A look at the statewide rate hike in State Farm insurance prices | On Your Side

Published Date: 05/15/2025

What California’s State Farm Rate Hike Really Means — And Why It’s Not Over Yet

California homeowners are facing another rate shock.

In late June 2024, a judge and the state’s insurance commissioner approved a 17% statewide rate increase for State Farm’s homeowners policies, marking one of the most significant insurance decisions in recent years.

The approval comes despite strong objections from consumer advocates and wildfire victims, who argue that the company has struggled to handle claims and shouldn’t be rewarded with higher rates.

But regulators and industry experts say the increase was financially necessary to keep the company solvent — and that the decision is only temporary, pending a full hearing this fall.

As CBS’s Christine Lazar reported on the On Your Side segment, “This doesn’t just affect those who live in the fire-prone areas. This is going to be statewide.”

1. The Headline Numbers

Under the ruling, State Farm was granted:

• +17% increase for homeowners insurance policies statewide
• +15% for condo and renters policies
• +38% for rental property coverage

The increases affect all California policyholders, regardless of where they live — from wildfire-exposed mountain communities to suburban Los Angeles and coastal cities.

The rate hike follows months of financial turbulence for State Farm’s California subsidiary, State Farm General Insurance Company, which has already:

• Stopped writing new homeowners policies (since May 2023)
• Non-renewed tens of thousands of policies (announced earlier in 2024)
• Filed for multiple rate increases since late 2023

2. Why Did Regulators Approve the Increase?

To answer that question, CBS turned to insurance expert Karl Susman, who attended the hearing in Sacramento.

“The judge approved it because he looked at all the documentation,” Susman explained. “There was a three-day hearing, and he found that the rate increase was justified financially — simple as that.”

The insurance commissioner, he added, followed the judge’s recommendation.

But this was not a blank check. Susman emphasized that this approval is temporary — more like a “mini-hearing” or “bridge decision” than a final ruling.

“Between now and October, there’s going to be a full hearing,” he said. “Yes, we get to do it all over again.”

3. A Conditional Approval — With Strings Attached

The ruling included several major stipulations designed to protect consumers and ensure accountability.

Here’s what they are:

🟢 1. Refunds May Be Required

If the upcoming full hearing determines that the rate hike was not financially justified, State Farm will be required to refund the increase — plus interest — to all policyholders.

That’s an unusual safeguard and a clear signal that the commissioner is trying to balance solvency with consumer fairness.

🟢 2. No Non-Renewals During This Period

Until the October hearing, State Farm cannot issue new non-renewals for existing California policyholders. This prevents the company from raising rates and dropping customers simultaneously.

🟢 3. Immediate Capital Infusion

State Farm must also transfer $600 million from its national parent company into its California branch to “shore up” reserves and demonstrate financial stability.

“They have to bring in about $600 million in money from their parent company immediately to California,” Susman said.

This requirement, he added, was designed to prevent a liquidity crunch — a worst-case scenario where the company wouldn’t have enough cash to pay out claims.

4. Why State Farm Says It Needed the Hike

State Farm’s justification for the increase centers on financial solvency.

“They need this money to be solvent,” Lazar summarized.

The company claims that rising costs — including reinsurance, wildfire claims, and inflation — have left its California business model unsustainable.

“They put in a rate increase prior to the fires,” Susman explained. “Somewhere around 30%. That was in November or maybe October of last year, and nothing came of it. Now we have the fires that came, and they’re paying out.”

According to Susman, State Farm currently has over 12,000 open wildfire-related claims in California.

At the same time, their financial rating was downgraded by A.M. Best, the global firm that evaluates insurers’ ability to meet obligations.

“Their financial ratings have been lowered by A.M. Best,” Susman said. “That’s an organization that does nothing other than rate the financial solvency of insurance companies.”

A downgrade like this is serious — it signals that an insurer’s reserves may not be adequate to cover potential claims.

“When you see an insurance company waving the white flag saying, ‘Hey, we need money or we can’t pay claims,’ that’s a situation that needs attention,” Susman said. “A company like State Farm — you just don’t hear that happening unless something really bad is going on.”

5. The Consumer Backlash

Not everyone agrees that State Farm deserves a lifeline.

Many fire victims and consumer advocates have argued that the company has been slow to pay claims and quick to deny them — making this rate increase feel like a reward for poor performance.

“Fire victims are saying, ‘Hey, we’re having a hard time getting them to handle our claims properly,’” Lazar reported. “And now, all of a sudden, they’ve been given this rate hike.”

Susman acknowledged that he’s heard similar complaints from some of his own clients.

“I have clients who have had struggles with State Farm,” he said.

Still, he stressed that separating customer service issues from financial solvency was part of the regulator’s role.

“The insurance commissioner is saying those are two separate things,” Lazar noted. “We’ll see.”

6. Understanding the Bigger Picture

To understand why this is happening, you have to look at California’s broader insurance crisis.

Over the past two years:

• More than a dozen insurers have paused or limited new business.
• Wildfire risk has driven reinsurance costs up by over 200%.
• Inflation has increased rebuilding costs by 30–40%.
• Proposition 103, a voter-approved law from 1988, has frozen insurers into a reactive model based on historical data, not future risk.

Without the ability to use catastrophe modeling or quickly adjust rates, insurers say they can’t keep up — leading to market withdrawals, non-renewals, and FAIR Plan overloads.

That’s why California’s Sustainable Insurance Strategy, championed by Insurance Commissioner Ricardo Lara, is so important. It promises to modernize the system by:

• Allowing forward-looking catastrophe modeling, and
• Streamlining rate approval timelines to within 120 days.

But as this State Farm case shows, reforms can’t arrive fast enough for an industry on the brink — or for homeowners facing premium shock.

7. What Homeowners Should Expect Next

Here’s what to know moving forward:

🕒 1. The October Hearing

This is not the final decision. A full evidentiary hearing will determine whether the rate increase is justified — and whether refunds will be issued.

📈 2. Potential for More Rate Activity

Other insurers are likely to watch this case closely. If State Farm’s increase stands, expect similar filings from other carriers trying to stay solvent.

🔒 3. No New Non-Renewals — For Now

For the time being, State Farm is barred from dropping policies, providing short-term protection for homeowners.

💬 4. Contact Your Agent

If you’re a State Farm customer, now is the time to review your coverage, deductibles, and limits. Small adjustments may help offset potential premium increases when they take effect.

8. The Takeaway: A Temporary Fix in a Systemic Crisis

The State Farm rate hike is not just about one company — it’s a microcosm of California’s larger insurance dilemma.

Regulators are walking a tightrope between consumer protection and financial stability. If rates are held too low, insurers leave. If rates rise too fast, homeowners can’t afford coverage.

Susman summed up the situation bluntly:

“It’s a horrible situation right now,” he said. “There’s no way to put it any other way.”

The 17% hike may stabilize State Farm for now, but the real test will come in October. If the company’s finances improve — and reforms take effect — California may finally start to see insurers return.

If not, the crisis will deepen, and policymakers will face pressure for even more drastic measures.

Either way, this decision makes one thing clear: California’s insurance market is changing fast, and every homeowner needs to pay attention.