State Farm Insurance one step closer to raising rates | KTVU
Published Date: 05/15/2025
State Farm Rate Hike Approved: What California’s Emergency Insurance Decision Means for Homeowners and Renters
California’s largest property insurer, State Farm, has officially received approval to move forward with major rate increases—and the ripple effects could reshape the state’s fragile insurance market.
Following a court ruling and subsequent approval by Insurance Commissioner Ricardo Lara, State Farm can now increase rates for homeowners, renters, and condominium owners across California beginning June 1, 2025.
Homeowners will see rates rise by an average of 17%, renters and condo owners by 15%, and landlords by a staggering 38%. The hikes come as the company faces nearly $7 billion in wildfire-related claims from recent disasters in Los Angeles County and elsewhere.
For many Californians, already paying some of the highest property insurance costs in the nation, this decision is another sign of a system at a breaking point.
Why the Court Approved the Rate Hike
Insurance industry expert Karl Susman, speaking with KTVU’s Alex Savage and Heather Holmes, explained that the ruling didn’t surprise him.
“This is something that I was hoping would happen,” Susman said. “I just wish it didn’t take all these weeks to get it done, because contrary to what consumer groups are saying, a judge clearly thought the increase was justified—and approved it.”
State Farm’s request wasn’t a typical rate adjustment. It was filed under a special “emergency rate increase” provision in California’s insurance regulations. This rarely used mechanism allows insurers to bypass the state’s lengthy rate review process—sometimes lasting months or years—when financial solvency is at immediate risk.
In essence, the company argued that without prompt rate relief, it could no longer operate sustainably in California.
The judge reviewed State Farm’s financial data and agreed, calling the increase “fair and necessary” given the scale of recent wildfire losses and mounting reinsurance costs.
What Makes This “Emergency” Approval Different
Normally, California’s Proposition 103 requires insurers to seek prior approval before raising rates, allowing consumer advocacy groups to intervene and challenge filings. But this process is slow and often adversarial—leaving insurers waiting while losses and costs mount.
State Farm invoked a regulatory clause designed for urgent solvency concerns, arguing it needed immediate relief to remain viable in the state. The Department of Insurance concurred, granting approval pending a full evidentiary hearing later this year, scheduled for October 2025.
As Susman explained:
“This isn’t permanent. Between now and October, there’s going to be a full hearing where State Farm has to open its books again and justify these increases. If they can’t, they’ll have to refund all that additional premium—plus interest—to policyholders.”
This safeguard ensures consumer accountability even in emergency situations, though few expect such refunds to materialize given the overwhelming evidence of financial distress.
Why the Increase Extends to Renters and Condo Owners
Some consumers have expressed surprise that renters and condo policies are affected as well. But as Susman pointed out, all forms of property insurance—whether homeowners, condo, or renters—share exposure to wildfire and catastrophe risk.
“We had a lot of losses for condominium associations and individual units in the Southern California fires that happened just in January,” he said. “So this increase touches all three segments.”
In other words, even if you don’t own a single-family home, your coverage is still linked to the same risk pool. As wildfires and other disasters become more destructive, insurers must raise premiums across all property categories to maintain balance in their portfolios.
Why Other Insurers Aren’t Likely to Follow—At Least Publicly
Many Californians now wonder: Will other major insurers follow State Farm’s lead and request emergency rate hikes?
Susman believes that’s unlikely—at least in the same “emergency” form.
“State Farm filed on a very specific part of the regulation that basically says, ‘We need to be bailed out right away—we can’t wait,’” he said. “I don’t think any other company wants to throw their reputation in the toilet and say, ‘We’re broke.’”
That said, traditional rate increase filings are already piling up. Farmers, Mercury, Allstate, and other carriers have sought significant adjustments in recent months, citing the same pressures: wildfire losses, construction inflation, and reinsurance costs.
While these carriers may not invoke the emergency clause, most will pursue substantial hikes through standard channels. The reality is that the cost of risk in California is rising for everyone—and insurers are running out of financial room to absorb it.
Consumer Watchdog’s Objections—and State Farm’s Response
Consumer advocacy groups, led by Consumer Watchdog, opposed State Farm’s request, arguing the company had not sufficiently proven financial necessity. They pointed to State Farm’s profitability in other states and accused it of passing the cost of corporate mismanagement onto policyholders.
Susman countered that the distinction is crucial:
“State Farm is profitable in states where it’s allowed to underwrite and rate risk normally. In California, Proposition 103 prevents them from doing that, and they’re not profitable here. We have to decide: Are we going to let companies charge adequate rates, or do we want them to keep playing catch-up after every disaster?”
In other words, California’s unique regulatory structure—meant to protect consumers—may now be backfiring by driving insurers away or forcing drastic corrections after prolonged inaction.
A Temporary Fix to a Long-Term Problem
While this rate hike gives State Farm some immediate relief, it doesn’t fix the underlying issues plaguing California’s insurance market.
Because insurers can’t fully factor catastrophe modeling or reinsurance costs into their rate filings, they’re often forced to underprice risk. When massive wildfires hit, the resulting payouts quickly outpace premiums collected, threatening financial solvency.
The result? Carriers withdraw from writing new business altogether, pushing more homeowners into the state’s FAIR Plan, California’s last-resort insurer. The FAIR Plan now covers over 340,000 homes, up from fewer than 125,000 just a few years ago.
Susman noted that the problem is structural, not temporary:
“This isn’t just about one company. Until the system is modernized, we’re going to see more of these crises. The FAIR Plan was never meant to be the state’s main insurer—but that’s where we’re heading.”
What Happens Next
Here’s the timeline moving forward:
- June 1, 2025 – New State Farm rates take effect.
- October 2025 – Department of Insurance holds a full evidentiary hearing.
- Post-Hearing – If the increases are validated, they remain in effect. If found excessive, rates roll back and customers receive refunds with interest.
While refunds are possible, they’re unlikely unless the company’s financial data shows clear improvement or misrepresentation—a scenario experts consider remote given the scope of wildfire claims.
How Homeowners and Renters Can Prepare
While consumers can’t control regulatory policy, they can take steps to protect themselves and potentially reduce costs:
- Shop Around (If You Can) – Options are limited, but some regional or surplus-line carriers may offer competitive terms.
- Ask About Discounts – Home-hardening, fire-resistant roofs, or defensible space can qualify you for credits.
- Bundle Policies – Combining auto and property insurance can offset increases.
- Keep Documentation – If refunds are eventually ordered, having records of payments and renewals will simplify reimbursement.
- Review Coverage Regularly – Ensure your dwelling limit matches rebuilding costs, which continue to rise due to inflation.
The Bigger Picture: An Industry at a Crossroads
California’s insurance crisis isn’t just about rates—it’s about risk, regulation, and reality.
Climate change is intensifying natural disasters, inflation is magnifying losses, and outdated laws are constraining insurers’ ability to adapt. Unless the state modernizes its regulatory framework, consumers will face a shrinking marketplace and soaring costs.
As Susman summarized:
“This ruling may save State Farm for now, but without reform, it won’t save the market. We need a system that lets insurers stay solvent and keeps coverage available for Californians.”
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