State Farm’s Emergency Rate Hike and California Insurance
Published Date: 02/05/2025
The California insurance market is once again at a tipping point. In the wake of catastrophic wildfires that have devastated communities and caused billions in damages, State Farm—the nation’s largest property insurer—has requested an emergency 30% rate increase in California.
To many consumers, the news feels familiar: higher premiums, fewer coverage options, and growing uncertainty. But as insurance expert and Insurance Hour host Karl Susman explained during his recent appearance on NewsNation, this move is not only predictable—it is, in his view, necessary for the long-term survival of California’s insurance system.
This breakdown explains why State Farm is seeking this increase, what it signals about the broader market, and what homeowners can expect next.
Why State Farm Is Asking for a 30% Rate Increase
According to Susman, this emergency request didn’t come out of nowhere. State Farm had already submitted a similar 30% rate increase request roughly six months earlier, which became delayed in the regulatory review process at the California Department of Insurance. Since that filing, a new wave of destructive wildfires has dramatically increased the company’s financial exposure.
“We’re now six months later, and we’ve had this unbelievable catastrophe happen,” Susman said. “They’re putting in a request for additional rate increases. This is what you expect to see when a company really needs to get their pricing in balance with what their exposure is.”
Insurers set premiums based on expected risk. When wildfire frequency and severity increase, that pricing must adjust. California’s strict rate-approval system slows that adjustment, often leaving insurers collecting outdated premiums while paying modern-day catastrophe losses. That imbalance is exactly what State Farm is now trying to correct.
What “Depleting Capital” Really Means for Policyholders
In its filing, State Farm warned that wildfire claims will “further deplete capital.” While that phrase can sound abstract, Susman explained its real meaning for consumers.
“The rate increase being sought today isn’t putting money in anyone’s pocket for claims right now,” he said. “That process takes months to implement and then an entire year for the company to actually collect premiums.”
Current wildfire claims are being paid from existing reserves—not from future rate increases. To meet its obligations, State Farm is pulling capital from its other operations outside California and redirecting it into the state. This cross-state capital support prevents insolvency in the short term, but it is not a sustainable long-term strategy.
“They’re doing the right thing,” Susman explained, “but they can’t do that forever.”
Reinsurance: The Global Driver of Local Premium Increases
One of the least understood forces behind rising insurance premiums is reinsurance—insurance that insurers buy to protect themselves from large catastrophic losses.
“They’re hedging their bets when they take bets on us,” Susman said.
Reinsurance companies operate globally, with major hubs in London, Switzerland, and Bermuda. After years of historic disasters—California wildfires, Florida hurricanes, European floods, and other catastrophes—reinsurers have dramatically raised their prices. Those additional costs flow directly back to primary insurers and, ultimately, to consumers.
“To some extent, we’re already feeling the impact of disasters around the world because of reinsurance,” Susman noted. In practical terms, the global cost of climate disasters is now embedded in local insurance bills nationwide.
Climate Change and the Escalating Cost of Insurance Risk
Susman stressed that this is not just a California problem.
“People across the country should expect to see their rates increase because of climate change,” he said. “We’re seeing disaster after disaster—hurricanes, tornadoes, floods, wildfires, earthquakes—and all of these end up costing a lot of money.”
For decades, insurers relied on historical averages to model future risk. Those assumptions no longer hold. Events once considered “1-in-100-year” disasters are now occurring every few years. As a result, insurers must completely recalibrate their pricing models or risk financial collapse.
California’s Regulatory Paradox Under Proposition 103
One of the most striking ironies in this crisis is California’s pricing position nationwide. Despite its exposure to wildfires and earthquakes, California still ranks among the least expensive states for homeowners insurance.
“It seems a little odd,” Susman said, “considering the earthquakes and the wildfires and everything else that happens here.”
The root of this paradox is Proposition 103, a 1988 law requiring regulators to approve all insurance rate increases. While designed to protect consumers, the law has also limited insurers’ ability to respond quickly to rapidly changing risk. The result is a persistent mismatch between actual wildfire exposure and what insurers are allowed to charge.
That gap is now driving insurers to either request emergency increases, sharply reduce new business, or exit the market entirely.
The National Spread of FAIR Plans and Risk Pooling
California is no longer alone in creating government-backed insurance safety nets. Susman pointed out that other states are now following similar paths.
“Colorado recently created their first FAIR Plan, which is basically an organization to pool money together for wildfires,” he said. “We’re going to see this state by state across the entire country.”
FAIR Plans provide coverage when private insurers will not, but they are also financially fragile. They rely on assessments across participating insurers and, in extreme cases, can pass costs back to policyholders through surcharges. As disasters grow in size and frequency, even these last-resort systems face mounting financial pressure.
What This Means for California Homeowners
For homeowners and renters, the practical consequences of State Farm’s emergency request are significant:
- Premium increases are likely unavoidable, whether through private insurers or the FAIR Plan.
- Policy non-renewals may continue in high-risk wildfire zones, even with temporary state moratoriums.
- Bundling home, auto, and umbrella policies through an independent agent may help offset some cost increases.
- Home-hardening measures—such as ember-resistant vents, defensible space, and fire-resistant construction—can lead to mitigation discounts.
- Continuous coverage is more important than ever. Auto-pay, updated contact information, and early renewal reviews are now essential.
Replacing a lost or canceled policy in today’s market is often far more expensive—and sometimes impossible.
A Market in Transition, Not a Temporary Spike
State Farm’s emergency rate request is not simply a response to one bad fire season. It is a clear signal that California’s insurance market is being structurally reshaped by climate risk, regulatory limits, and global reinsurance pressures.
As Susman summarized it, “What we’re seeing now is the rebalancing of premium to risk.” Insurance pricing in California—and across the country—is entering a new era where exposure, not historical averages, will increasingly determine cost.
Final Takeaway for Consumers
For policyholders, the message is direct: prepare for continued change. Review your policies annually, understand your wildfire exposure, invest in mitigation where possible, and work closely with a trusted insurance professional to keep your coverage aligned with today’s risk environment.
California’s insurance challenges are no longer isolated. They are a preview of what climate-driven risk looks like for homeowners nationwide.
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