State Farm pursues further rate increase in California

By Michael Loney

May 23 - (The Insurer) - State Farm is seeking an additional rate increase for its California unit following the approval of an interim 17% rate increase earlier this month.

California's Department of Insurance on May 13 approved a 17% interim rate increase for State Farm General Insurance Company’s homeowners line, which the regulator said was reduced from the 21.8% the company requested.

The regulator also said that State Farm will secure a $400 million surplus note from its parent company to reinforce its solvency.

The emergency rate increase takes effect on June 1.

State Farm in a statement on May 13 described the approval as “a critical first step for State Farm General’s … ability to continue serving our California customers”, adding that the subsidiary “still must continue building sufficient capital for the future”.

As a result, the carrier is looking to secure additional rate increases.

In a statement provided to The Insurer, State Farm General Insurance Company said: “While we are pleased that Commissioner (Ricardo) Lara approved the interim rate of 17% for State Farm General Insurance Company, this change only addressed part of the original request of 30% filed in June 2024.

“The overall request of 30% would not be on top of the 17% interim rate change. State Farm General is still pursuing the full rate request. A hearing on the full rate request is expected to be held this year.”

State Farm in an article published on its website said the California insurance market is facing a coverage crisis, leaving many residents without the protection they need for their homes and businesses.

The insurer said that “outdated regulations in California's insurance market, such as lengthy rate approvals and restrictions on pricing to risk, have presented challenges”. It added that Proposition 103 has hindered the ability to adjust rates quickly to match the evolving risks in the state.

“Diminished capital could impact an insurer’s ability to pay future claims,” the article said. “This is why State Farm General Insurance Company is pursuing rate revisions and has taken additional actions to improve its financial strength.”

State Farm highlighted that the top 12 homeowners insurers in California make up 83% of the state's insurance market based on 2023 direct written premium. It said nine of these have paused or restricted new business since 2022 while seven have disclosed plans to non-renew some of their existing business.

The California market has also been hit by the January 2025 Los Angeles wildfires.

As of May 20, 2025, State Farm General has paid almost $3.6 billion on over 10,450 fire claims and expects to ultimately issue approximately $7.6 billion in total claim payments.

State Farm also urged a move to a modern regulatory environment to foster a healthy insurance market in California.

It said California’s FAIR Plan growth “is unsustainable”, and reforms “are needed to help guide the FAIR Plan back toward its intended mission as the insurer of last resort”.

The insurer also welcomed changes under Lara’s Sustainable Insurance Strategy allowing insurers to factor in the net cost of reinsurance as a legitimate business expense when setting rates, as well as establishing a framework that allows the use of forward-looking, scientifically based risk modelling.

California regulators are continuing to work toward a streamlined rate application review process.