California’s top insurance regulator has given State Farm the green light to increase home insurance premiums by 17% for all its customers in the state. This decision aims to help the insurer recover financially after the devastating Los Angeles wildfires. The hike, which will affect about 1 million homeowners, is part of State Farm’s efforts to rebuild its capital. The insurer had initially requested a 22% rate increase but later revised it to 17% during a hearing. The new rates are expected to take effect in June and will be temporary until the state reviews State Farm’s request for a 30% rate increase later this year.
State Farm has been facing financial challenges, including a $5 billion decline in its surplus account over the past decade and a financial rating downgrade last year. The company has paid over $3.51 billion and is handling more than 12,600 claims related to the wildfires. In exchange for the rate hike, State Farm will receive a $400 million cash infusion from its parent company and has agreed to halt some nonrenewals through the end of this year.
The decision comes as California struggles to keep insurers in the state amid increasing wildfire risks. Several major insurance companies, including State Farm, stopped issuing new residential policies in 2023 due to high fire risk. Insurance Commissioner Ricardo Lara has implemented new regulations to encourage insurers to continue doing business in the state by giving them more flexibility to raise premiums in exchange for writing more policies in high-risk areas.
Consumer Watchdog, a group opposing State Farm’s request, expressed disappointment with the ruling, stating that it allows State Farm to raise premiums without immediately justifying its financial condition. State Farm has promised to refund the emergency rates if California approves lower rates in the future.
