California homeowners are once again bracing for higher insurance costs — this time from one of the state’s largest insurers. State Farm, which insures roughly 27% of all residential properties in California, has filed for major premium increases across multiple policy types.
According to recent reports, the proposed hikes could reach as high as 50% for some customers, affecting homeowners, condo owners, and renters alike.
In an interview with FOX KTVU, insurance expert and Insurance Hour host Karl Susman explained what’s behind these increases, how the California Department of Insurance (CDI) is involved, and what it could mean for millions of policyholders statewide.
State Farm’s Proposed Rate Increases
State Farm’s filing includes steep increases across several lines of coverage:
- 30% for homeowners insurance
- 36% for condominium owners
- 52% for renters insurance
These requests follow a turbulent period for the company. In 2023, State Farm paused new homeowners policies in California, citing soaring construction costs and wildfire exposure. In March 2024, the company was downgraded for financial solvency by AM Best. One month later, it non-renewed more than 72,000 policies.
“In March, they were downgraded for their financial solvency by AM Best,” Susman said. “Then in April, they non-renewed over 72,000 policies. And now they’ve submitted this request for an increase.”
Why State Farm’s Filing Is So Critical for California
State Farm’s request carries outsized importance because of its massive footprint in California. With more than a quarter of residential properties insured by the company, any change in its pricing or availability has statewide consequences.
“When you have a company as large as State Farm, it’s going to have an effect,” Susman said. “If they’re in that kind of financial strait, I can’t imagine how the Department of Insurance wouldn’t approve the increase.”
From a regulatory standpoint, denying the request could threaten the solvency of the state’s largest insurer. Approving it, however, places a heavy burden on consumers already struggling with high costs.
The Regulatory Dilemma Under Proposition 103
Under Proposition 103, insurers must receive CDI approval before implementing rate increases. Each filing must include extensive financial documentation proving that the increase is necessary.
“They have to show documentation that they actually need this money to stay solvent,” Susman explained. “If the Department understands that but still denies it, they’re basically saying, ‘We hope there’s not a big event — because State Farm won’t have the money to pay.’”
This creates a stark dilemma for regulators: protect consumers from sharp increases, or ensure that insurers remain financially able to pay claims after disasters.
The Broader Insurance Market Crisis
State Farm is far from alone. Across California, nearly every major insurer is under financial strain.
Over the last two years:
- Allstate and Farmers paused or restricted new policies
- AAA non-renewed thousands of homeowners
- Many regional carriers exited wildfire-prone regions
The pressures driving these decisions are consistent across the industry:
- Exploding construction and labor costs
- Record wildfire losses
- Surging reinsurance expenses
- Regulatory delays in approving rate changes
“All insurance carriers are taking pretty significant increases,” Susman said. “It’s not just State Farm.”
Why Large Rate Increases Are Becoming Unavoidable
At the core of the problem is regulatory lag. California’s rate approval system moves far more slowly than inflation, rebuilding costs, and climate-driven risk.
Since 2019:
- Wildfire cleanup and reconstruction costs have doubled in some regions
- Reinsurance costs have jumped 30–50% in a single year
- Construction inflation has exceeded 20% in parts of the state
Insurers are required to pay full replacement cost for losses, but they cannot adjust premiums quickly enough to reflect these surging expenses.
“When you’re seeing this kind of inflation, insurers are literally losing money on every claim,” Susman explained. “But they can’t raise rates fast enough to match reality.”
What the AM Best Downgrade Signals
In March 2024, AM Best downgraded State Farm’s financial outlook, citing rising catastrophe exposure, inflation-driven losses, and higher reinsurance costs.
This downgrade has serious implications:
- It increases State Farm’s cost of buying reinsurance
- It signals heightened financial risk to regulators and investors
- It adds pressure for faster and larger rate increases
“If a company’s rating drops, it becomes more expensive for them to operate,” Susman said. “That cost eventually trickles down to consumers.”
What the Department of Insurance Can and Cannot Do
The CDI has authority over rate approvals, but it is constrained by solvency requirements.
If State Farm proves that its proposed increases are necessary to remain financially stable, the Department cannot arbitrarily deny the request without risking broader market harm.
“You’re stuck between a rock and a hard place,” Susman said. “Do you approve a rate increase that high, or do you risk letting the company not have enough money to pay claims?”
In many cases, regulators may negotiate phased increases or reduced percentages, but total rejection is unlikely when solvency is at stake.
What These Increases Could Mean for Consumers
If approved, the increases would represent some of the largest single-year premium jumps in California history.
Examples of potential impact:
- A $2,500 homeowners policy could rise to $3,250 or more
- A $150 renters policy could jump past $220
The ripple effect may extend beyond State Farm customers, as competing insurers may use the same cost justifications to file for their own increases.
“This affects homeowners, but it affects renters too,” Susman said. “Everybody’s feeling it.”
What Homeowners and Renters Can Do Now
While consumers cannot control regulatory decisions, there are steps they can take to manage the impact.
Review your replacement cost annually to ensure coverage reflects today’s rebuilding prices.
Ask about mitigation discounts for fire hardening, defensible space, and home upgrades.
Bundle policies when possible to capture remaining multi-policy discounts.
Work with independent brokers who can access surplus lines and specialty insurers.
Monitor FAIR Plan options if private coverage becomes unavailable.
The Bigger Picture: Reform or Continued Retrenchment
State Farm’s filing highlights the growing tension between California’s regulatory framework and the economic realities of climate-driven risk.
Without modernization, more insurers are likely to follow suit with large rate filings or further market withdrawals.
Commissioner Ricardo Lara’s Sustainable Insurance Strategy aims to change that by allowing forward-looking catastrophe models, modernizing rate approvals, and encouraging insurers to return to high-risk areas.
These reforms may stabilize the market long term — but their full effect will take time.
Final Thoughts: Short-Term Pain, Long-Term Stability
California insurance consumers face a difficult near-term outlook. Premiums are rising sharply, availability remains tight, and even the largest insurers are under strain.
Yet, there is cautious optimism that regulatory modernization will eventually restore competition and balance.
“In the short term, we have to grin and bear it,” Susman said. “Because the alternative — insurers not having enough money to pay claims — would be far worse.”
For now, preparation, vigilance, and informed decision-making remain the best tools for navigating California’s turbulent insurance landscape.
