California Insurance Commissioner Ricardo Lara has approved State Farm’s emergency request for a premium hike, which will result in increased insurance costs for homes, apartments, and rental properties starting from June 1.
The devastating wildfires that struck Los Angeles in January have added to the challenges faced by the already struggling California insurance industry. As the largest housing insurance company in California, State Farm has received thousands of claims following the wildfires, with expected payouts amounting to billions of dollars.
In February, State Farm requested a rate increase citing severe financial difficulties. In a press release on March 3, the company stated, “The January 2025 wildfire losses will further deplete State Farm General’s capital. Capital is essential for an insurance company to cover any payouts for the risks it underwrites in the future.”
According to the company, the immediate approval by the California Insurance Commissioner to temporarily raise premiums is aimed at preventing over 2.8 million policyholders in California, including 1 million homeowners, from facing financial hardships.
In April this year, State Farm held a three-day hearing, during which a judge ruled, “Preliminary evidence presented at the hearing indicates that State Farm is experiencing significant financial difficulties, with dwindling reserves threatening its ongoing operations.”
After the hearing, Commissioner Lara ultimately upheld the judge’s decision and approved State Farm’s emergency request to increase insurance rates in response to the Los Angeles wildfires.
In a statement on May 13, Lara noted that prior to the full hearing, he approved State Farm’s temporary rate hikes of 17% for homeowner insurance, 15% for renter insurance, and 38% for apartment rental unit owners.
As per the requirements, State Farm can immediately receive a $400 million cash injection from its parent company to address its financial situation. Moreover, the company is prohibited from implementing any new non-renewal plans until the end of 2025.
Lara also stated that the emergency rate hikes will take effect on June 1, but State Farm must present necessary evidence for the rate increase at a later hearing.
“We are in the midst of a statewide insurance crisis affecting millions of Californians,” he said in the statement. “I expect State Farm to provide the highest level of service to their California policyholders and deliver on their commitments. Now, State Farm must present a comprehensive hearing before a neutral judge and experts from the insurance department, proving their financial condition and detailing their recovery plan.”
Non-profit consumer advocacy groups expressed disappointment with the decision by the California Insurance Commissioner. Some policyholders of State Farm also complained about difficulties in receiving timely insurance claims post wildfires, citing delays and rejections in the claims process.
Since 2023, the shadow of price hikes, policy cancellations, and difficulties in obtaining insurance has loomed over Californians, with insurance companies either leaving the state or restricting new policy issuance. Lara previously noted that these crises are directly related to outdated insurance regulations in California and long-standing issues that have been neglected for decades. While efforts are being made to address these concerns, a significant turning point has yet to be seen.