California Approves 17% Emergency Rate Hike for State Farm Home Insurance

California's Insurance Commissioner has approved a 17% emergency premium increase for State Farm's home insurance policies across the state to help the insurer rebuild its financial capital following significant wildfire losses in Los Angeles. The rate hike will impact around one million homeowners insured by State Farm in California.

The insurer originally sought a 22% increase but lowered the request during an administrative hearing. In addition to the homeowner rate increase, requests include a 38% rise for rental owners and 15% for tenants, with new rates set to take effect in June. This temporary rate adjustment aims to stabilize State Farm's financial condition amid increased wildfire risk and a recent downgrade in the insurer's financial rating, which included a $5 billion decline in surplus over the past decade. The California Department of Insurance is engaged in ongoing efforts to maintain insurer participation in high-risk wildfire areas by granting regulated flexibility in premium adjustments in exchange for policy retention.

State Farm has also secured a $400 million capital infusion from its parent company and agreed to limit nonrenewals through the end of the year as part of the approval conditions. A full-rate hearing on a separate, larger 30% rate increase request is scheduled for October 2024. This regulatory approach reflects California's attempt to balance insurer solvency and consumer protection in an environment challenged by severe wildfire exposure and increasing claims costs. State Farm has indicated intentions to refund the emergency rate hikes should the finalized rates approved later be lower, while consumer advocacy groups express concern over the timing and impact of the emergency premium increases on policyholders.