State Farm insures roughly one in five California homes, and its recent rate hike proposal has the potential to shift the entire home insurance market in the Golden State.
The state’s largest home insurer — covering roughly 1.2 million California homes — is seeking to raise home insurance policies by 30% in the Golden State. The proposal also aims to raise renters insurance policies by 52% and condo insurance policies by 36%.
“State Farm General’s latest rate filings raise serious questions about its financial condition,” California Insurance Commissioner Ricardo Lara said in an official statement following the rate request. “This has the potential to affect millions of California consumers and the integrity of our residential property insurance market.”
Californians currently pay an average of $1,782 per year for $300,000 in dwelling coverage, according to Insurify data. If approved, State Farm’s proposal would increase that annual cost by more than $500.
The new rate hikes would affect policy renewals starting in 2025.
Insurer says rate increases are necessary
State Farm officials say the increase is necessary as the insurer tries to recoup billions of dollars in losses due to wildfires and severe weather activity across the state. Rising rebuilding costs are also contributing to the proposed rate increase, according to the insurer.
“State Farm General is working toward its long-term sustainability in California,” the company said in a released statement. “Rate changes are driven by increased costs and risk.”
State Farm reported losing $6.7 billion nationwide in 2022 — and an additional $6.3 billion in 2023.
Lara says the California Department of Insurance will closely review State Farm’s financials to judge the validity of its rate increase proposal. “We will use all the Department’s investigatory tools to get to the bottom of State Farm’s financial situation. We take this process seriously,” he said.
The Department of Insurance will review State Farm’s proposal. During the review process, consumer groups could challenge the proposal. A challenge would trigger a public hearing.
State Farm and the Department of Insurance could also meet and negotiate a different rate increase.
State Farm consistently in the California news
The rate increase request isn’t the first time State Farm has made news in the California insurance market recently.
The company stopped writing new homeowners insurance policies in California in May 2023. In March of this year, State Farm announced its plans to drop 72,000 policies across the state. The policies to be dropped were split between homeowners (30,000) and landlord (42,000) policies.
Many of the dropped policies belonged to homeowners living in areas at risk for wildfire damage.
The California Department of Insurance also approved a 20% rate hike for State Farm in that same month.
State Farm hasn’t publicly stated whether this newly proposed rate hike would entice the insurer to start writing new insurance policies in the state again.
What’s next? A tighter market for consumers
California’s Department of Insurance must review State Farm’s rate increase proposal, but if it approves the plan, more than 1 million homeowners could find themselves in a difficult situation. Some may have no option but to seek coverage under California’s FAIR Plan.
California’s Department of Insurance is trying to prevent that.
Lara recently unveiled a draft measure that would allow insurers to use catastrophe modeling when setting insurance rates. In exchange, insurers must commit to doing more business — at least 85% of their California policies — in high-risk areas of the state.
Regulators expect to finalize the regulations by the end of 2024.
