State Farm Gets OK to Hike California Home Insurance Rates $600 a Year — With Conditions
California Insurance Commissioner Ricardo Lara has granted preliminary approval to State Farm General’s request to boost home insurance rates by an average of 22%. This increase will impact approximately 1.2 million homeowners, potentially adding around $600 annually to their premiums. However, this approval comes with a significant caveat: State Farm must agree to specific conditions.
California Insurance Commissioner Ricardo Lara.
This decision provides relief to homeowners who might have faced a more drastic outcome, which could have involved the non-renewal of their policies by the state’s largest insurer. State Farm, which hasn’t issued new homeowner policies since May 2023, had initially asked for a 30% rate increase for homes.
The California Department of Insurance is also scrutinizing State Farm’s financial stability, a crucial factor in this decision. “None of this is normal. These emergency actions have never happened before,” Lara wrote in an opinion piece published. “But they are necessary to protect Californians through a stable insurance market.”
Before the rate hike is finalized, a formal hearing is scheduled for April 8. During this hearing, State Farm must present data to an administrative law judge to justify the increase. If the hearing goes favorably, the new rates could be implemented starting June 1.
The approved rate hikes include: an average of 22% for homeowners, 15% for condo owners, 15% for renters, and 38% for rental dwellings.
The charred entrance ruins of a Pacific Palisades home after the Palisades Fire.
In addition to the rate increase, Lara has requested that State Farm pause any homeowners’ non-renewals through the end of 2025. This pause could impact some of the 30,000 homeowners who received notice of potential policy cancellations last March but hadn’t yet received formal non-renewal notices. State Farm General CEO Dan Krause indicated the company’s willingness to comply with this request during a recent meeting.
Krause also stated that State Farm General would seek increased financial contributions from its national parent company, State Farm Mutual Automobile Insurance Co. Initially, the company resisted moving funds between its different arms. However, at the meeting, the State Farm Mutual board signaled their willingness to consider transferring at least $250 million to boost the surplus. Lara had asked for $500 million.
Homes destroyed by the Palisades Fire.
“We need to see that State Farm is willing to also put some skin in the game,” Lara told Krause, according to meeting transcripts.
A spokesperson for State Farm expressed the company’s commitment to working with the California Department of Insurance to secure a sustainable future for the state’s insurance market. The spokesperson also highlighted the importance of certainty for insurance customers.
The urgency for the rate hike stems from State Farm’s declining surplus, its ability to pay claims. The surplus shrank from $4 billion in 2016 to just over $1 billion by the end of 2024. The company anticipates further decline due to wildfire losses, projecting a surplus of only $600 million. Consumer Watchdog suggests State Farm’s national parent company overcharged its California subsidiary for reinsurance, potentially contributing to the financial strain.
A smoke column rises in the distance near homes destroyed by the Palisades Fire.
At a meeting in February, Lara questioned the insurer for writing a lot of new policies in high-risk areas from 2016 to 2023, even as its surplus declined. State Farm officials attributed the growth to being the “last insurer standing” in some areas. Carmen Balber, executive director of Consumer Watchdog, emphasized this is not a final approval and welcomed the public hearing as the group had been pushing for. She says the data provided by State Farm has not justified the rate increases.
