California Insurers Accused of Colluding to Create Insurance Crisis
Two law firms have filed lawsuits against California’s largest insurers, alleging that they colluded to drop customers and stop writing policies, forcing hundreds of thousands of homeowners to turn to the California FAIR Plan. The suits claim that by doing so, private insurance companies reduced their exposure to wildfire risk while maintaining their ability to profit, as FAIR Plan policies often come at a much higher cost than traditional insurance.
The lawsuits, brought by Shernoff Bidart Echeverria LLP and Larson LLP on behalf of California homeowners, allege that nearly two dozen top insurance companies unfairly collaborated to pull out of the state’s home insurance market. This action is said to have violated state antitrust and unfair practices laws. The FAIR Plan, created by the Legislature, operates as a private association of all licensed insurers in California, with companies sharing both profits and losses, as well as holding seats on its governing board.
The suits further allege that insurance companies organized their ‘boycott’ of the California market during meetings of the FAIR Plan board and industry groups such as the Personal Insurance Federation of California and the American Property Casualty Insurance Association. Rex Frazier, president of the PIFC, dismissed the allegations as ‘an outrageous lie,’ attributing the market problems to state policies.
One lawsuit seeks class-action status for all California FAIR Plan policyholders, while the other seeks relief for families dropped by their insurers and forced to rely on the FAIR Plan when their homes were destroyed in recent wildfires. An analysis by The Chronicle found that the FAIR Plan has a disproportionately large presence in Los Angeles County, insuring about 16% of policies in and around wildfire perimeters, compared to 5% statewide.
California’s home insurance market has been in crisis since late 2022, with major insurers like Allstate and State Farm either stopping new policies or dropping existing customers. Data shows that between 2018 and 2023, insurance companies dropped at least 354,000 California homeowners, with the 10 largest home insurers dropping over 100,000 customers since 2019, particularly in high wildfire risk areas.
While policyholders unable to secure private insurance can turn to surplus line insurers, data indicates that these make up less than 1% of policies statewide as of 2023. Meanwhile, the FAIR Plan’s market share has nearly tripled since 2019, with 555,868 residential policies in force as of last month.
