Listen: Insurance Expert Karl Susman is following the California Department Of Insurance hearing with State Farm regarding their emergency rate increase request.
Published Date: 04/11/2025
California’s Insurance Crossroads: Breaking Down the State Farm Rate Hearing and What It Means for Homeowners
California’s insurance crisis continues to dominate headlines, and the latest chapter — State Farm’s emergency hearing before the California Department of Insurance (CDI) — underscores just how fragile the system has become.
In an interview with The Afternoon News with Kitty O’Neal, insurance expert Karl Susman offered an in-depth analysis of what unfolded at the hearing, explaining why the outcome could shape the state’s insurance market for years to come. The discussion centered on one key question: Can insurers afford to stay in California — and can homeowners afford for them not to?
A Financial Firestorm: Why State Farm Requested an Emergency Increase
The hearing in Oakland brought together three major players: State Farm, the California Department of Insurance, and Consumer Watchdog, a nonprofit advocacy group known for its strict interpretation of insurance regulations.
At the center of the dispute was State Farm’s request for a 17% “interim” rate increase — an emergency measure the company argues is essential to maintaining solvency. State Farm’s representatives presented data showing that, without this immediate increase, their California operation faces potential downgrades from credit agencies like AM Best and S&P.
A downgrade, they warned, would have a domino effect:
- Lenders could refuse to recognize State Farm’s policies as sufficient collateral.
- Homeowners with mortgages could face loan recalls.
- Hundreds of thousands of policyholders might lose coverage if the company is forced to pull back.
As Susman explained, this isn’t simply about corporate profit — it’s about keeping the market functioning.
“If State Farm can’t meet financial solvency standards, they’ll have no choice but to reduce exposure,” Susman said. “And that means more Californians ending up on the FAIR Plan, which was never designed to handle this volume.”
The Department of Insurance: A Surprising Ally
The California Department of Insurance (CDI) — often seen as a consumer protection agency — took a surprisingly supportive stance during the hearing. The department agreed that the 17% increase appeared “justified and necessary” under current conditions.
According to Susman, this rare alignment between the CDI and an insurer reflects the severity of the crisis.
“The Department understands that this is about stability,” Susman noted. “If the state’s largest insurer can’t stay solvent, the repercussions could be catastrophic for the entire market.”
The CDI also emphasized an important safeguard: if State Farm’s projections turn out to be overstated, the company has pledged to refund policyholders the difference plus interest. This assurance made the proposal politically palatable, offering the public a “no-lose” scenario — at least in theory.
Consumer Watchdog: Crying Foul
Consumer Watchdog, however, wasn’t convinced. The group argued that the emergency increase violates California law under Proposition 103, the 1988 initiative that requires public justification and approval for all insurance rate hikes.
Their argument rested on three main points:
- Financial hardship is not a valid justification for a rate increase.
- State Farm allegedly waived certain procedural rights that would have allowed for a proper emergency filing.
- The company’s financial issues are self-inflicted — stemming from management decisions, not regulatory restrictions.
In their view, allowing an “interim” rate hike would set a dangerous precedent, inviting other insurers to bypass the standard approval process by simply declaring financial distress.
Susman, however, pushed back on that reasoning.
“This idea that companies can just ‘declare hardship’ and raise rates is nonsense,” he said. “No insurer wants to go through an emergency proceeding. It’s public, it’s political, and it invites intense scrutiny. This is a last resort.”
Inside the Hearing: High Stakes, Little Power
While the Oakland hearing attracted intense public attention, Susman described it as “a lot of theater” — because the administrative law judge overseeing it has no authority to make a final ruling.
Instead, the judge’s role is to compile evidence, testimony, and public comment before submitting a recommendation to the Insurance Commissioner, who makes the ultimate decision.
Given that the CDI has already voiced its support, Susman predicts that approval is virtually certain.
“At this point, it’s just about timing,” he said. “The Commissioner will likely approve the rate increase within weeks. The data supports it, and politically, the refund provision gives them cover.”
A Broken Model: Why This Keeps Happening
The State Farm case is not an isolated incident — it’s a symptom of California’s outdated insurance framework.
Under Proposition 103, insurers must base rates on historical losses, not projected future risks. This makes it nearly impossible for companies to price policies accurately in an era of climate-driven disasters.
Add to that:
- Escalating construction and labor costs
- Global reinsurance price surges
- Supply chain delays
- And tight restrictions on using predictive models
… and you have a market where the math simply doesn’t work.
As Susman put it:
“You can’t sell a $1,000 policy that costs $1,500 to provide — not sustainably, anyway. That’s why we’re seeing carriers pull out, pause new business, or dump risk onto the FAIR Plan.”
What Happens Next for Homeowners
If the 17% increase is approved, State Farm policyholders can expect higher premiums within months. But Susman says the alternative would be worse: widespread policy cancellations and market exits that would drive even more homeowners to the FAIR Plan — California’s “insurer of last resort.”
He offered several pieces of advice for homeowners navigating this volatile market:
- Don’t let your policy lapse.
Once coverage is dropped, finding a new policy in a high-risk area is nearly impossible. - Shop early and compare.
Start your renewal process months in advance, as underwriting timelines are longer than ever. - Review your dwelling coverage limits.
Rebuilding costs have soared; ensure your policy reflects current construction pricing. - Invest in mitigation.
Home-hardening improvements (fire-resistant roofs, defensible space, ember-resistant vents) can sometimes qualify for discounts — and may soon become mandatory. - Document everything.
Keep an inventory of belongings, receipts, and photos. If a claim occurs, you’ll need it to expedite payment.
A Broader National Trend
California isn’t alone in facing this crisis. Florida, Texas, and Colorado have all seen insurers retreat or raise rates due to severe weather losses. What makes California unique is its regulatory rigidity. While other states allow insurers to adjust pricing more dynamically, California’s framework — designed to protect consumers in the 1980s — has become a bottleneck in the 2020s.
As Susman noted, this hearing may become a national case study in how states must balance affordability with solvency.
“Regulators everywhere are watching California,” he said. “If the largest insurer in the nation can’t operate profitably here, that sends a powerful message.”
The Bottom Line: A Turning Point
The outcome of this hearing will set the tone for the next decade of California insurance regulation. If the CDI approves the increase — as most expect — it may signal a shift toward pragmatism over politics.
But for consumers, the reality is sobering: higher rates are coming, and so are harder choices.
Susman summed it up best:
“People want affordable insurance, but they also want it to be there when disaster strikes. You can’t have one without the other. The challenge is finding that balance — and right now, California is struggling to do it.”
Key Takeaway
California’s insurance market isn’t collapsing — but it’s teetering. The State Farm emergency hearing is both a warning and an opportunity: a reminder that without modernization, even the strongest insurers can falter. For homeowners, it’s time to stay informed, prepared, and proactive — because stability, for now, comes at a cost.
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