California's largest property insurer, State Farm General, has warned that it will not resume writing new policies in the state, even if regulators approve its proposed 22% rate increase. The statement, delivered in a letter to Ricardo Lara, the state’s insurance commissioner, underscores the growing crisis in California’s homeowners insurance market as insurers retreat in response to rising wildfire-related losses and regulatory constraints.
State Farm’s position follows months of escalating tensions between the insurer and the California Department of Insurance (CDI). In a recent meeting convened by Lara, company executives, state officials, and consumer advocates discussed the impact of Proposition 103, a 1988 law that limits rate hikes and mandates public hearings for increases above 7%.
“This outdated regulatory structure has hindered insurers from actively reflecting the true cost of doing business in California,” Lara said at the meeting. Despite these concerns, his office has not yet approved State Farm’s emergency request for higher premiums.
The stakes are high. State Farm has already announced plans to drop 72,000 existing policies and has threatened further cancellations if its rate hike request is denied. Company CFO Mark Schwamberger warned regulators that without approval, the insurer’s ability to maintain coverage during the upcoming fire season is “in jeopardy.”
California homeowners now face an uncertain future. If major insurers continue to withdraw, many will be forced into the state’s insurer of last resort, the California FAIR Plan, which offers only limited coverage at higher costs. There is hope that surplus lines insurers, which operate outside of state regulations, may be able to plug some of the gap.
The crisis in California mirrors similar struggles in other disaster-prone states. In Florida and Louisiana, regulatory constraints and rising risks have led to insurer withdrawals, surging premiums, and increased reliance on state-backed insurance pools. Florida’s Citizens Property Insurance Corp. now covers nearly 1 million policyholders, despite concerns over its financial stability.
Experts warn that unless California modernizes its insurance regulations, more insurers will exit the market. Richard Green, chair of the University of Southern California’s Lusk Center for Real Estate, pointed out the fundamental issue: “If the insurance commission prohibits insurers from charging a certain amount of money, insurance companies will say no, and then you’re left with people who self-insure.”
Consumer advocacy group Consumer Watchdog has pushed back against State Farm’s demands, accusing the company of withholding financial data and seeking a “backroom bailout.” Nonetheless, insurers argue that unless rates are allowed to rise to reflect increasing risks, the entire system will become unsustainable.
With Lara expected to issue a decision on State Farm’s request imminently, homeowners, insurers, and policymakers are bracing for what could be a defining moment for California’s insurance market. If no compromise is reached, the exodus of insurers may accelerate, leaving millions of residents with fewer and costlier coverage options.
