California homeowners are facing a significant change as State Farm has received preliminary approval to raise home insurance premiums by an average of 22%. This decision impacts nearly one million homeowners in the state and comes amid an ongoing insurance crisis fueled by severe wildfires.
California Insurance Commissioner Ricardo Lara announced the rate hike on March 16, 2025. However, the approval includes strict conditions. State Farm must pause any policy cancellations and justify the rate increase at a public hearing scheduled for April 8. This hearing will allow the public to hear the insurer’s rationale for the increase, which is set to take effect on June 1 if approved.
State Farm, the largest home insurer in California, requested this emergency increase after suffering over $2 billion in claims from devastating wildfires in Los Angeles County earlier this year. The company warned that without additional revenue, it might face financial instability and could withdraw from the California market altogether.
Lara recognized the challenging state of California’s insurance market but stressed the importance of transparency. He stated that any rate increase must be justified in an open forum. Consumer advocates have criticized the decision, arguing that State Farm’s parent company has sufficient reserves and should not need to raise rates on customers.
In addition to the rate increase, State Farm must meet several conditions. These include halting cancellations of existing policies until at least the end of 2025 and securing a $500 million capital infusion from its parent company to stabilize its California operations.
The California insurance market has been under strain for years. Major insurers, including State Farm, Allstate, and Farmers, have reduced or stopped issuing new policies due to rising wildfire risks and state limits on premium increases. State Farm had already ceased issuing new homeowner policies last year and announced it would drop coverage for 72,000 homes and apartments.
The recent wildfires in Los Angeles have raised concerns about the stability of the insurance industry, resulting in an estimated $45 billion in insured losses. State Farm could be responsible for about $7.6 billion of those claims, adding further pressure to its finances. The company has reported over $5 billion in underwriting losses since 2016, which has depleted its surplus reserves.
Looking ahead, if State Farm successfully justifies its rate increase at the upcoming hearing, homeowners can expect their premiums to rise significantly. Rental property owners might see even steeper hikes, up to 38%. However, if the judge overseeing the hearing finds the increase unjustified, State Farm may have to reduce its rate hike or refund excess charges to customers.
As California grapples with these challenges, lawmakers are considering changes to regulations that could allow insurers to adjust rates more easily based on climate risks. However, consumer groups are concerned that such changes could lead to even higher premiums for residents.
The state’s insurance market remains fragile as stakeholders work to balance the need for affordable coverage with the financial realities of increasing wildfire threats.