SAN JOSE, Calif. — Farmers Insurance Group, California’s second-largest home insurance company, is seeking a rate hike amid plans to lift a cap on the number of new homeowner polices it writes each month in the state.

The insurer announced this month that it will eliminate the monthly 9,500 policy limit, while asking for state approval to raise home insurance rates by an average of 6.99%.

It’s the latest move by a major provider to reverse a retreat from the fire-ravaged state in response to regulatory changes demanded by the insurance industry. While regulators say the updates will alleviate California’s insurance crisis, consumer advocates maintain the reforms will do little to help those most at risk of losing coverage.

“Farmers is doubling down on its commitment to California homeowners, expanding choice and availability for consumers across the state,” Behram Dinshaw, Farmers’ president of personal lines, which provide coverage of individuals and families, said in a statement.

Farmers enacted the cap on new homeowner policies in 2023, initially at 7,500 a month. That same year, State Farm and Allstate paused writing new home coverage anywhere in California. Providers said the state’s insurance regulations had kept rates artificially low, making it untenable to take on new customers amid more destructive fire seasons and rising construction costs.

After state regulators began phasing in new rules late last year to make it easier for insurers to raise rates, Farmers and Allstate said they would soon write more polices. Other insurers, including Mercury, USAA and CSAA, have also committed to expanding coverage, according to the California Department of Insurance.

“This marks a major turning point,” state Insurance Commissioner Ricardo Lara said in a statement. “Consumers, homeowners, nonprofits, and small businesses are going to be able to get coverage on their own terms.”

The reforms, dubbed the Sustainable Insurance Strategy, allow insurance companies to increase rates based on the growing threat of climate change and pass on more of the costs of insuring high-risk homes to their customers.

In exchange, insurance companies are expected to write more polices in fire-prone parts of the state, where they’ve ended coverage for hundreds of thousands of homeowners over the past decade. The goal is to help property owners off the FAIR Plan, the state’s expensive high-risk insurance program, which has nearly doubled in size over the past two years to roughly 625,000 homeowner policies.

Consumer advocates, however, say the reforms will lead to a continued spike in rates and are deeply skeptical that insurers will actually write more policies in fire-risk communities.

They cite what they describe as “loopholes” in the regulations, including the exclusion of many fire-prone neighborhoods from the state’s map where insurers must write more policies. Regulators say that providers will still be required to add policies in areas not listed on the map.

As part of Farmers’ request to raise rates under the updated regulations, the company said it will add “at least several thousand new policies” in areas deemed high-fire risk by the state starting early next year. While the average rate increase would be about 7%, some homeowners would see steeper double-digit hikes. Farmer accounts for about 14% of homeowner premiums statewide.

Los Angeles-based Consumer Watchdog assailed Farmers’ rate filing request for not including strong enough commitments to insure more fire-risk properties. It urged regulators to force insurance companies to cover homeowners who take steps to protect their properties against wildfires.

“This filing is proof that carrots do not work with insurance companies,” Consumer Watchdog President Jamie Court said in a statement. “California’s insurance companies need sticks.”

In response, the state insurance department accused Consumer Watchdog of pushing misinformation about the reforms, a claim the group has denied.

“They cling to the past – that they opposed changing – where companies can increase rates while dropping customers,” the insurance department said in a statement.

Farmers, meanwhile, said in a statement that it aims to expand coverage statewide and “meet or exceed our stated commitment to growth in distressed areas.”

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