State Farm's rate increase fuels insurance worries in Northern California's fire country

Published Date: 05/15/2025

California’s Wildfire Belt Faces a New Threat: Soaring Insurance Premiums

For years, Californians in wildfire-prone regions have learned to live with the flames. Now, they’re learning to live with something else—skyrocketing insurance costs.

In late May 2025, the California Department of Insurance approved a historic emergency rate increase for the state’s largest property insurer, State Farm, allowing it to raise premiums starting June 1, 2025.

The increases are steep:

• 17% for homeowners,
• 15% for renters and condo owners, and
• 38% for landlords and rental properties.

It’s the first time California has ever fast-tracked an emergency insurance rate hike—a move regulators say was necessary to keep the company solvent following devastating wildfire losses.

But for homeowners in Northern California’s fire country, the decision is sparking new fears about affordability, coverage stability, and the future of homeownership in high-risk zones.

Living on the Edge: When Insurance Meets Fire

In places like Placer County, where the 2021 River Fire tore through neighborhoods and burned dozens of homes, residents are still rebuilding their lives—and now, their insurance budgets.

One homeowner, Liz Porter, told local news how her home was destroyed and later rebuilt thanks to help from California’s FAIR Plan, the state’s insurer of last resort. Afterward, she managed to secure coverage from State Farm, one of the few private insurers still writing policies in her area.

“From a coverage standpoint, we have a lot more protection with State Farm for a bit less than what we would be paying on the FAIR Plan,” Porter said.

But that fragile balance is shifting fast. Her premiums went up last year, and now, with the new rate hike, they’ll rise again.

“It’s not sustainable,” she said.

Porter’s story illustrates the tension facing many homeowners: choosing between affordable but limited FAIR Plan coverage and comprehensive private insurance that’s becoming increasingly expensive—or unavailable.

Why the Emergency Hike Was Approved

According to filings reviewed by the Department of Insurance, State Farm faced a sharp financial decline following the January 2025 Los Angeles wildfires, which destroyed over 16,000 buildings and triggered nearly $7 billion in claims.

The company’s reserves—the funds it holds to pay claims—fell from several billion dollars to just a few hundred million. Regulators feared that, without immediate relief, State Farm could become unable to pay future claims as peak wildfire season approached.

Insurance expert Karl Susman explained the urgency:

“They were able to show that their reserves—basically the money they have in the bank to pay claims—had dropped dramatically. That’s why the regulators allowed it to be fast-tracked. They didn’t want the company to go under right before fire season.”

This decision marked a first in California history: granting an emergency rate increase under a rarely used clause in the state’s insurance code. Normally, such changes must go through the Proposition 103 process, which can take many months.

This time, regulators acted within weeks.

A Market Under Pressure

The emergency approval reflects just how fragile California’s homeowners insurance market has become.

Wildfires, inflation, and outdated regulations have pushed several major carriers—including Allstate, Farmers, and Mercury—to pause new policy issuance or restrict coverage in high-risk zones.

Meanwhile, the FAIR Plan, created as a temporary safety net, has ballooned to cover more than 340,000 homes—triple its size just five years ago.

Susman and other experts argue that the system is stretched to the breaking point:

“We’re seeing more people pushed into the FAIR Plan, and those premiums aren’t cheap either. The state’s private insurance market is slowly shrinking, and unless reforms happen, it’s only going to get worse.”

The Human Toll: Fire Victims Rebuilding Again and Again

For homeowners like Liz Porter, the numbers on paper translate into very real financial strain.

Porter’s family rebuilt after the River Fire. They cleared brush, upgraded materials, and added fire-resistant features—all to make their property safer and more insurable. Yet even with those improvements, her premiums continue to climb.

It’s a story repeated across California’s “wildland-urban interface”—areas where homes meet forests and grasslands.

In some parts of Placer, El Dorado, and Sonoma Counties, homeowners now pay three to four times what they did just five years ago for coverage. Some have been dropped entirely and forced onto the FAIR Plan, which provides basic fire protection but no liability or theft coverage unless paired with a separate “Difference in Conditions” (DIC) policy.

For those on fixed incomes, the combined costs are becoming unbearable.

Balancing Act: Consumer Protection vs. Market Survival

At the heart of the crisis is California’s regulatory structure—particularly Proposition 103, the 1988 law that requires insurers to get state approval before raising rates.

The system was designed to protect consumers from unfair pricing, but it has also made it difficult for insurers to keep up with real-world risk trends.

Under Prop 103, companies cannot factor in future wildfire models or reinsurance costs—the price they pay to insure themselves—when filing rate requests. That means insurers are constantly playing catch-up, relying on outdated data while their actual losses soar.

As Susman and other industry experts have noted, this creates a dangerous cycle:

1. Insurers lose money during disaster years.
2. They apply for rate increases to recover.
3. Regulators delay or deny those requests.
4. Companies pause new policies or pull out entirely.

The emergency approval for State Farm broke that cycle—at least temporarily—but it also raised alarms about how long the system can hold.

The Ripple Effect Across Northern California

For communities like Colfax, Auburn, and Grass Valley, the State Farm increase is just the latest challenge in a long struggle to stay insured.

Local agents report a surge in inquiries from homeowners worried about being dropped or priced out. Some are already moving their policies to smaller, regional carriers—though those options are limited.

Others are downsizing or selling altogether. Real estate agents in Nevada and Placer Counties say listings now routinely include disclosures about insurance availability, with some deals collapsing when buyers discover they can’t secure affordable coverage.

The impact doesn’t stop there. Local governments, schools, and small businesses are also feeling the squeeze, as property insurance costs eat into budgets and delay construction projects.

What Homeowners Can Do

While the broader market fix will take time, there are steps individuals can take to protect their homes and manage costs:

1. Harden Your Property: Create defensible space, clear brush, and install ember-resistant vents and roofing. Many insurers offer credits for wildfire mitigation.
2. Document Improvements: Keep receipts, photos, and permits for upgrades. This evidence can help secure discounts or support claims later.
3. Review Coverage Annually: Make sure your dwelling limit reflects current rebuilding costs, which have risen sharply.
4. Avoid Lapses: If you lose coverage, getting back with a private insurer can be nearly impossible. Keep payments automatic and timely.
5. Combine Policies: Bundling home, auto, or umbrella policies may offset some premium increases.

Looking Forward: A Market in Transition

The State Farm decision is both a warning and a test case.

It’s a warning because it exposes just how financially fragile California’s private insurance market has become. But it’s also a test case for regulators—proving that emergency tools can be used to preserve solvency when the system falters.

Still, no one believes this is a permanent fix. Without modernization of Proposition 103, faster rate reviews, and greater flexibility for risk-based pricing, experts warn that insurers may continue retreating from California.

“This is a wake-up call,” Susman said. “We can’t regulate the same way we did in 1988 and expect it to work in 2025. If we don’t adapt, we’re going to lose the entire private market.”

Final Thoughts

For now, homeowners like Liz Porter are caught in the middle—grateful to have coverage, but worried about whether they can afford it much longer.

The flames that destroyed her first home may be gone, but a new kind of fire is spreading across California’s insurance landscape: one fueled by economic instability, outdated policy, and a growing gap between risk and regulation.

Unless the state finds a way to modernize its insurance framework, Californians may soon find themselves asking not how much insurance costs—but whether they can get it at all.