California Approves State Farm’s 22% Price Hike
California’s Insurance Commissioner has approved State Farm’s request for a 22% price hike.
Following the decision, State Farm policyholders in California will see rates rise around 22%, on average. Some will pay significantly more: rental property owners could pay up to 38% higher premiums.
State Farm covers an estimated one million policyholders in California. As the largest home insurance company in the state, State Farm paid more than $2 billion to policyholders after the January 2025 wildfires in Los Angeles County.
Before approving the price hike, California regulators required State Farm to meet certain requirements.
State Farm is required to pause policy cancellations, for example. State Farm will also need to justify the reason for the 22% price hike at a public hearing in April.
State Farm argued the price hike was justified because of the increased cost of doing business in California. State Farm warned it would face financial instability without the additional revenue from the price hike, which could force it to leave California entirely.
Insurers Are Increasingly Leaving California
State Farm wants to raise prices to ensure it can continue doing business in California.
Last year, State Farm dropped coverage for 72,000 homes across the state because of higher risk. Some of those homes were later destroyed in the January 2025 wildfires.
Allstate, Farmers, and other major insurers have also significantly reduced the number of policies in California.
Rising risk has made it more difficult for insurers to be profitable in California. As Insurance Business Mag explains, State Farm has reported more than $5 billion in underwriting losses since 2016.
State Farm, meanwhile, claims its California subsidiary, State Farm General Insurance Co. has operated at a loss for years. Without the rate increase, the company would need to continue reducing costs, leading to further cancellations and non-renewals.
State Farm Must Agree to Requirements Before Raising Rates
As part of the 22% rate increase, the California Department of Insurance is mandating State Farm to meet certain requirements.
Before State Farm can raise premiums by 22%, the insurer needs to abide by the following conditions, for example:
- No more policy cancellations through the end of 2025. Last year, State Farm canceled 72,000 policies in California. State Farm argues that, without the price hike, it would need to cancel many more policies. In order for State Farm to agree to the 22% rate hike, it needs to agree to pause policy cancellations through the end of 2025, at a minimum.
- $500 million capital injection from the parent company. State Farm just paid $2 billion in claims because of the January 2025 wildfires in Los Angeles County. California is requiring a $500 million capital injection from State Farm’s parent company, State Farm Mutual. Because State Farm’s California subsidiary (State Farm General Insurance Co). has operated at a loss for years, this capital injection can help stabilize its finances.
- Public rate hearing. State Farm must convince the public to approve a 22% rate hike. On April 8, 2025, State Farm will hold a public hearing to explain why the rate hike is necessary.
California’s FAIR Plan Allows Anyone to Buy Insurance
50 years ago, California launched the FAIR Plan to oppose discrimination in the insurance industry.
Today, that same FAIR Plan makes it easy for California homeowners to buy insurance – even if they’ve been turned away by the open market.
If State Farm or any other insurer cancels your policy because of high risk, then you may be able to work with an insurance agent to get the coverage you need. Under the FAIR Plan, you join an insurance pool, and an insurer is required to cover you through that pool.
According to the California Department of Insurance, roughly 3% of California residents are covered by the FAIR Plan. In other words, 97% of customers have a competitive option for insurance and are able to buy from the open market.
California Plans $1 Billion Bailout of FAIR Plan After 2025 Wildfires
As insurers cancel policies or charge higher premiums, it’s putting increasing pressure on California’s FAIR Plan.
In fact, the FAIR Plan is expected to run out of money because of the 2025 Los Angeles County wildfires.
State regulators recently approved a $1 billion bailout of the FAIR Plan. That bailout will come from private insurers across the state, who will likely pass it onto policyholders as part of a special, one-time levy.
California’s Insurance Market at a “Critical Juncture”
According to the Insurance Information Institute’s Triple-I Blog, the insurance industry in California is at a “critical juncture.”
Rising wildfire risks – and rising costs – have made it increasingly difficult for insurers to do business in the state.
Insurers have been warning policymakers of issues for years, including:
- California does not allow insurers to model future catastrophic risks (including wildfires) for pricing purposes.
- Rate increases above 7% are subject to an arduous approval process, forcing insurers to repeatedly raise rates by 6.9%, even when this number doesn’t accurately reflect rising risk.
- Between 2019 and 2022, inflation raised homeowners’ replacement costs by 55% nationwide.
- There’s a rising risk of wildfires and other natural disasters – and they’re costlier than ever.
For all of these reasons and more, insurers are recommending collective action to change the state’s approach to insurance – and ensure homeowners can continue buying insurance from a free and fair marketplace.
