⁾

In fact, the average cost of full-coverage auto insurance will reach $2,700 a year by the end of 2024. Instead of raising rates, some insurers have stopped selling auto insurance in California altogether.⁽³⁾Again, it’s advised that you compare car insurance rates.

How To Lower Home Insurance: California Homeowners Want To Know

Always check the discounts the insurer offers and see which ones fit. You can easily save 25% or more on discounts alone. Here are some other ways to lower your monthly bill.

Shop Around for Better Deals

You can save money on homeowners insurance by comparing rates. Insurance companies maintain competitive rates but they each rate each profile differently. You may reduce your annual cost of homeowners insurance by making a quick switch. Just make sure you have no lapses between canceling, as that will increase your rate.

Increase Your Deductible

One easy way to relieve the financial burden of a high home insurance premium is to increase the deductible. If you file a claim, you'll get that much deducted from the entire payout. It's a good idea to grow your emergency fund when you raise the deductible.

Customers manage their monthly bills easier with a higher deductible and can put away some of that money towards the emergency fund.

Mitigate Your Risk

Ask your insurer what you can do to lower your risk and costs. Disaster resistant features, like a secured roof, storm windows or storm shutters, may help reduce costs. Retrofitting older homes will also lower risk. Also, if you're in a fire-prone area, you'll want to have a defensive space, or clearance, around your home.

Change Dwelling Coverage to Rebuilding Costs

Many people buy too much insurance for their homes. The insurable amount is not the same as the home value. Calculate what it would cost to rebuild your home, its covered attachments and other structures. Next, create an inventory of possessions. These will make up the dwelling portion, the other structures component and the contents portion of your policy. Consider the materials being used and the current construction rates in your area to estimate rebuilding costs. Check also to see how much of your landscape is covered.

Bundle Home and Car Insurance

Sometimes, though not always, bundling home and car insurance when you switch may save you up to 29%, depending on the insurer. However, it's important to also compare each separately and do the math to see which makes most sense.

Get a Home Security System

The better your home security system the better the discount. Before investing in one, ask your agent which ones are eligible for a lower rate. Any system that you have that will prevent a break-in should be mentioned.

How To Lower Auto Insurance: California Residents Want To Know

Check Insurer Discounts

If you bundled your home insurance with car insurance, that's one right there. If you have more than one car under the same policy, there's another. Certain affiliations and memberships may score you deep savings so don't be shy about going over every available discount to see which fits.

Buy an Older Car

New cars are safer and more reliable, but they come with increased costs, especially if drivers have an accident. Rate changes also reflect how much it would cost to fix new cars. Even if you don't drive one, you'll still pay higher premiums, in case you're in an accident with a new car.

The sensors and cameras on newer vehicles make them very expensive to repair, and insurers have to account for that increased cost when rating customers.

Raise the Deductible

Just as you would with home insurance, you'll want to increase your deductible as high as you can go, depending on the size of your emergency funds. You'll be responsible for the deductible amount and the insurer will cover the rest.

If you only have liability insurance, there is no deductible. Do not lower your liability limits. In fact, it's a good idea to raise them because the minimum coverage may not cover damages on a new car, which will have all the expensive bells and whistles.

Drop Full Coverage

You don't want to drop full coverage, which includes collision and comprehensive coverages, on a car that is more than $4,000. However, if you have an older car, consider dropping full coverage for a lower premium.