Wildfires and legal fees, combined with a decline in market share, has led to the insurer’s price hikes.
USAA Casualty Insurance Co. is raising home insurance rates for its California customers, with a substantial increase set to take effect on December 1, 2024. Homeowners can expect an average rate hike of 25.9%, though some policyholders may see increases as steep as 48.5%. This change is part of a wider restructuring of rates across USAA Group’s various subsidiaries, all of which are adjusting rates in response to rising risks and costs in California’s challenging insurance environment.
USAA, or the United Services Automobile Association, is a financial services group that provides a range of insurance, banking, and investment products primarily to military members and their families. Founded in 1922, USAA was established by a group of Army officers who found it difficult to secure auto insurance due to the perception that military personnel had higher driving risks. Since then, the organization has grown into a diversified company, offering services including auto, home, and life insurance, as well as personal loans, mortgages, and retirement planning solutions.
USAA Group’s additional rate changes will roll out between November 2024 and February 2025 for customers of other associated entities, including United Services Automobile Association, USAA General Indemnity Co., and Garrison Property and Casualty. USAA General Indemnity began implementing a 30.6% average increase in mid-November, and Garrison Property and Casualty’s 25.5% increase will take effect at the start of 2025. Meanwhile, United Services Automobile Association is planning a rate adjustment averaging 16.8%, effective in mid-February.
Raising rates largely has to do with adjustments in base costs and legal fees related to wildfire risks. USAA Casualty, in particular, points to an underwriting model informed by wildfire data from sources such as the United States Forestry Service and a private data vendor. The heightened wildfire threat in California has required insurers to factor in potential losses tied to climate conditions that continue to challenge the industry, making it difficult to balance competitive rates with financial stability.
Over the past several years, the insurer’s presence in California’s homeowners’ market has been dwindling down. The company’s market share dropped from 5.73% in 2019 to 5.4% in 2023, while direct premiums written have shown significant growth, jumping to $741.7 million in 2023 from $523.1 million in 2019. Despite this increase in premiums, USAA’s profitability in the California market has declined, leading to it raising rates, with its direct combined ratio—a measure of underwriting losses and expenses relative to premiums collected—worsening from 96.46 in 2019 to 114.09 in 2023.
The state’s insurance marketplace as a whole has become more challenging as insurers navigate a mix of climate-related risks, inflation, and regulatory constraints. Wildfire threats and economic factors have driven up claims costs, and many insurers have responded by scaling back their presence in the state, adjusting premiums, or reducing policy offerings. Regulatory delays in rate approval have added further complications, prompting some companies to limit or halt new policy offerings in certain regions of the state.
In response, California regulators are exploring making changes to address these issues. New rules submitted by California Insurance Commissioner Ricardo Lara would allow forward-looking wildfire catastrophe models to be used in rate calculations, representing a shift from the current reliance on historical loss data. This regulatory adjustment could make it easier for insurers to incorporate projected wildfire risks into premiums. Another proposed rule would require insurers to write at least 85% of their comprehensive policies in high-risk wildfire areas, with the goal of ensuring coverage availability in these vulnerable regions.
The ripple effect of USAA raising rates will likely be felt by California homeowners and could set a precedent for other insurers in the state. For the broader insurance market, these increases are representative of ongoing challenges insurers face in high-risk areas, where balancing affordable rates with financial sustainability remains a difficult task.
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USAA hikes California home insurance rates
California home insurance rates jump with spate of large wildfires
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