Home And Auto Insurance Rates Skyrocket In CA: What's The Response?

Both home and auto insurance rates have soared since 2020, with increases averaging 50-75% and 30-40%, respectively, in California, according to an analysis by The Wall Street Journal.

Homeowners insurance rates have climbed by an average of 50% nationwide, while auto insurance rates have seen a 42% increase. These rate increases significantly surpass the 26% increase in consumer prices through August, according to S&P Global Market Intelligence and Labor Department data.

Homeowners insurance premiums are one of the fastest-growing costs of homeownership, outpacing jumps in home prices, mortgage rates, and property taxes, according to a report by Yahoo Finance.

"Around the country, premium increases have far outstripped broader inflation in recent years, and they're continuing to do so. They’re up 4.9% in the first half of the year alone, and 11.3% from a year ago," the report states. "Costs are rising the fastest in cities in California as the state’s market adjusts to new regulations and the aftermath of January’s devastating wildfires, as well as parts of North and South Carolina that experienced severe flooding last year."

The mounting financial burden of escalating home and auto insurance premiums has ignited public outcry, pushing lawmakers in states across the political spectrum to confront the issue head-on. Both Democrat- and Republican-led states are under pressure to enact legislation that would impose caps on these rates, reflecting a bipartisan concern over the affordability and accessibility of essential insurance coverage.

“Rate increases are top of mind for every policymaker across the country. Consumers are going to them and saying, ‘I can’t deal with a 30% rate increase, or a 40% rate increase’,” Jon Godfread, president of the National Association of Insurance Commissioners, told The Journal.

With the lone exception of Wyoming, states are required to file notice of rate increases, according to the National Association of Insurance Commissioners. Lawmakers can reject increases in California and 10 other states.

Other states are at the mercy of insurers. The U.S. insurance market, founded in 1752, was developed and is regulated at the state level. State insurance commissioners were appointed in the 1850s. In the 1940s, Congress exempted insurance from federal antitrust laws, allowing states to legislate on prices.

Pending legislation in Illinois seeks regulatory changes that would give the state’s insurance commission veto power over increases it deems excessive. New York lawmakers are looking at soaring home insurance costs, and Democratic lawmakers in Michigan this summer proposed a law that would cut auto insurance rates by 10%.

Insurers contend that while price caps may offer short-term appeal, they ultimately lead to long-term harm.

“Price controls don’t lead to affordability,” Tim Zawacki, an analyst at S&P Global, told The Journal. “Ultimately, they just chase insurers out of the market.”

Regulators in California recently green-lighted double-digit home insurance rate increases after big insurance companies like State Farm threatened to pull out of the market. For decades, the state had a 6.9% ceiling on homeowner premium prices, resulting in rates below the national average despite expensive real estate and vulnerability to wildfires.