California homeowners face a severe insurance crisis as State Farm’s 17% rate hike is approved amid widespread policy cancellations and skyrocketing premiums.
At a Glance
- California approved a 17% increase in State Farm home insurance premiums effective June 1, lower than the 21.8% initially proposed
- Over 64% of surveyed California policyholders have had their insurance dropped or not renewed, with nearly 67% unable to find replacement coverage
- State Farm agreed not to implement new policy non-renewals through the end of 2025 as part of the rate hike agreement
- The state’s FAIR Plan, a last-resort insurer, has seen its risk exposure grow from $50 billion in 2018 to $458 billion in 2024
- Experts predict California home insurance costs will continue rising for the next 10-20 years
State Farm Rate Increase Signals Deepening Crisis
California Insurance Commissioner Ricardo Lara approved State Farm’s request for a 17% increase in homeowners insurance premiums, highlighting the severe insurance crisis gripping the state. The rate hike, which takes effect June 1, follows recent devastating wildfires including the Eaton and Palisades fires that caused significant financial strain on insurers. The approved increase affects not only homeowners but also includes a 15% increase for condo and renters insurance and a substantial 38% jump for landlord rental-dwelling insurance policies across California.
The decision came after Administrative Law Judge Karl Fredric J. Seligman determined that “State Farm is experiencing extraordinary financial distress, coupled with surplus depletion that threatens ongoing business operations.” As part of the agreement, State Farm’s parent company will provide a $400 million cash infusion, and the insurer committed not to implement new block non-renewal programs through the end of 2025, providing some temporary stability for current policyholders.
Policyholders and Officials Divided Over Decision
The rate increase has drawn criticism, particularly from wildfire victims. State Senator Sasha Renée Pérez opposed the decision, stating, “The decision to grant State Farm’s unprecedented request for an emergency rate increase disregards the hardships faced by fire victims and their calls for accountability.” Pérez had requested a delay in the decision pending an investigation into complaints about State Farm’s claim handling practices, particularly delays in payments to Eaton Fire survivors.
“I am focused on ensuring that State Farm pays its claims to wildfire survivors fully and fairly — and nothing is off the table. I am balancing all the facts. Protecting all State Farm customers and the integrity of our insurance market is an urgent matter. 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,” said Ricardo Lara.
Despite the approved increase, State Farm must still justify its financial condition and detail its recovery plan in a full rate hearing before a neutral judge and the Department of Insurance experts. This additional scrutiny comes as the company faces ongoing criticism about its handling of claims from recent wildfire victims, with some reporting significant delays in receiving insurance payouts for their losses.
California’s Broader Insurance Market Collapse
The State Farm situation reflects a broader collapse in California’s insurance market. A 2024 survey revealed that over 64% of policyholders had their insurance dropped or not renewed, and nearly 67% had not found replacement coverage. As major insurers pull back from high-risk areas, more homeowners are being forced into the state’s FAIR Plan, a last-resort insurer originally designed as a temporary safety net, not a permanent insurance solution for a significant portion of California homeowners.
The FAIR Plan now faces its own crisis, with its risk exposure growing astronomically from $50 billion in 2018 to $458 billion in 2024. This expansion puts the plan and ultimately all California policyholders at significant financial risk. Industry experts are now warning that home insurance costs in California are expected to continue rising for the next 10 to 20 years, creating long-term affordability challenges for homeowners across the state.
“The premiums have to equal the claims. And so, if the claims are going up, the premiums have to go up,” said Michael Wara.
Potential Solutions to California’s Insurance Crisis
Commissioner Lara is pursuing several reforms to address the insurance crisis, including requirements for insurers to cover more homes in high-risk areas if they want to continue operating in California’s profitable markets.
Experts are also calling for increased emphasis on “home hardening” measures, which can reduce wildfire risks through infrastructure improvements such as fire-resistant roofing, cleared vegetation perimeters, and ember-resistant vents. There are growing discussions about establishing state-mandated hardening regulations to help stabilize the insurance market.
Other proposed solutions include spreading insurance costs more fairly across high and low-risk areas, creating a structure where all Californians share some of the burden rather than concentrating extreme premium increases in fire-prone regions. State officials are also working to depopulate the overcrowded FAIR Plan by developing incentives to move policyholders back to traditional insurance companies, but this remains challenging as long as insurers see California as an unprofitable market due to climate-related risks.
