California Approves State Farm’s 17 Percent Rate Increase Amid Insurance Crisis

Home insurance prices in the state are expected to continue rising, experts say.

A State Farm insurance company sign sits amid the rubble of a building destroyed by the Palisades Fire on Sunset Boulevard in the Pacific Palisades neighborhood of Los Angeles on Jan. 16, 2025. Frederic J. Brown/AFP via Getty Images

California homeowners hoping to get a break on their home insurance premiums any time soon might be waiting a while longer.

State Insurance Commissioner Ricardo Lara announced on May 13 that an administrative law judge issued a preliminary order to approve a 17 percent rate increase for State Farm’s homeowner insurance customers.

The approved rate increase is lower than the 22 percent emergency rate increase requested by the company in March, which was reviewed by Judge Karl Fredric J. Seligman during a three-day hearing in April.

Seligman found that “the evidence presented in the hearing established ... that State Farm is experiencing extraordinary financial distress, coupled with surplus depletion that threatens ongoing business operations.”

The 17 percent rate was chosen to balance protections for the consumer and financial stability for the company, he said. The rate increase remains temporary and subject to further review.

State Farm’s emergency rate increase will take effect June 1, and a full rate hearing will be scheduled in the future by the judge.

Lara said in a statement that California is “in a statewide insurance crisis, affecting millions of Californians.”

A number of insurance companies have stopped renewing homeowner policies in the state in recent years, and in 2025, insurers are facing billions in additional losses from the devastating Los Angeles fires in January.

A 2024 United Policyholders survey found that more than 64 percent of policyholders said their insurance company had recently dropped or did not renew their home policy. Nearly 67 percent had not found replacement coverage.

The survey also found that, of those policyholders who had endured premium hikes in the prior couple of years, the rate increase was more than 96 percent higher.

Rates Expected to Continue Rising

Home insurance costs in the state will likely continue to increase for the next 10 to 20 years, Michael Wara, director of the Stanford University Climate and Energy Policy Program, predicted during a recent panel in Sacramento called “Strengthening California’s Insurance Market: Expanding Access and Stability,” hosted by the Center for California Real Estate (CCRE).

Wara said the industry should be honest with people about the likelihood that they will face increasing insurance costs for the foreseeable future.

“The premiums have to equal the claims. And so, if the claims are going up, the premiums have to go up,” he said.

Panelist David Russell, director of the California State University–Northridge Center for Risk Management and Insurance, told homeowners to expect rising premium costs statewide and said that areas with a lower risk of fires and other disasters will need to subsidize areas with greater risk.

“In high-risk areas, to be able to afford to insure, they’re going to have to raise the premium on someone else,” he said during the panel. “We have a cost-sharing issue.”

The panelists also said that California’s FAIR Plan, the state-mandated wildfire insurer-of-last-resort, may experience problems due to a surge in enrollment and a significant increase in risk exposure, meaning its potential losses in the future.

The FAIR Plan’s risk exposure increased from $50 billion in 2018 to $458 billion in September 2024, according to the plan.

Established in 1968, the California FAIR Plan is a fire insurance program funded by insurance companies operating in the state that provides basic coverage for high-risk property owners who are unable to obtain insurance in the regular insurance market.

In order to provide better overall coverage throughout the state, the FAIR Plan should be depopulated by moving policyholders to other insurance companies, said John Norwood, chief lobbyist for the Independent Insurance Agents and Brokers of California.

Commissioner Lara is already pursuing a FAIR Plan depopulation strategy, along with a temporary increase in coverage options, to stabilize the market and implement what he called the biggest insurance reforms in the California market in decades.

One method the state has adopted to address the crisis is requiring insurance companies to insure more homes in high-risk environments.

Reducing Insurance Risk in California

The CCRE panelists pointed towards a need to reduce risk in order to support the California insurance market.

Wara, for instance, called for government and insurance incentives to promote “home hardening”—that is, to safeguard homes against wildfire threats.

“We cannot insure our way out of this problem,” he said. “The thing that is not happening enough is actual physical risk reduction. ... We need to reduce risk so there is less risk to transfer, and we can afford that risk transfer.”

Norwood believes home hardening regulations need to be implemented by the state.

“Right now, the insurance commissioner has the ‘safer from fire’ regulations, that require companies to provide discounts for home hardening. But you really can’t provide discounts when your rates aren’t adequate, and hopefully when rates do achieve adequacy, companies [will] recognize home hardening and community hardening,” he said.