State Farm’s 17% Rate Hike Approved – More California Insurers Will Follow
“It’s Coming”: Other insurers will “almost certainly” raise rates after California Department of Insurance approves 17% jump for State Farm.
Homeowners in California should brace for higher insurance bills.
Earlier this year, State Farm requested permission to increase premiums by 30% across California to accommodate higher risk.
State Farm, which is the largest property and casualty insurer in California, later reduced its request to 22%.
In May, the California Department of Insurance ultimately approved a 17% rate hike for State Farm. That double-digit rate hike took effect in June.
According to a new report by the San Francisco Chronicle, however, other insurers will likely follow State Farm and increase premiums significantly across California.
Here’s how David Russell, professor of insurance at California State University Northridge, explained the situation in an interview with the San Francisco Chronicle:
“People are getting hurt now. They’re going to get hurt more. The message for homeowners is ‘buckle up, it’s coming’…We’re all going to have to pay more.”
State Farm requested the 30% rate hike after the devastating Los Angeles County wildfires of January 2025.
As of May, State Farm has received 12,750 total claims and paid over $3.6 billion to cover those wildfires. The insurance giant ultimately expects to pay over $8 billion to homeowners across the Los Angeles area (including auto and fire claims combined).
Higher insurance premiums are expected to take effect in late 2025 and early 2026. Like State Farm, other insurers need to undergo hearings before receiving permission to raise rates.
What’s Driving Higher Insurance Premiums?
There are obvious and not-so-obvious reasons why Californians are expected to pay higher insurance premiums in the coming months.
State Farm argues it needs to charge 30% higher premiums to accommodate higher risk. That risk comes in many forms, including:
- Higher material costs (driven by inflation, tariffs, and other factors)
- Increased severity and incidence of natural disasters
- Population shifts to disaster-prone areas
- Higher labor costs (driven by a skilled labor shortage in the construction industry)
- Switching from historical data to wildfire catastrophe models to analyze risk
Californians will also need to pay higher rates to cover the state’s insurer of last resort, the FAIR Plan. California’s FAIR Plan is a pool of insurers that covers homes not covered by private insurance.
Earlier this year, the FAIR Plan announced it would run out of funds by March. To cover the difference, the FAIR Plan would impose a $1 billion charge on insurance companies, which plan to pass that charge onto policyholders.
California Isn’t the Most Expensive State for Homeowners Insurance
California is used to being the most expensive state for a lot of things. Many are surprised, however, to discover California is far from the most expensive state for homeowners insurance.
In fact, according to a 2025 NerdWallet study, California pays lower-than-average rates for homeowners insurance compared to its 49 competitors.
California sits in the low-middle of the range: the average annual cost of homeowners insurance in California, according to NerdWallet, is $1,335 per year ($111 per month).
The top 5 most expensive states for homeowners insurance, according to NerdWallet, include:
- Oklahoma ($6,210 Per Year)
- Texas ($4,585 Per Year)
- Nebraska ($4,505 Per Year)
- Colorado ($4,175 Per Year)
- Kansas ($3,735 Per Year)
The top 5 cheapest states for homeowners insurance, meanwhile, are:
- Hawaii ($610 Per Year)
- Vermont ($950 Per Year)
- Delaware ($1,025 Per Year)
- Alaska ($1,035 Per Year)
- Maine ($1,180 Per Year)
Home and auto insurance comparison website Matic, meanwhile, has slightly different figures: according to Matic, the average annual premium in California is $1,972 per year ($164). However, that’s still in the low-middle of the pack.
Of course, California is a big state. There’s a big difference between buying homeowners insurance in Redondo Beach and, say, Redding. While city-specific data is tough, one Insure.com study found the average Los Angeles homeowner pays around $132 per month for homeowners insurance – around 15% more than the statewide average.
Will More Insurers Leave California?
The California Department of Insurance needs to find a balance between rate hikes and risk.
If insurers are unable to raise rates, they could leave the Golden State.
Last year, State Farm cancelled 72,000 policies across California. Many of those policies covered homes that would later be affected by the January 2025 wildfires.
If insurers are unable to raise rates, they could simply leave the state, forcing more homeowners to rely on California’s FAIR Plan.
Nevertheless, Californians continue to pay lower rates than homeowners in other disaster-prone states like Florida and Louisiana. Rates will inevitably increase, but the Golden State continues to have cheaper-than-average homeowners insurance premiums – so we’re far from an insurance crisis.
What’s Next for California Homeowners in 2025 – 2026
Over the next couple of years, homeowners in California can expect:
- More rate hike requests, as more insurers submit requests and undergo state hearings like State Farm to raise rates
- Policy non-renewals
- Higher FAIR Plan enrollments
Watch for double-digit increases across the California insurance marketplace in the next 18 months as insurers accommodate rising risk.