The FAIR Plan, California’s safety net for fire insurance, is set to impose a $1 billion special charge on insurance companies. This move, the first of its kind in over three decades, will ultimately lead to higher costs for homeowners across the state.
California’s Insurance Department recently approved the FAIR Plan’s request for the assessment, as announced in an order by Insurance Commissioner Ricardo Lara. The FAIR Plan, a pool of insurers mandated by law to provide fire coverage to those who can’t find it elsewhere, has seen its customer base explode in recent years due to major insurers increasingly declining policies in high-risk areas. Homeowners will now see temporary fees added to their insurance bills as part of the assessment.
The FAIR Plan’s move follows the devastation of recent Los Angeles County fires, which have pushed the provider to the brink. The plan currently covers over 451,000 policies, with a significant concentration in areas like the Pacific Palisades, where the number of FAIR Plan policies surged by 85% between September of last year and the year before.
Victoria Roach, president of the FAIR Plan, warned last year that the plan was “one event away from a large assessment.” As of February 9th, the plan had already paid over $900 million in claims. The assessment is designed to provide the FAIR Plan with sufficient funds to make it through the upcoming wildfire season. The agency estimates that this charge will leave it with just under $400 million in cash reserves by July 2025.
Before insurance companies can pass assessments on to their customers, they must submit filings with the insurance department. The specific percentage of policyholders’ premiums affected by the fees is not yet clear.
Under new regulations implemented this year, customers will now shoulder 50% of any assessment through temporary fees added to their premiums. Previously, the FAIR Plan would receive all the additional funds directly from its member companies.
The insurance industry supports the change. “This is essential to prevent even greater strain on California’s already unbalanced insurance market,” said Mark Sektnan, vice president for state government relations for the American Property Casualty Insurance Association, in a written statement.
However, Consumer Watchdog, a consumer advocacy group, is considering legal action, calling the assessment a “bailout.” Carmen Balber, the group’s executive director, stated that they would “be exploring every legal option to protect (consumers) from those surcharges.” She also questioned whether insurers who had reinsurance in place would be allowed to “double dip.”
The last time California approved additional funds for the FAIR Plan was in 1993, after the Kinneloa Fire in Altadena and the Old Topanga Fire in Malibu and Topanga. The additional funds approved then are equivalent to $563 million today, the department said.
Commissioner Lara characterized the new regulation as a “necessary consumer protection action.” He added, “The fact that we are once again facing this issue 30 years after wildfires devastated these same communities highlights the need for change.”
Insurance companies will pass along the fees, the FAIR Plan itself will not charge its own customers.
