California Insurance Commissioner Ricardo Lara gave the green light to State Farm‘s emergency request to hike rates after the company suffered billions of dollars in losses due to the fires that devastated Los Angeles earlier this year.

State Farm covers 20% of the area affected by the fires that ripped across Los Angeles in January, which it said ranked among “the costliest disasters in the history of State Farm.” The insurance company said that as of May 12, it has paid out more than $3.51 billion in losses while processing 12,692 claims. 

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Lara approved State Farm’s request to implement a 17% hike for homeowners in response to the fires on Tuesday. The increase will affect more than 1 million policyholders in the state and is set to take effect June 1. The company initially requested a 22% hike in February, arguing it was warranted to restore financial stability. 

The commissioner’s decision follows a months-long dispute between Lara and State Farm that started when the fires sparked in January. 

Lara held a hearing about raising rates and later took the case before a judge. On Tuesday, the commissioner signed off on a ruling on the situation issued by Judge Karl-Fredric Seligman the same day.

Seligman argued the 17% hike was warranted due to the steep losses State Farm has incurred as it has been required by Lara to underwrite high-risk areas. State Farm’s surplus plunged from $2.24 billion to approximately $620 million between 2022 and January 2025, the judge wrote, underscoring “that the company is in a precariously weak position as it is a dramatic change in a relatively short period.”

Another disaster “would nearly eliminate State Farm’s existing surplus,” he warned. 

“​​The proposed interim rate stipulation serves the best interests of California consumers and the public. Taken as a whole, it represents a fundamentally fair, adequate, and necessary measure — effectively functioning as a rescue mission to stabilize State Farm’s financial condition while safeguarding policyholders,” Seligman wrote in his ruling.

Lara said Tuesday that his move to grant State Farm’s hike came in response to Seligman’s review. 

“Californians deserve a process grounded in fairness, transparency, and integrity — not politics or posturing,” the commissioner said in a statement. “That is why I requested an independent review of the evidence by an administrative law judge, who presented a proposed decision. I ordered this hearing to ensure that the parties have the opportunity to present their arguments before a neutral arbiter.”

“Let me be clear: We are in a statewide insurance crisis affecting millions of Californians,” he continued. “Taking this on requires tough decisions.”

In addition to the 17% increase for homeowners, State Farm will be permitted to raise insurance rates for renters and condo unit owners by 15% and hike landlord rental property insurance by 38%. 

In accordance with Lara’s agreement, the insurer is also prohibited from issuing any block non-renewals through the end of the year.

State Farm issued a response to the commissioner’s approval that committed itself to “continuing monitoring capacity to support its risks and building sufficient capital for the future.”

“It’s time for certainty in the California insurance market for our customers. The provisional nature of today’s decision does not improve that certainty but it’s a step in the right direction,” the insurer said in a statement Wednesday. “We are moving forward with implementing this provisionally approved rate and will continue to work with the California Department of Insurance for a sustainable future for the California insurance market.”

California’s insurance crisis sparked debate about whether the debacle has been fueled by price controls that keep premiums artificially low and require insurers to cover high-risk areas at a set price, driving them out of California and crushing competitive rates.

Dr. Gary Wolfram, the director of economics at Hillsdale College, previously told the Washington Examiner that price controls were well-meaning but had brought disastrous unintended consequences. 

“I think what happens is that people don’t think through the whole procedure, and all they do is they see the price go up, and then they want the government to keep the price from going up,” he said. “Well, it can do that, but it’s going to have these unintended consequences. And I think that’s why you get laws the way they are is because people see, but they don’t observe, they don’t think through.”

PRICE CONTROLS ON CALIFORNIA HOME INSURANCE SCRUTINIZED AFTER LOS ANGELES FIRES

Long-term, price controls only make matters worse, according to Wolfram.

“Logically, if you set the price which is below equilibrium, then there’s going to be more people wanting it, and there’s going to be less people supplying it, so you’re going to create a shortage whenever you do that,” he said.