California homeowners could face property insurance hike

California homeowners may face noticeable insurance rate hikes under new rules finalized by state regulators that allow property insurers to use climate algorithms to set prices.

California's property insurance rates are set by the state. That has led many insurers, such as State Farm and Allstate, to stop accepting new customers or to leave the state entirely.

Rising property insurance costs are pushing homeowners to other states. S&P warned could cut into state tax revenue and cause downgrades to government credit.

That leaves California regulators in a difficult position. They can allow insurance companies to raise rates, possibly forcing Californians to move elsewhere, or or they can refuse to raise rates and let insurers depart.

Californians without any insurers in the area still may purchase the property insurance from FAIR, but high rates and limited property value coverage mean it isn't an ideal option.

The new regulations will allow insurers to use climate and catastrophe modeling to set much higher property insurance rates.

In early 2024, insurance commissioner Ricardo Lara proposed allowing insurance companies to use these models in exchange for covering 85% of homeowners in wildfire areas, a move intended to take pressure off FAIR.

However, consumer advocacy group Consumer Watchdog says the presented rule allows insurers to cover only 5% more than they do currently.

Although rate increases may be necessary to keep insurers in the state, reducing pressure on insurers and property owners by reducing wildfires is another option the state is pursuing.

Earlier this year, California Gov. Gavin Newsom celebrated the state's new emphasis on wildfire risk reduction, but data suggests the state could do more.