State Farm General, the largest provider of Fire insurance in California, has requested an emergency rate hike of 22% for homeowners following one of the most expensive natural disasters in U.S. history. The company has already paid out over $1 billion in claims, with more expected in the coming months.
In a letter to the California Department of Insurance (CDI), State Farm argues that these increases are necessary to maintain financial stability and continue offering coverage in wildfire prone areas. “This request will help avert a dire situation for our customers,” the company stated.
California has an insurance crisis, as residents already pay some of the highest home insurance premiums in the country, and major insurers have pulled back from the market in recent years due to rising wildfire risks. With this latest request, homeowners could face even higher costs and fewer coverage options.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The growing financial toll of wildfires in California
The recent wildfires in California have caused an estimated $135 billion to $150 billion in total damage and economic losses, according to AccuWeather. The Los Angeles region alone saw 12,000 homes destroyed, adding to the growing financial strain on insurers.
As of February 1, State Farm General has received more than 8,700 claims, already paying out over $1 billion, with additional claims expected. In a statement, the company emphasized that rate increases are necessary to cover future claims, given the growing risks in the state.
However, the California Department of Insurance has raised concerns about State Farm’s financial situation, questioning the justification for these rate hikes. "To protect millions of California consumers and the integrity of our residential property insurance market, the Department will respond with urgency and transparency to recommend a course of action for Commissioner Ricardo Lara," CDI stated.
Currently, there is no proposed timeline for approval or denial of State Farm’s request.
State Farm seeks sharp rate increases across California
State Farm is proposing substantial rate hikes across different property types, including:
- 22% increase for homeowners
- 15% increase for renters and condo owners
- Up to 38% increase for rental dwellings
The company cites rising wildfire risks and mounting financial losses as justification, claiming these increases are crucial to offset claims and ensure long-term stability.
However, consumer advocacy groups like Consumer Watchdog, have strongly opposed the request. Critics argue that homeowners should not bear the burden of corporate losses, especially when State Farm’s parent company holds $135 billion in reserves. They also point to State Farm’s $1.4 billion in profits from 2020 to 2022, questioning the timing and necessity of such a drastic hike.
State Farm has pursued similar increases before. A previous 20% rate hike took effect in March 2024. In June 2023, the company applied for a 30% rate increase totaling $1.3 billion, arguing that California policyholders — not its parent company — should help shore up its finances.
Other insurers, including Allstate and Farmers, have also sought double-digit rate increases or reduced their presence in California, citing similar financial pressures.
How homeowners can navigate rising insurance costs
With rising insurance costs and fewer options, California homeowners must explore alternatives to protect their properties. Some may turn to the California FAIR Plan, a last-resort insurance program for high-risk areas, though it often comes with higher premiums and limited coverage. Others might try bundled policies or regional insurers that still operate in wildfire-prone areas.
Another way to manage rising costs is through mitigation efforts to protect your home from natural disaster, which may make homeowners eligible for discounts or expanded coverage. For wildfires, this includes fire-resistant roofing, defensible space around properties and improved sprinkler systems. Some insurers, including State Farm, offer incentives for wildfire-resistant improvements but availability and savings vary.
Use our tool below, in partnership with Bankrate, to compare today’s home insurance rates:
State Farm’s proposed rate hikes underscore the worsening crisis in California’s home insurance market. Insurers face mounting wildfire-related losses, and homeowners struggle with rising costs. The outcome of State Farm’s emergency request will set a precedent for future rate increases and could influence how other insurers approach coverage in high-risk regions.
Beyond California, this issue has broader implications for other disaster-prone states, where hurricanes, floods and wildfires are driving higher insurance costs and insurer withdrawals. As regulators weigh consumer protection against insurer solvency, the uncertainty surrounding State Farm’s request leaves many homeowners wondering just how much higher premiums can go before coverage becomes unattainable.
Related content
-
Dow Climbs 559 Points to Hit a New High: Stock Market TodayThe rotation out of tech stocks resumed Tuesday, with buying seen in more defensive corners of the market.
-
Are You Saving Too Much for Retirement? Know These Surprising DownsidesYour money may be better served outside of a retirement account.
-
Are You Saving Too Much for Retirement? Know These Surprising Downsides
Your money may be better served outside of a retirement account.
-
Dental Cost Advice for New Retirees, From a New RetireeWhat I faced in my first dental bill after retiring.
-
Fish and Chips? More Like Fish and a Side of Customer Confusion and AngerYou expect chips — French fries, actually — to come with your order of fish and chips? Think again. This restaurant could be violating the truth-in-menu laws.
-
From Vision to Value: A Blueprint for Helping to Build Your Advisory PracticeAs a financial professional, you can draw lessons from Advisors Excel's journey to find ideas, strategies and inspiration for growing your own advisory business.
-
Does My Car Insurance Cover Rental Cars?Is it safe to decline the extra coverage car rental companies offer you when booking? Here's what you need to know.
-
Outsmarting the AI Job Algorithm: Why Older Women Need a StrategyWhen you're job hunting, AI may undermine your best efforts. Here's how older women can throw a wrench in the algorithm.
-
I'm Embarrassed to Ask: What Is a Life Insurance Trust?Life insurance trusts, particularly irrevocable life insurance trusts (ILITs), can minimize estate taxes and protect your heir's inheritance.
-
Are Your Employees Quietly Cracking? How to Repair the Cracks Before Everything BreaksSome employees who are unable to change jobs due to economic conditions are doing only the bare minimum, leading to decreased work quality and team morale.
