The California insurance market is once again at a tipping point. In the wake of catastrophic wildfires that have devastated communities and caused billions in damages, State Farm—the nation's largest property insurer—has requested an emergency 30% rate increase in California.
To many consumers, the news feels like déjà vu: higher premiums, fewer options, and growing uncertainty. But as insurance expert and Insurance Hour host Karl Susman explained during his recent appearance on NewsNation, this move is not just predictable—it's necessary for the survival of California's insurance system.
Let's unpack what this emergency rate increase means, why it's happening now, and how it will affect homeowners both inside and outside California.
According to Susman, this isn't a sudden or opportunistic decision. State Farm had already submitted a request six months ago for a similar 30% increase, which was delayed amid regulatory review by the California Department of Insurance. Since then, a series of wildfires have dramatically worsened the company's financial exposure.
"We're now six months later, and we've had this unbelievable catastrophe happen," Susman said. "They're putting in a request for additional rate increases. This is what you expect to see when a company really needs to get their pricing in balance with what their exposure is."
In plain terms: insurance companies price policies based on risk. When that risk changes—through more frequent, more destructive wildfires—the math behind those rates must change too.
California's insurance regulations, however, restrict insurers from raising rates quickly, even when losses spike. This regulatory lag creates a dangerous gap between what insurers collect and what they must pay out—a gap that has already driven multiple carriers to pause or exit the California market entirely.
In their filing, State Farm warned that wildfire claims will "further deplete capital." For policyholders, that phrase may sound abstract, but as Susman explained, it's a crucial signal of financial strain.
"The rate increase being sought today isn't putting money in anyone's pocket for claims right now," he clarified. "That process takes months to implement and then an entire year for the company to actually collect premiums."
The key point: rate hikes don't fund current claims—they fund future risk. Insurers must first pay out of their existing reserves. To do this, State Farm is drawing money from subsidiaries and reserve accounts outside California, essentially importing cash to cover California losses.
This practice, known as cross-state capital allocation, prevents insolvency but isn't sustainable long-term. "They're doing the right thing," Susman said, "but they can't do that forever."
Even homeowners far from California's wildfires are likely to feel the ripple effects. Susman explained that all insurers rely on reinsurance—essentially "insurance for insurance companies."
"They're hedging their bets when they take bets on us," he said.
Reinsurers, often based in global markets like London, Switzerland, and Bermuda, spread risk across borders. But after years of massive natural disasters—wildfires in California, hurricanes in Florida, floods in Europe—reinsurance rates have skyrocketed.
Those costs are passed directly down to consumers. As Susman put it, "To some extent, we're already feeling the impact of disasters around the world because of reinsurance."
In short, the global cost of climate change is now baked into your local insurance bill.
Susman didn't mince words: insurance premiums are rising everywhere, not just in California.
"People across the country should expect to see their rates increase because of climate change," he warned. "We're seeing disaster after disaster—hurricanes, tornadoes, floods, wildfires, earthquakes—and all of these end up costing a lot of money."
This shift represents a fundamental realignment of the insurance industry. For decades, insurers used historical averages to predict future risk. But as extreme weather becomes more frequent and severe, those models no longer hold.
What used to be a "1-in-100-year fire" might now occur every five years. When that happens, insurers must revise their assumptions—or risk bankruptcy.
Here's the irony: despite its wildfire and earthquake exposure, California still ranks as the sixth least expensive state for homeowners insurance.
That may sound like good news for consumers, but it's also why insurers are struggling to stay afloat. Premiums simply don't match the level of risk.
"It seems a little odd," Susman said, "considering the earthquakes and the wildfires and everything else that happens here."
The imbalance stems from Proposition 103, a 1988 law requiring insurers to seek approval from regulators for any rate increase. While the law was originally designed to protect consumers, it has inadvertently created an environment where rates can't adjust fast enough to reflect real-time risk.
This mismatch—between outdated rates and modern risk—lies at the heart of California's insurance crisis.
California isn't alone. As Susman pointed out, other states are now adopting similar "FAIR Plan" systems to pool risk in high-exposure areas.
"Colorado recently created their first FAIR Plan, which is basically an organization to pool money together for wildfires," he said. "We're going to see this state by state across the entire country."
The FAIR Plan (Fair Access to Insurance Requirements) acts as a safety net for homeowners who can't get private insurance. But these plans, too, are financially vulnerable—they depend on all participating insurers to share in the cost of claims. When disasters grow larger, even FAIR Plans face the risk of insolvency or surcharge assessments on policyholders.
If you're a California homeowner—or even a renter—here's what to expect:
Higher premiums are inevitable. Whether through private insurers or the FAIR Plan, prices will rise as companies reprice risk.
Policy non-renewals may continue. Even with temporary moratoriums from the state, some insurers will scale back exposure in wildfire zones.
Bundled policies may help. Working with an independent agent to bundle home, auto, and umbrella policies can help offset costs.
Home hardening pays off. Installing ember-resistant vents, clearing defensible space, and upgrading to fire-resistant materials may earn premium discounts.
Be proactive about renewals. Set up auto-pay, update contact information, and maintain continuous coverage—because replacing a lost policy can be nearly impossible in today's market.
State Farm's emergency rate request is more than a reaction to a single season of wildfires—it's a symptom of a system under strain.
California's insurance industry is being forced to evolve, balancing consumer protection with economic reality. Regulators face the difficult task of allowing rate flexibility without abandoning affordability.
As Susman concluded, "What we're seeing now is the rebalancing of premium to risk." In other words, insurance in California—and across the U.S.—is entering a new era where coverage will increasingly reflect the true cost of climate exposure.
For consumers, the message is clear: expect change and plan ahead. Review your policies, understand your risks, and work with a trusted insurance professional to ensure your coverage keeps pace with the evolving landscape.
California's insurance challenges are no longer isolated—they're a glimpse into the future of risk management nationwide.
