California Homeowners Face Temporary Fees to Support Wildfire Insurance
California homeowners will contribute to a temporary fee increase to help the state’s FAIR Plan, the last-resort fire insurance provider. The plan, approved by California Insurance Commissioner Ricardo Lara, aims to secure approximately $1 billion in additional funding. This measure is intended to ensure that consumer claims are paid following the recent devastating wildfires in Southern California. Lara emphasized the importance of the FAIR Plan meeting its obligations to Californians.
The FAIR Plan currently covers approximately 451,000 policies throughout the state, according to the California Department of Insurance.
Details of the Fee Increase
Under the approved proposal, most California homeowners and fire insurance customers will experience a temporary increase in fees. Insurance companies must submit filings with the insurance department before collecting these one-time fees from policyholders, according to Michael Soller, a department spokesperson. The specific percentage of policy premiums affected by these fees remains unspecified.
In a press release, the California Department of Insurance stated that the action aligns with Lara’s Sustainable Insurance Strategy and FAIR Plan modernization order, originally issued last summer. This strategy outlines specific conditions to safeguard FAIR Plan policyholders and uphold the integrity of the state’s insurance market.
Commissioner Lara stated, “I took this necessary consumer protection action with one goal in mind: the FAIR Plan must pay claims just like any other insurance company. Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks.”
Commissioner’s Actions and Objectives
Lara finalized the Sustainable Insurance Strategy in 2024, representing the most significant insurance reform in three decades. The ongoing strategy aims to encourage the issuance of standard insurance policies in high-risk areas, thereby reducing reliance on the FAIR Plan.
“The fact that we are once again facing this issue 30 years after wildfires devastated these same communities highlights the need for change,” Lara explained. “Thirty years of stagnant regulations have placed more people at risk. We will move people away from the FAIR Plan, and insurance companies will write more policies under the Sustainable Insurance Strategy I finalized last year.”
Key actions taken by the Commissioner include directing the FAIR Plan to:
- Hire additional staff for efficient processing and timely payment of claims.
- Utilize all available funds, including reserves and reinsurance resources.
- Comply with all laws and regulations applicable to other insurance companies, including provisions for advance payments for living expenses and personal property.
Under an agreement established last year, insurance companies are responsible for covering half of the assessment, thereby reducing the financial burden passed on to consumers. Subject to prior approval from the Commissioner under Proposition 103, insurers may implement a temporary supplemental fee as a percentage of the policy premium. However, they are prohibited from incorporating these assessment costs into future rates.
Background on the FAIR Plan
The FAIR Plan, established in 1968, serves as a safety net, providing property insurance to California property owners who are unable to secure coverage through traditional insurance companies. All licensed property insurance companies in California are automatically members of the FAIR Plan and may be called upon to financially support its operations in response to major catastrophes, such as the Southern California wildfires.
Commissioner Lara anticipates filing the Department’s Report of Examination for an ongoing financial review of the FAIR Plan, including compliance with recommendations from the Department’s 2022 Operational Assessment Report, in the upcoming months.
