California Rejects State Farm’s Rate Increase Request Amid LA Fire Claims

The insurer said the rate increase is needed to prevent further depletion of capital that may affect its credit rating and harm mortgage customers.

A fire-damaged vehicle is left in front of a beachfront property after mudslides from a storm in Malibu, Calif., on Feb. 14, 2025. Damian Dovarganes/AP Photo

California’s insurance commissioner on Feb. 14 turned down a request by insurer State Farm for an emergency interim rate hike of 22 percent for homeowners insurance, amid a flood of claims for damage caused by the devastating Los Angeles fires.

“The burden is on State Farm to show why this is needed now. State Farm has not met its burden,” Insurance Commissioner Ricardo Lara said in a statement.

Lara has scheduled a meeting on Feb. 26 with the insurer to ask questions regarding the company’s rate increase request, according to the commissioner’s office.

The commissioner wants State Farm to discuss its financial stability, justification for the rate hike, effects on policyholders, and transparency in its decision-making, according to Lara’s office.

State Farm has requested a rate increase of 22 percent for non-renter homeowners, 15 percent for renters, 15 percent for condominium unit owners, and 38 percent for rental dwellings, all effective on May 1, 2025, for interim rate increases.

State Farm said it was disappointed by the rejection.

“This lack of approval sends a strong message to State Farm General about the support it will receive to collect sufficient premiums in the future to protect Californians against the risk of loss to their homes,” State Farm said in a Feb. 14 statement posted on its website.

State Farm said it has “gone to great lengths to clearly answer the questions outlined by the Commissioner,” and while it is “positioned to handle all of the claims associated with the most recent wildfires,” the company “must seriously consider its options within the California insurance market going forward.”

In a Feb. 3 letter to Lara, State Farm said that as of Feb. 1, the company had received more than 8,700 claims, had already paid more than $1 billion to customers related to the Los Angeles fires, and will pay more in the future.

It said that “the costs of these fires will further deplete capital” from the company, which could affect its credit rating and harm its mortgage customers.

State Farm said that because the commissioner has not yet approved its request for rate increases submitted in March 2024, it is now asking the agency to “take emergency action” to approve interim rate increases and allow the company “to start collecting additional premiums much more quickly and possibly begin rebuilding its risk-bearing capacity.”

It also claimed in the letter that over the nine-year period ending in 2024, it paid $1.26 in claims and expenses for every $1 that it collected through premium payments, resulting in more than $5 billion in cumulative losses.

In the response letter that Lara sent to State Farm on Feb. 14, he said that under the strict review laid out by California Proposition 103, “the burden is on the insurer to demonstrate and support its rate requests.”

According to statistics from Bankrate.com updated on Feb. 10, the national average cost of home insurance is $2,258 per year for a policy with $300,000 in coverage. California’s average is $1,429, which is $829 below the national average. Los Angeles’s average is $1,788, which is $470 lower than the national average.

California had held down rates for many years, especially after 2010, so it had “very little movement in rates,” Rex Frazier, former deputy insurance commissioner with the California Department of Insurance, told host Siyamak Khorrami in a recent episode of EpochTV’s “California Insider.”

Frazier, now president of the Personal Insurance Federation of California, a legislative advocacy firm, said he is still optimistic about California’s insurance market.

“Wildfire is still insurable in California, and so we disagree with voices who say that we have an uninsurable future,” he said.

“We don’t need special government programs to make that happen, but we need a system that allows companies to bring in enough money so they have the ability to insure people in the highest-risk areas, and that’s just simply what we’ve been deprived of at least for the last 13 years.”

Lara also announced on Feb. 14 that he has joined forces with state legislators in sponsoring 10 legislative bills aimed to “safeguard consumers ... for wildfire mitigation and recovery.”

The proposals “include a new grant program for home hardening, protections for businesses & non-profits against non-renewals, measures to maximize insurance payouts by limiting fees, and initiatives to combat deceptive ads,” the commissioner’s office said in a Feb. 14 statement.

According to the California Department of Insurance’s Los Angeles County Wildfire Claims Tracker page, as of Feb. 5, there had been 33,717 claims filed and 19,854 claims partially paid, with $6.9 billion in claims paid.

The commissioner’s office did not respond to a request for comment from The Epoch Times.

Wells Fargo and JP Morgan have estimated that insurance loss for the Los Angeles fires could reach $20 billion. The Palisades and Eaton fires in January killed 29 people and destroyed more than 16,000 structures.