State Farm to Increase Insurance Costs for Millions of Californians

California's insurance commissioner granted State Farm approval for an emergency 17 percent rate hike on Tuesday, after already authorizing a 20 percent increase last year.

Commissioner Ricardo Lara's decision came after a judge concluded on the same day that the carrier—the biggest homeowner insurer in California—was in a weak financial position following the devastating wildfires that hit Los Angeles County in January.

The approval, which follows months of back and forth between the insurer and the commissioner, means that State Farm can raise premiums in California starting June 1.

Why It Matters

California is in the midst of a property insurance crisis, as recent years have seen several carriers cutting coverage in the most disaster-prone areas of the state, leaving homeowners with limited options or no feasible alternative at all in the private market. Many have had to rely on the California's FAIR Plan, the state's fire insurer of last resort, which often doesn't offer as much coverage as private insurers like State Farm.

Part of the reason why insurers have been slipping out of the state is because the risk of devastating extreme weather events like wildfires and flooding is being exacerbated by climate change, and companies are unable to price this growing exposure correctly. California has very strict regulations preventing carriers from introducing "unreasonable rate increases" which have kept property insurance premiums artificially low in recent years.

Following the devastating wildfires in January, which caused more than $100 billion in estimated damages, the state's insurance commissioner has appeared more willing to concede insurers to hike their rates in exchange for their continuous presence and commitment to California homeowners.

What To Know

State Farm requested emergency rate increases of 22 percent for non-tenant homeowners, 15 percent for renters and condos, and 38 percent for rental dwelling back on February 3, right after the devastating wildfires that destroyed entire neighborhoods in Los Angeles County.

Lara had initially seemed reluctant to approve State Farm's emergency rate hikes, asking the company to prove its financial position following the wildfires. In mid-March, he ordered a judge to conduct an independent review of the insurer's request. The result of this review, run by administrative law judge Karl Frederic Seligman, convinced him that the rate hikes were needed.

According to the judge's ruling, the wildfires in January broke out when State Farm "was already in a weakened position." Between 2022 and January 2025, after the wildfires ravaged Southern California, State Farm's surplus plunged from $2.24 billion to approximately $620 million, Seligman found, a "massive drop" underscoring "that the company is in a precariously weak position as it is a dramatic change in a relatively short period."

Considering that State Farm's reinsurance—essentially, insurance for insurers—is currently $375,000 million, another devastating extreme weather event "would nearly eliminate State Farm's existing surplus," the judge concluded.

As State Farm remains the biggest home insurers in California, representing 20.7 percent of the state's market, Seligman recommended regulators approve the company's emergency request for a rate hike to improve the carrier's "financial footing."

Lara, the ultimate decision-maker for the emergency interim rate, adopted the judge's order.

"I am balancing all the facts. Protecting all State Farm customers and the integrity of our insurance market is an urgent matter," Lara said in a statement on Tuesday.

The commissioner said he now expects State Farm to provide "the highest level of service to its California customers and to fulfil its promises."

State Farm said earlier this year that it expected to pay $7 billion in claims related to the Los Angeles area wildfires. Many homeowners affected by the blazes recently said they were still struggling to get their claims paid by the carrier.

"State Farm must now justify its financial condition and detail its recovery plan in a full rate hearing before a neutral judge and my Department's experts," Lara said. "I am focused on ensuring that State Farm pays its claims to wildfire survivors fully and fairly—and nothing is off the table."

What People Are Saying

Judge Karl Frederic Seligman wrote in his ruling on Tuesday: "The evidence established a prima facie [on a first impression, meaning there is sufficient evidence to support a case] showing that State Farm is in extraordinary financial distress, coupled with surplus depletion that jeopardizes ongoing business operations."

California Insurance Commissioner Ricardo Lara said in a statement on Tuesday: "Let me be clear: We are in a statewide insurance crisis, affecting millions of Californians. Taking this on requires tough decisions. This is not a game. This is not a media-driven moment for some to exploit—this impacts people I am committed to protecting."

State Farm said in a press release on Tuesday: "We remain deeply concerned about the financial position of State Farm General, as it is difficult to match price to risk in California. As we continue to emphasize in our ongoing interim rate filing, we need immediate rate increases to help stabilize State Farm General's financial condition to be able to serve our California customers for the long-term."

What Happens Next

Homeowners in the state can expect 17 percent rate hikes starting from next month, while renters and condos will see an average 15 percent increase, and rental dwellings will face an average 38 percent rise. More than 1 million policyholders in the state are expected to be affected by these increases.

While expressing gratitude toward the commissioner for his decision, State Farm said it is not out of troubled waters yet. "It's time for certainty in the California insurance market for our customers. The provisional nature of today's decision does not improve that certainty but it's a step in the right direction," the carrier said on Tuesday.

Many policyholders affected by the Los Angeles County wildfires in January said they have not yet had their claims with State Farm paid. The insurer said on Tuesday that it remains focused "on helping our customers recover from the wildfires," adding that, as of Monday, it had already paid more than $3.51 billion and was handling more than 12,692 claims.

Are you a California homeowner and/or a State Farm policyholder? Let me know what you think of the approved rate hikes by contacting me at g.carbonaro@newsweek.com.