California’s top insurance regulator has permitted State Farm to implement a significant 17% premium increase for all its home insurance policyholders in the state. The insurer claims these emergency rate hikes are essential to prevent a financial crisis and potential policy drops following the devastation caused by the Los Angeles wildfires earlier this year. This hike will impact approximately 1 million homeowners insured by State Farm in California.

The decision comes amidst California’s ongoing efforts to retain insurers in the state as wildfires continue to ravage communities. In response to the escalating fire risks, the state introduced regulations last year to allow insurers more flexibility in raising premiums in high-risk areas in exchange for maintaining policies. State Farm initially requested a 22% increase for homeowners but revised it to 17% during a recent hearing.

The approved rate increase is temporary, pending further evaluation of State Farm’s request for a 30% hike for homeowners scheduled for October. The regulator emphasized the importance of State Farm justifying its financial condition and recovery plan in a future rate hearing. State Farm’s financial struggles, including a recent rating downgrade and significant surplus account decline, have raised concerns among consumer advocacy groups like Consumer Watchdog.

While State Farm plans to refund customers if lower rates are approved in the future, the decision to allow the rate hike has sparked disappointment among consumer advocates. Despite the controversy, State Farm views the approval as a crucial step to continue serving its California customers, having already paid billions in claims related to the wildfires.