State Farm Wants Massive Rate Hikes in California | Insurance Crisis Deepens

Published Date: 07/14/2025

State Farm’s Push for Massive Rate Hikes: What It Reveals About California’s Deepening Insurance Crisis

California’s homeowners are once again facing a harsh financial reality: State Farm, the state’s largest home insurer, is asking for another round of major rate increases—just months after receiving emergency approval for a 17% hike.

This time, the company is seeking additional increases of 8.2% for homeowners, 25.8% for condo owners and renters, and a staggering 79.3% for landlords and rental properties.

The filing, now under review by the California Department of Insurance (CDI), highlights the ongoing financial strain that’s pushing insurers to the brink. It also underscores a fundamental question: Can California’s current regulatory framework—rooted in a 1980s-era system—keep up with the realities of 21st-century risk?

The Context: A Market Already on Life Support

State Farm’s latest request comes on the heels of devastating wildfires that swept through Los Angeles County and other regions earlier this year. Those fires destroyed thousands of structures and triggered billions in insured losses, with State Farm alone handling nearly 13,000 claims.

As insurance expert Karl Susman noted in a recent broadcast, this request doesn’t come out of nowhere:

“State Farm’s rates have always been drastically below market,” Susman explained. “If you lined up every insurance company’s rates, they were way down there. After all these fires and losses, it’s finally caught up to them. They’re trying to play catch-up to where the actual risk and premium should be.”

The problem isn’t isolated to one company. Over the past five years, California has seen a wave of insurer withdrawals, paused policy writing, and steep rate requests. Companies like Allstate, Farmers, and Mercury have all scaled back operations, while new business in wildfire-prone regions has virtually collapsed.

The state-run FAIR Plan, designed as a last-resort fire insurance option, has ballooned to over 340,000 policies—up from fewer than 125,000 just a few years ago.

Why Another Rate Hike?

Simply put, the math no longer works.

Insurers are paying out far more in claims than they’re collecting in premiums, driven by three converging forces:

1. Catastrophic Losses: California’s wildfire seasons are longer, more destructive, and more frequent than ever before. Insured losses have exceeded $30 billion in the past decade.
2. Inflation and Construction Costs: The price of rebuilding a home—materials, labor, and compliance with modern codes—has soared more than 40% since 2019.
3. Reinsurance and Risk Costs: Global reinsurers have sharply increased prices for California catastrophe coverage, sometimes doubling costs in just a few years.

To remain solvent, insurers must adjust rates to reflect actual exposure. Yet under California’s Proposition 103, passed in 1988, carriers cannot raise rates without prior approval—and cannot use real-time catastrophe modeling or reinsurance costs in those calculations.

That means by the time a rate hike is approved, it’s often based on outdated data—making companies perpetually underpriced.

The Emergency Hike—and What Comes Next

Earlier this year, State Farm filed an emergency rate increase with the Department of Insurance, arguing that it could no longer sustain losses without immediate relief. A judge agreed, approving the 17% increase for homeowners (and even higher for rental properties) effective June 2025, with a full evidentiary hearing set for October 2025.

Now, the company is returning for more.

“They’re getting hit on both ends,” Susman said. “They need rate, they’re asking for it, and at the same time, they’re getting hammered for poor claim handling.”

Indeed, while State Farm seeks to shore up its finances, the Department of Insurance has also opened a formal investigation into its wildfire claim practices, following complaints from policyholders who say their payouts have been delayed or underpaid.

That dual scrutiny—financial and regulatory—illustrates the precarious balance insurers face: they must raise rates to stay solvent, yet every increase deepens public frustration.

Claims Handling Under the Microscope

Many wildfire survivors have expressed anger at what they describe as slow or incomplete claims settlements.

“If you talk to fire survivors, those who have State Farm, a lot of them are very unhappy,” Susman said. “They’re not getting the payouts they expected. Adjusters are dragging their feet. I’ve heard it all.”

In response, CDI has launched a comprehensive audit of State Farm’s claims, examining adjuster notes, claimant communications, and payout timelines.

However, as Susman pointed out, these investigations operate independently from the rate-setting process:

“Claims handling and rate approval are really separate issues. The company has to pay based on the contract—that’s non-negotiable. But if they need more money to pay claims, they also need rates that reflect that. It’s two sides of the same coin.”

In short, even as the company faces accountability for its customer service, regulators acknowledge that its financial footing must be stabilized to ensure it can continue to pay future claims.

Why Renters and Landlords Are Hit Hardest

One of the most startling figures in State Farm’s filing is the 79% increase requested for rental properties.

That spike isn’t arbitrary. Rental and multi-unit properties often sit in higher-risk zones and experience higher loss severity. In addition, landlords frequently insure multiple structures, amplifying the financial impact of each disaster.

As Susman observed, “That’s why everyone was buying State Farm policies—they were so much cheaper than the competition. But those prices were unsustainable. They’re now trying to bring them back to market level.”

For renters, meanwhile, rates are climbing partly due to building coverage overlap—renter’s policies often include personal property protection linked to broader catastrophe exposure in the building itself.

Will Other Insurers Follow?

Interestingly, Susman believes this wave of emergency filings may be slowing down.

“We’re starting to get to an equilibrium,” he said. “I go through all the filings—I’m nerdy that way—and I’m not seeing the flood of rate requests we saw a year ago. State Farm’s still catching up because it was so far below market. But overall, we’re stabilizing.”

That doesn’t mean relief is coming soon. Rather, the rate plateau reflects how few carriers are left writing new policies at all. For many, the solution has been withdrawal, not reform.

Without structural changes—allowing catastrophe models, faster rate approvals, or mitigation-based discounts—California risks becoming a two-tiered insurance state: a shrinking private market for the few, and a ballooning FAIR Plan for everyone else.

A System Stuck in the Past

Much of the blame, experts argue, lies with Proposition 103, which was designed to protect consumers from price gouging but has become a barrier to financial sustainability.

Under the law:

• All rate changes require prior approval from the CDI.
• Public advocacy groups can intervene, slowing the process further.
• Insurers cannot fully account for reinsurance costs or predictive modeling in their filings.

These rules made sense in the 1980s when wildfire losses were rare and inflation was stable. But in today’s environment of billion-dollar disasters and climate volatility, they’re crippling.

“It’s like trying to run a 2025 insurance market on 1988 software,” Susman quipped in a previous segment.

What Homeowners Can Do Now

For consumers, rate hikes are largely out of their hands. But there are proactive steps homeowners and landlords can take to soften the blow:

1. Check for Mitigation Discounts – Some carriers now offer credits for fire-resistant roofs, cleared vegetation, and ember-resistant vents.
2. Document Everything – Keep records of improvements and home-hardening measures. These may help in future underwriting or claims.
3. Bundle Policies – Combining auto and property insurance can reduce total costs.
4. Shop Smart—But Be Realistic – Many carriers have paused new business, so options are limited. Still, independent agents can help find alternatives.
5. Avoid Coverage Gaps – If you’re non-renewed, secure replacement coverage immediately, even if it means turning to the FAIR Plan temporarily.

The Bigger Picture: Reform or Retreat

California stands at a crossroads. Without modernizing its insurance regulations, it risks losing more carriers, further reducing competition and driving up prices for everyone.

State Farm’s latest filing is not just a corporate request—it’s a warning sign. The combination of climate risk, outdated regulation, and slow approvals is pushing the system toward collapse.

As Susman put it:

“Right now, companies are asking for rates because they want to stay here. If we don’t fix the system, they’ll just stop asking—and start leaving.”

For California’s millions of homeowners, the question is no longer if insurance will cost more. It’s whether it will be available at all.