California Insurance Commissioner Ricardo Lara has rejected State Farm General’s request for an emergency 22% increase in home insurance rates. The insurer, which is the largest provider of homeowners insurance in the state, sought the rate hike following the financial impact of the recent Los Angeles wildfires. Commissioner Lara determined that the company had not sufficiently justified the need for the increase, nor had it explained how the additional funds would influence its prior decisions to limit new policies and non-renew existing ones.
State Farm’s Request and Rationale
State Farm General filed the emergency request earlier this month, proposing a 22% rate increase for homeowners, a 38% increase for rental dwellings, and a 15% increase for renters and condominium owners. The proposed changes were slated to take effect on May 1. The company argued that the increases were necessary to rebuild its capital base, given the financial burden of the Los Angeles wildfires and delays in approval of prior rate hike requests.
According to State Farm, the insurer has already processed 8,700 claims and disbursed over $1 billion in payments related to the fires. Industry estimates project total losses could reach $6.5 billion before reinsurance payments. State Farm stated that without the emergency rate adjustment, it might have to further restrict its participation in the California home insurance market.
Regulatory Response
In his response, Commissioner Lara emphasized that policyholders should not bear excessive financial burdens without clear justification. He noted that State Farm had not provided adequate documentation to support its claim of financial distress. Additionally, he requested further details on why State Farm Mutual, the insurer’s parent company, could not provide financial support to its California subsidiary.
Lara also scheduled a meeting with State Farm representatives for February 26 to further examine the request. Consumer advocacy group Consumer Watchdog, which has actively opposed the rate increase, called for a formal hearing where it could review State Farm’s financial records and testimony from experts.
State Farm’s Market Challenges in California
State Farm General has faced ongoing financial and regulatory challenges in California. In 2023, the insurer stopped accepting new homeowner and personal property policies due to wildfire risks. Last year, it also announced plans not to renew 72,000 policies statewide. In June, the company requested a 30% rate hike for homeowners’ insurance, which remains under review.
The company has cited cumulative financial losses, amounting to $2.8 billion over the last nine years, as a factor in its need for higher premiums. In response to these challenges, its financial rating was downgraded by AM Best. However, State Farm’s parent company, State Farm Group, maintained a superior financial rating in December 2024.
Impact on Policyholders and the Broader Insurance Market
The recent Los Angeles wildfires have intensified concerns about the viability of California’s insurance market. With projected insurance losses from the fires reaching as high as $45 billion, insurers across the state are expected to seek rate increases. Additionally, California legislators have introduced new fire-related legislation, including measures to cap fees for public adjusters, streamline fire claims processing, and provide tax-free grants for homeowners to implement fire-resistant upgrades.
One proposed bill would also expand the insurance commissioner’s authority to impose moratoriums on policy cancellations and non-renewals for businesses and policyholders after major wildfires. This authority currently applies only to homeowners and has been exercised following the January fires.
Future Considerations
State Farm has stated it remains committed to the California market but must evaluate its options in light of financial and regulatory pressures. The insurer has indicated it would refund policyholders if an interim rate increase is granted but later adjusted downward.
With the commissioner’s rejection of the emergency request, attention now shifts to State Farm’s pending request for a 30% rate increase, as well as broader discussions about wildfire risk mitigation and the sustainability of homeowners insurance in California.