California’s insurance market is at a tipping point, and the ripple effects could hit your bottom line. State Farm General has been provisionally approved for a 22% rate hike on homeowners insurance policies, but the increase is not a done deal just yet. Here’s what you need to know and why it matters to you and your business.
State Farm’s Rate Increase: Where Things Stand
On March 8, California Insurance Commissioner Ricardo Lara granted provisional approval for State Farm’s request to raise homeowners insurance rates by an average of 22%. This increase will only take effect, however, if State Farm successfully justifies its request at a public hearing scheduled for April 8.
At the hearing, an administrative law judge will evaluate whether State Farm’s rate increase is necessary. If the judge rules in the insurer’s favor, the rate hike is expected to take effect on May 1, 2025.
Additionally, State Farm filed another request last summer for a 20% rate increase. If that request is approved, it will take effect on June 1, 2025—meaning some policyholders could see back-to-back premium increases totaling over 40% in just two months.
Why the Sudden Increase?
State Farm has cited financial losses from California wildfires, particularly the devastating Los Angeles County fires in January, as a driving force behind its request. The company reports over $7 billion in expected claims from these fires, alongside broader financial struggles in the California market.
Commissioner Lara had initially denied State Farm’s request for an emergency increase, citing a lack of sufficient data. However, he has now provisionally approved the hike—with conditions. State Farm must:
- Pause policy cancellations and non-renewals through the end of 2025.
- Secure a $500 million financial commitment from its parent company, State Farm Mutual, to stabilize operations.
Despite these conditions, State Farm has not yet agreed to halt policy cancellations—a move that has drawn criticism from consumer advocacy groups and regulators.
Implications on Commercial Real Estate
While the 22% average increase applies to homeowners insurance, it is part of a larger trend affecting the entire commercial insurance market in California. Rising premiums, policy non-renewals, and carrier exits from the state are already making it more difficult—and expensive—for individuals and commercial real estate owners to secure coverage.
Some key concerns for real estate leaders:
- Rising Costs for Rental Properties – If the interim rate hikes are approved after the April 8 hearing, renters and condo owners will see a 15% increase, while rental dwelling policies will jump by 38%. This could lead to higher lease costs, increased tenant turnover, and tighter margins for property investors.
- Policy Availability Issues – Insurers have been reducing their exposure in California, making it more challenging to secure comprehensive coverage.
- Increased Operating Costs – Higher insurance costs for property owners may be passed down to tenants in the form of higher rents or common area maintenance (CAM) fees.
- Regulatory Uncertainty – With more rate increases and potential market exits on the horizon, long-term insurance planning is becoming increasingly complex.
What Happens Next?
The April 8 public hearing will be a critical moment for the future of insurance pricing in California. If the judge rules in favor of State Farm, the 22% increase will take effect May 1. If the second rate request is approved, policyholders will see another 20% hike starting June 1.
What You Can Do Now
- Review Your Current Policies – If your insurance is up for renewal, anticipate potential cost increases and explore alternative coverage options.
- Assess Your Risk Strategy – Consider whether higher deductibles, self-insurance options, or risk-mitigation strategies can help offset rising premiums.
- Stay Informed – This hearing could set a precedent for other carriers, impacting commercial policies in the near future.
We’ll continue monitoring this situation and provide updates as new developments arise. In the meantime, if you have questions about how these changes may affect your commercial real estate portfolio, request a quote here to speak with our team of experts.
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