State Farm seeks emergency 22% rate increase following the devastating Los Angeles wildfires
Published Date: 02/08/2025
State Farm’s Emergency Rate Hike: What It Means for Californians and the Future of Home Insurance
The embers of the recent Los Angeles wildfires may have cooled, but their economic and insurance aftershocks are still spreading. Earlier this week, State Farm—California’s largest property insurer—filed for an emergency 22% rate increase, citing a dire financial situation following the fires.
This request comes on top of a 30% rate hike filed just six months ago, bringing the potential total increase to over 50% if both are approved. For homeowners already paying thousands—or even tens of thousands—of dollars per year, the announcement has sparked confusion, frustration, and fear.
To make sense of the move, Insurance Hour host and insurance expert Karl Susman joined broadcast outlets to unpack what’s driving this emergency filing, how it fits within California’s complex regulatory system, and what it could mean for homeowners across the state.
1. Why State Farm Is Asking for Another Rate Increase
According to Susman, State Farm’s request isn’t arbitrary—it’s rooted in catastrophic financial losses.
“They’ve received nearly 9,000 claims and paid out more than a billion dollars,” he explained. “They were already waiting on approval for a 30% rate hike. Now, after these fires, they’re seeking an additional 22% just to stay solvent.”
State Farm’s underwriting strategy has long focused on larger, higher-value homes in wildfire-prone areas—communities like Pacific Palisades, Malibu, and the Santa Monica Mountains. That portfolio concentration has left the insurer disproportionately exposed when wildfires hit.
In simple terms, the company is facing a double blow: higher losses and slower regulatory approval for new rates. Under California law, every increase must be reviewed and justified by the Department of Insurance (CDI)—a process that can take months.
“The first request was supposed to be fast-tracked,” Susman said. “Six months later, we’re still waiting. In that time, wildfires happened, and they got hit hard.”
2. How the Rate Hike Works — and Who It Affects
Many Californians fear they’ll immediately see their premiums skyrocket by 50%. Susman clarified that’s not how it works.
“When you hear a number like 30% or 22%, it’s an average across all policyholders,” he explained. “Some people might see smaller increases, others larger—it depends on the property, location, and risk level.”
The proposed hikes would apply to:
- Homeowners
- Renters
- Condominium owners
- Landlords
However, not all policyholders will be impacted equally. California’s non-renewal protections temporarily shield certain ZIP codes affected by fire damage.
If you live in or near a wildfire disaster zone:
- You cannot be non-renewed for one year.
- Adjacent ZIP codes also receive a one-year extension.
- If your home was damaged or destroyed, your protection extends for two years.
Residents can verify their status on the state’s official website, insurance.ca.gov, by entering their address into the wildfire moratorium tool.
3. The Bigger Picture: California’s Insurance Market in Turmoil
The emergency rate request highlights a deeper problem: California’s insurance market is broken.
Years of mounting wildfire risk, coupled with outdated regulations, have left insurers struggling to balance solvency with consumer affordability. Proposition 103—passed in 1988—requires state approval for any rate changes, but the process often lags behind real-world risk.
As a result, many major carriers—including Allstate, Farmers, and Nationwide—have paused or restricted new homeowner policies in high-risk regions. That vacuum has pushed thousands of homeowners toward non-admitted carriers (out-of-state companies not regulated by CDI), where premiums are far higher and coverage more limited.
“Most of those $10,000–$15,000 policies you hear about aren’t from big-name insurers,” Susman explained. “They’re from non-admitted carriers stepping in because the mainstream market won’t write new business.”
The hope, he added, is that California’s new Sustainable Insurance Strategy, rolled out in December 2024, will eventually stabilize the market.
4. What the Sustainable Insurance Strategy Changes
The Sustainable Insurance Strategy (SIS) marks the most significant regulatory reform in decades. It allows insurers to:
- Use forward-looking catastrophe modeling to calculate rates.
- Factor in the cost of reinsurance (insurance for insurance companies).
- Offer discounts for wildfire mitigation, such as defensible space, ember-resistant vents, and Class A roofing.
These changes aim to make California’s market more data-driven and flexible—balancing affordability with long-term sustainability.
“For the first time, companies can price risk more accurately,” Susman said. “Homeowners who make their properties safer will pay less, and those in higher-risk areas will pay more. It’s fair, and it’s overdue.”
5. Consumer Pushback: Who Should Pay the Price?
Not everyone agrees with State Farm’s rationale. Consumer advocacy group Consumer Watchdog argues that the company’s parent organization—State Farm Mutual Automobile Insurance Company, which holds over $130 billion in surplus assets—should absorb the losses instead of passing them on to California homeowners.
Their statement reads, in part:
“If State Farm needs money, the parent company should step in with its $130 billion surplus, not California homeowners—some of whose homes are in ashes.”
Susman doesn’t dismiss that argument entirely but notes it’s not a simple either/or situation.
“It’s not one or the other,” he said. “They’re already bringing in money from outside California to pay these claims. The rate increase isn’t for current claims—it’s for future solvency. Without it, they can’t continue offering coverage here.”
In other words, while surplus funds can temporarily cover losses, long-term sustainability requires rates that match risk.
6. The Path Forward: Restructuring Risk and Reward
Susman predicts this won’t be the last rate hike request from a major insurer. Instead, he anticipates a reshuffling of premium distribution statewide.
“We’re going to see people in high-risk wildfire zones paying more, and people in lower-risk urban areas paying less,” he said. “That’s the direction California is headed under the new rules.”
This shift reflects a broader move toward risk-based pricing, where premiums directly correspond to each property’s fire exposure and mitigation efforts.
The Department of Insurance, meanwhile, faces an unenviable balancing act—approving enough rate flexibility to keep insurers solvent while maintaining protections for consumers still reeling from wildfire devastation.
7. What Homeowners Should Do Right Now
While the policy debate continues, homeowners can take several proactive steps to protect themselves:
- Don’t let your policy lapse.
Put it on auto-pay and double-check your contact information. Once canceled, reinstatement is difficult. - Check your ZIP code protections.
Visit insurance.ca.gov to confirm if you qualify for non-renewal protection. - Harden your home.
Improve fire resilience—replace flammable materials, clear vegetation, and maintain defensible space. - Work with an independent broker.
Brokers who represent multiple insurers can help you compare coverage options and potentially find savings. - Review your coverage annually.
Make sure your dwelling limits reflect current rebuilding costs, which have surged due to inflation and material shortages.
8. The Broader Economic Ripple
Beyond homeowners, the ripple effects of California’s insurance crisis are enormous. Higher premiums mean reduced affordability, slower housing development, and potential mortgage instability. For renters, landlords facing higher costs may pass those expenses along through increased rent.
As Susman emphasized, “This isn’t just about one company or one city. It’s about the sustainability of housing and insurance for everyone in California.”
Conclusion: Rebuilding Trust Through Transparency
California’s wildfire crisis has forced the insurance industry into a reckoning. The combination of climate risk, outdated regulations, and massive financial exposure has made it nearly impossible to operate under old models.
State Farm’s emergency rate request may feel alarming, but it also signals a necessary recalibration—one that could, if managed wisely, rebuild a stronger and fairer insurance system for the future.
As Susman concluded, “This is what happens when risk meets reality. It’s painful, but if we adapt now, we can prevent the next crisis from being even worse.”
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