State Farm Requests 22% Rate Hike in California

AccuWeather has estimated the cost of losses related to the Los Angeles wildfires that erupted this January at over $250 billion. And even those facing the devastating reality of burnt-to-the-ground communities are among the luckier ones: At the time of this writing, at least 29 people lost their lives to the conflagration.

Still, the economic impact of such a disaster can’t be overstated — though unlike the loss of human life, it can be reduced to discrete numbers.

One such disturbing figure: In the wake of the flames, State Farm, California’s largest insurer, is requesting an allowance to raise homeowners insurance rates by an average of 22%.

California’s largest insurer requests double-digit rate hike — and they’re not alone

The letter to California Commissioner of Insurance Ricardo Lara explains that the company has received more than 8,700 claims as of Feb. 1 — and has paid out over $1 billion to its customers.

"We know we will ultimately pay out significantly more," the letter reads, "as these fires will collectively be the costliest in the history of the company."

State Farm saw a 2024 credit rating downgrade from AM Best, the largest credit agency specializing in insurance — this moved the company from "A" to "B" last April. "With further capital deterioration as a result of the fires," the letter’s signatories write, "additional downgrades could follow."

Although increased rates could wreak havoc on homeowners’ budgets, State Farm frames them as a measure to "help avert a dire situation for our customers and the insurance market in the state of California" — implying that the company may not otherwise be able to maintain its capital position and status as an option for homeowners with a mortgage.

State Farm isn’t alone in requesting double-digit rate increases from the California commissioner — and if other companies’ success is any indication, they may well get what they want. Last August, Allstate was approved to increase its California homeowners premiums by 34% on average. And in December, USAA implemented an average increase of 25.9% in the Golden State — with some homeowners seeing increases as high as 48.5%.

Keeping homeowners insurance affordable for an unpredictable future

It’s true, of course, that California’s insurance market is in a precarious place — as are the markets of other disaster-prone areas (and even ones that aren't disaster-prone).

Along with skyrocketing premiums, some insurers have pulled out entirely. In fact, State Farm itself stopped writing new California property and casualty policies in May 2023, as well as opting not to renew thousands of homeowners insurance policies in March 2024.

Policies under the FAIR plan — California’s state insurer of last resort — have more than doubled between 2020 and 2024. Some surmise that climate-change-related disasters could lead to an "uninsurable future," in the words of Dave Jones, a former California insurance commissioner who now works at UC Berkeley Law's Climate Risk Initiative.

In the face of unprecedented events, there’s only so much consumers can control. Still, double-checking your homeowners insurance policy to understand what’s covered (and what’s not) is a good way to get ahead of a deeply unpleasant surprise. And it’s true that shopping around for a new policy could save you hundreds, or even thousands, of dollars.

In addition, updating your home to qualify for insurance discounts could save you as much as 40% on your premiums. Some of those upgrades — like a new roof — present a major upfront cost, though others, like smart smoke alarms, are more affordable. And in the face of double-digit rate increases, everything helps.