State Farm's request for 22% rate hike in California approved

SACRAMENTO, Calif. - California insurance regulators on Friday granted an emergency request from State Farm to raise premiums by 22%, but there are conditions.

The insurance giant must justify its reason for the rate hike in a public hearing on April 8.

Los Angeles County Wildfires

What we know:

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 County 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.

State Farm can't drop homeowners

What they're saying:

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."

A private meeting was held this week, where State Farm said it would halt dropping and not renewing policies for one year if it gets the rate increase approved.

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Fallout from State Farm insurance video alarms consumer advocates

A viral video showing a State Farm executive talking about raising insurance rates is seeing continued fallout.

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.

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.

State Farm exec secret recording

Dig deeper:

Recently, a video circulated online of a State Farm executive —  who has since been fired — discussing how the company strategically hikes rates on California policyholders.

The video appears to depict State Farm’s President of Innovation and Venture Capital, Haden Kirkpatrick, telling an unknown person at a bar that the insurance company is using cancelations and the threat of cancelations in California to pressure the State Insurance Commission to allow rate increases.

The video was posted on YouTube on March 5 by the O’Keefe Media Group, created by James O’Keefe, the founder of Project Veritas. 

An unknown interviewer asks, "I heard that the insurance pulled out of California fire. It seems like it's all, I don't know, orchestrated."   

"I mean it kind of is, but not in the way you would think," Kirkpatrick answers, explaining how the company allegedly uses the threat of widespread policy cancelations to pressure the California Insurance Commission into approving its desired rate hikes. 

"We’ll go to the Department of Insurance and say we’re overexposed here, you have to let us catch up our rating," Kirkpatrick continues. "And they’ll say ‘eh’ because the Department of Insurance and the Insurance Commissioner is an elected position in California. He’ll say ‘nah.’ And we’ll say, ‘Okay, then we are going to cancel these policies.’"

It does not appear that the State Farm executive knew he was being recorded. 

State Farm responded to KTVU's request for comment on Sunday, by saying, "These assertions are inaccurate and in no way represent the views of State Farm. They do not reflect our position regarding the victims of this tragedy, the commitment we have demonstrated to the people of California, or our hiring practices across the company. The individual in the video is no longer affiliated with State Farm." 

The Associated Press contributed to this report.