State Farm, the state’s largest insurer with roughly 1 million home insurance policies in California, said the emergency rate would help the company rebuild its capital following the Los Angeles wildfires that destroyed more than 16,000 buildings, mostly homes. The company is trying to prevent a “dire” financial situation that executives said could push homeowners into the state’s last-resort insurance option.

California Insurance Commissioner Ricardo Lara said that other California insurers won’t be able to absorb State Farm’s customers if the insurance giant stops doing business in California, but that he wanted more data on how the company manages its finances and calculates risks. He asked the company to present its argument publicly on April 8 to a judge, who will then give a proposed decision. Lara will then make a final decision.

“State Farm claims it is committed to its California customers and aims to restore financial stability. I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers,” Lara said in a statement. “The facts will be revealed in an open, transparent hearing.”

Lara also called on the company to request a $500 million capital infusion from its parent company to help stabilize its finances in a private meeting this week, according to transcript of the meeting.

At the same meeting, State Farm said it would halt cancelling and not renewing policies for “at least one year” if it gets the rate increase approval. The company last year announced it discontinued coverage for 72,000 houses and apartments in California after saying it would not issue new home policies in the state in 2023.

Consumer Watchdog, a consumer advocacy group that opposed State Farm’s request, said the 22% increase could equate to an additional $600 annually for homeowners. The group previously said it would challenge the approval if Lara goes through with it.

State Farm and Consumer Watchdog didn’t immediately respond to requests for comment.

The emergency rates include a 22% rate increase for homeowners, 38% for rental owners and 15% for tenants. They will go into effect in June if Lara ultimately approves it. The decision comes as California is undergoing a yearslong effort to entice insurers to continue doing business in the state as wildfires increasingly destroy entire neighborhoods. In 2023, several major companies, including State Farm, stopped issuing residential policies due to high fire risk. Lara last year unveiled a slate of regulations all aiming at giving insurers more latitude to raise premiums in exchange for more policies in high-risk areas. Those rules kick in this year.

State Farm executives told state officials the company was already struggling before the LA fires. The company received a financial rating downgrade last year and has seen a decline of $5 billion in its surplus account over the last decade. Last year, the company asked the state for a 30% rate increase, which state officials are still considering.

The LA fires, which are now estimated to be the costliest natural disasters in the U.S. history, have made things worse, State Farm executives said. The company last month paid out roughly $1.75 billion to 9,500 claims and estimated the total loss to reach more than $7 billion. Its surplus also dropped from $1.04 billion at the end of 2024 to $400 million after the fires, according to State Farm. The company is using its surplus and reinsurance to settle the claims.

State Farm said it plans to refund the emergency rates if California later approves lower rates through the company’s request last year. The insurer last received state approval for a 20% rate increase in December 2023.