California’s third-largest home insurer is seeking a 6.9 percent increase in its homeowner policy premiums under a recent regulatory reform that lets companies charge more in exchange for continuing to cover wildfire-prone areas.
Mercury Insurance submitted its request for a rate hike on Friday, saying in a press release that higher premiums “will strengthen the company’s ability to offer coverage to Californians in distressed areas prone to wildfires, many of which are currently limited to the high-cost, limited-coverage California FAIR Plan, which has historically been the insurance plan of last resort provided for homeowners living in these areas.”
The insurer is the first to request a rate hike based on the state’s recently introduced Sustainable Insurance Strategy (SIS), which allows carriers in California to charge homeowners higher premiums to offset the growing costs of reinsurance.
This is a common practice in other states, but it is new to the Golden State, where homeowners have long been shielded from significant rate hikes and rates have been kept artificially low for decades.
The Price To Pay for Coverage
Mercury has justified its 6.9 percent rate hike request as necessary to compensate for higher costs and the growing exposure related to catastrophic events such as wildfires. But the rate increase won’t be the same for all of the company’s policyholders: instead, residents in higher-risk areas are likely to see larger increases, while customers in lower-risk areas could see decreases.
How to insure homes that are increasingly at risk of being swallowed by devastating blazes has been a growing dilemma in California, where climate change is making wildfires more frequent, more severe, and more unpredictable.
Several major insurers, including State Farm and Farmers, have cut coverage in the state’s most vulnerable areas over the past five years, citing higher claims, rising replacement costs, and their inability to raise premiums fast enough to keep up with their growing expenses.
Strict regulation protects California homeowners from sudden and excessive rate hikes, forcing carriers to go through costly and time-consuming public hearings for rate increases exceeding 6.9 percent. This legislation, passed in late 1988, has kept California’s homeowner insurance premiums low, despite the growing threat of natural disasters.
The average cost of homeowners’ insurance in the Golden State is currently $1,335 per year, or about $111 per month, according to data by NerdWallet. That is 37 percent less than the national average of $2,110 per year.
“In 2024, California home insurance increased 10 percent year-over-year, to an average $2,424 annually. This is an average increase of $217,” Insurify data journalist Julia Taliesin told Newsweek. “Despite high climate risk, California ended the year 34 percent below the national average.”
Those insurers who felt they might end up paying more in claims than they collected in premiums left the most vulnerable areas of the state.
As a result of this recent exodus, California homeowners’ options for coverage have shrunk and even disappeared in some areas, forcing many to seek policies with the FAIR Plan, the state’s fire insurer of last resort. But the FAIR Plan usually offers less coverage and costs more than private insurance, often leaving policyholders on the spot when a wildfire does strike their homes.
In an attempt to solve the state’s home insurance crisis and restore coverage in the most at-risk areas, state regulators passed new reforms last year, changing the way insurers estimate risk and calculate rates and allowing them to include the cost of reinsurance in their premiums.
But there is a catch for insurers: they must agree to write a minimum of 85 percent of their new policies in historically underserved areas of the state, and unburden the FAIR Plan.
“Our goal is for consumers to have more options to find coverage on their own terms instead of FAIR Plan policies that cover less and cost more,” Deputy Commissioner Michael Soller told Newsweek. “That will continue to be our top priority.”
Gabriel Tirador, Mercury’s CEO, has been supportive of Lara’s reform, saying it will help stabilize the California home insurance market. “Our filing is the first step toward Mercury’s goal of expanding insurance options for California homeowners and underscores our 60-year commitment to California customers and agents,” he said in a press release.
“As other companies scaled back their California operations, Mercury stepped up to provide more options for our agents and customers, and we are committed to continuing our efforts to help protect our California neighbors well into the future.”
Newsweek contacted Mercury for comment, but the company refused to comment as its rate filing is already in the hands of the commission.
More Rate Hike Requests Likely To Follow
Janet Ruiz, director of strategic communication at the Insurance Information Institute (Triple-I), told Newsweek that she expects to see insurers ask for higher rate increases as a result of California’s Sustainable Insurance Strategy “when they are needed.”
“The department of insurance will review them prior to approval to make sure the rate increases are adequate and fair,” she explained. “There will still be times when a lower rate increase would be adequate.”
This means that Californians are not necessarily facing massive rate hikes in the future—but it is likely that their premiums, especially if they live in disaster-prone areas, will get at least a little higher.
Insurify projects California to have one of the highest insurance increases nationally by the end of 2025. “This increase is partially due to a new catastrophe rate model that allows insurers to price premiums for future climate risk and the high losses insurers face from the L.A. wildfires,” Taliesin said. #
“Even with California’s increasing insurance rate, California will still likely be below the national average by the end of the year.”
While regulators have been presenting this as a necessary pain to endure to solve the state’s home insurance crisis, not everyone thinks that Californians—who are already carrying a heavy housing financial burden—should be shouldering the cost of this solution.
“We can’t rate hike our way out of the home insurance crisis because it’s driven by climate change,” T.J. Helmstetter, spokesperson for the Insurance Fairness Project, told Newsweek. “Families shouldn’t be forced to bear the burden on their own. We need serious long-term solutions from policymakers.”
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