State Farm Approved for Major Rate Hike

California approves State Farm’s 17% rate hike after devastating LA wildfires.

State Farm homeowners in California are about to see a serious rate hike with their premiums going up by 17% after state officials gave the green light. The change affects about 1 million customers and will kick in starting in June. The reason behind this increase is simple: State Farm says it’s running low on funds after this year’s major wildfires in the Los Angeles area, which destroyed over 16,000 buildings and led to more than 12,000 insurance claims. The company says without the rate increase, it may not be able to keep offering coverage in California at all.

California’s top insurance official agreed to the rate hike after a judge described it as a financial “rescue mission” for the company. State Farm originally asked for a 22% hike but scaled it down to 17% after a state hearing. The company also wants to raise rates by 38% for landlords and 15% for renters. Those requests are part of a larger push to get back on stable financial ground. In return for this emergency increase, State Farm will stop dropping some customers and will receive a $400 million boost from its parent company to help it recover.

This isn’t the first time California homeowners have felt the pressure from rising insurance rates. Over the last few years, wildfires have made it harder and more expensive to insure homes, especially in high-risk areas. Big-name insurers, including State Farm, have pulled back from writing new policies, blaming unpredictable losses and a tough state approval process for rate hikes. The state is trying to fix that by changing some of the rules to allow insurance companies more flexibility—but only if they agree to keep insuring homes in risky zones.

Photo by Jakub Żerdzicki on Unsplash

Even though State Farm got the emergency increase approved, the company is still waiting on a decision about a much larger request—a 30% rate hike for homeowners—that is scheduled to be heard in October. That means this new 17% increase could be temporary, depending on how things go later this year.

California’s Insurance Commissioner says he expects State Farm to prove that it actually needs the higher rates. He also wants the company to share its full financial recovery plan during the fall hearings. That includes showing how much money it really has, how it plans to stay in business, and how it will support customers moving forward.

The decision hasn’t gone over well with everyone. Consumer groups argue that the process is unfair. They say it’s wrong to make people pay more right away while State Farm gets months to explain the numbers behind the hike. One watchdog group called the ruling a disappointment for regular people trying to afford basic insurance.

State Farm insists that the increase is necessary and that it won’t be permanent. If the state later approves a lower rate than the emergency one, the company says it will refund the difference. State Farm already received approval for a 20% increase in December of last year, so this is just the latest jump in what’s becoming a regular pattern.

The company has seen a $5 billion drop in its backup funds over the last 10 years and took a hit to its financial rating last year. That has made things even more difficult as wildfires continue to cause billions in damages. As of this week, the company says it has paid out more than $3.5 billion in claims this year alone.

Homeowners are left with few options. Many fear that if State Farm or other big insurers leave the state, they’ll either be stuck without coverage or forced to rely on expensive last-resort policies. For now, Californians will have to wait and see whether future decisions bring more relief—or more cost.