Farmers Insurance Seeks 7% Rate Hike as California Lifts Homeowner Policy Caps

California’s Insurance Crossroads

Farmers’ Proposed Rate Hike And What It Signals For The Market

California’s home insurance market continues to sit at the center of a growing national conversation about climate risk, regulatory reform, and the future of property coverage. Farmers Insurance Group, the state’s second-largest home insurer, recently took a significant step by requesting approval for an average rate increase of nearly 7% while preparing to lift its cap on monthly new homeowner policies.

This shift is more than a pricing adjustment. It marks a pivotal moment in how insurers navigate one of the country’s most challenging environments for underwriting residential risk.

“We believe this move strengthens our long-term commitment to California homeowners.”
Attributed to a Farmers Insurance spokesperson

Why Farmers Is Making This Move

For years, catastrophic wildfire seasons, escalating reconstruction costs, and rate-setting constraints have pressured carriers across the state. In 2023, Farmers limited new business to 9,500 homeowners policies per month, underscoring the strain placed on insurers by losses that outpaced approved pricing.

With the arrival of California’s Sustainable Insurance Strategy, regulators are now allowing insurers to factor climate-driven risk more accurately into rates. In return, insurers are expected to expand coverage in fire-prone communities where private availability has steadily eroded.

Several major carriers Allstate, Mercury, and USAA among them have also signaled plans to grow their presence again, suggesting the market may be slowly pivoting toward recovery.

What the Sustainable Insurance Strategy Means

The central aim of the reform is clear: reduce reliance on the state’s FAIR Plan, a high-cost insurer of last resort that has nearly doubled in size as private carriers withdrew or restricted new business.

Regulators argue that allowing risk-reflective pricing will stabilize the market, encourage investment, and ultimately create more consumer choice.

“These reforms are a turning point for restoring a healthy and competitive home insurance market.”
Attributed to the California Department of Insurance

While this approach is designed to bring insurers back into vulnerable regions, it has also prompted pushback.

Consumer Advocates: A Cautious Eye on Expansion

Advocacy groups remain skeptical. Their concerns center on whether carriers will truly expand coverage where it is most needed, or whether loopholes in the reforms will still allow selective retreat from high-risk zones.

They also warn that many wildfire-exposed neighborhoods fall outside the state’s designated expansion areas. As a result, policyholders could continue to face steep rate hikes without a corresponding improvement in access to private coverage.

To illustrate the tension, here are the primary concerns raised by consumer advocates:

• Rapid rate increases that outpace household affordability

• Insufficient guarantees of coverage expansion in the highest-risk areas

• Potential for insurers to shape underwriting guidelines that limit mandatory obligations

• Lack of clear enforcement mechanisms to ensure long-term commitments

Farmers’ Position in This New Era

Farmers currently holds roughly 14% of the state’s homeowner insurance market, giving its actions outsized influence. The company says it plans to add thousands of new policies next year, including in areas with elevated wildfire exposure.

While some customers may see premium increases higher than the 7% average, Farmers frames this adjustment as both necessary and forward-looking. The company maintains that more realistic pricing will allow it to stay committed to serving California communities over the long term.

A Market in Transition

Whether this moment becomes a genuine turning point depends on how effectively the reforms balance risk-based pricing with meaningful access to coverage. Regulators insist the policies are designed to stabilize the market after years of rate suppression created financial strain for carriers. Advocacy groups counter that stronger oversight and more stringent coverage commitments are needed.

What is clear is that California’s insurance landscape is undergoing a fundamental recalibration. Farmers’ rate filing and expansion plans are early signals of how insurers may navigate the new regulatory framework and how the state’s homeowners may be affected in the years ahead.

For the insurance industry, California is becoming a proving ground for how to operate sustainably in an era of compounding climate risk. The outcomes here are likely to influence future regulatory debates far beyond the state’s borders.