Ok, haven't seen a good explanation... so here goes from a former auto and home insurance underwriter.
Rates are based on the expected cost of claims. In part, it is historical data, with adjustments for rising costs. Some of this is influenced by theft rates, accident rates, or fire risks in the area you live. But it is all based on loss experience trends over time.
So, we have all heard stories about how auto parts are in short supply in many cases. There is a thread going on this forum about long lead times for replacement battery packs for example. When parts are damaged in a collision, the insurer has to take into account how long it will take for repairs. Part of it is the cost of providing a loaner for an extended period, and part is pressure from state regulators to have short average claims closing times. The traditional formula was if repairs were more than 50-60% of the actual resale value, the car was totaled, enabling claims to be closed quicker. This actually benefits consumers as well, because we all know, major repairs always seem to leave things not quite right. Now, the formula seems to be lower, like 40%. So, this drives up the cost of average claims.
Insurance actuaries keep statistics on the severity of claims (ie the cost to settle), and frequency of claims. These are categorized into types of losses, and refined by things like previous driving record, location, age/experience, and other things. Is it entirely fair? Probably not, but it is as fair as possible, and highly regulated to ensure it isn't blatantly unfair, aka discriminatory.
So, if there are a lot of fires in your community, the fire risk is higher, and the cost of repairs is even higher when these are widespread events like last year in the LA area. This means the expectation of future fires is greater, and the severity is as well. So, insurance reflects this in higher rates. Same with vehicle thefts or motor vehicle collisions, if they are more severe or frequent in the are you live, it has to be reflected in the rates. Now some will argue things like fire mitigation or safe driving records reducing chances of this happening to them, but we all know how crazy it can be driving on crowded streets and highways. And there is nothing one can do when the Santa Anas blow fires into densely populated areas.
All of this eventually leads to arguments about rate discrimination. But let me say, if I lived in Ridgecrest, CA (population under 30,000), I wouldn't feel it was fair to pay more for my insurance because of the cost of providing insurance in Compton, or Pacific Palisades. For one, the fire risk is minimal, theft rates are probably quite low, and with a small population, traffic is probably minimal and accidents fairly rare.
At the same time, the costs of homes and cars is rising rapidly, adding to the severity component.
And then, there is a huge roadblock regulators put in front of insurance companies several years ago when they were prohibited from considering speculative risk considerations like the lack of fire mitigation practices and climate change making future fire losses not only more likely, but more costly and widespread. Some of what you may be seeing this year is digging out of the deficits from past years.
In its simplest form, insurance is a financial risk pooling mechanism. The pool has to have contributions (premiums) that equal or exceed the expected losses across wide area. The California insurance pool is huge, and yet does recognize that the risk and severity of losses in low cost, low density areas may be much lower than in high density, high severity areas. Insurers rarely get approval to set rates high enough to profit off the premiums alone, but they do invest the money and make returns from real estate and stock investments to keep the companies afloat. Even that is considered. I have seen rate approvals with expected losses of a few % higher than projected premiums when investment return expectations were higher.
All this to say, in a state with increasing numbers of cars and homes destroyed in seemingly more frequent and severe firestorms, and with high theft and accident frequency, it should come as no surprise rates are going up every year.
But, it is always wise to shop around, From year to year, this may save a little, but in the long run, finding an insurance company that manages their risks well and maintains competitive rates is the best strategy. You may pay a bit more one year, a bit less the next than with other companies, but loyalty goes a long way in giving you the benefit of the doubt should it come to that. I have seen, even recommended to the CEO of the company I worked for to give the benefit of the doubt in certain situations based on loyalty.
