The Insurance Commissioner announced an agreement to modernize the California FAIR Plan Association, the state’s “insurer of last resort,” as part of his ongoing efforts to stabilize the California insurance market and address the insurance crisis. The move is part of his Sustainable Insurance Strategy, the largest insurance reform since voters passed Proposition 103 in 1988.
While the FAIR Plan expansion creates a negative feedback loop. When the FAIR Plan takes on more customers, it causes traditional insurance companies to withdraw from certain areas, further increasing dependence on the FAIR Plan. A recent news story called the growing FAIR Plan a “hidden crisis” because, partially due to fear of possible major assessments by the FAIR Plan, several insurance companies are further withdrawing from the California market by pausing writing new policies or reducing their market share in at-risk areas. This cycle can ultimately weaken the FAIR Plan’s financial stability and limit consumer choice.
The Commissioner’s agreement with the FAIR Plan is targeted at homeowners and condo associations that need expanded coverage, as well as farms, builders, and businesses with multiple buildings in the same location. this will help “break the cycle” by strengthening the FAIR Plan as he pursues other reforms to safeguard the integrity of the insurance market while holding true to the spirit and intent of Prop. 103.
Specifically, the FAIR Plan has agreed in a binding legal stipulation to issue a new Plan of Operation within 30 days that will implement the plan to offer homeowners, consumers, and business owners:
– – Expanded Coverage: Establishing a new “high-value” commercial coverage option with limits up to $20 million per building, along with past increases for residential policies.
– – Financial Stability: Creating a sound financial formula to protect policyholders in extreme loss scenarios.
– – Improved Transparency: Requiring increased public reporting on FAIR Plan activity and customer service metrics.
What others are saying:
Consumer Watchdog was not that happy. “Commissioner Lara’s proposal would relieve insurance companies of their responsibility for covering the largest claims under the California FAIR Plan, which insurers control. All California property insurance policyholders would be required to pay with an added surcharge on their insurance bills – a surcharge that could reach hundreds or potentially thousands of dollars.”
“The California Farm Bureau applauds Commissioner Lara’s efforts to modernize the FAIR Plan. Our farmers and ranchers have been disproportionately affected by the limitations of the current system, especially in high-risk wildfire areas,” said California Farm Bureau President Shannon Douglass. “The increased coverage limits and enhanced financial stability measures will provide much-needed security for our agricultural community, ensuring that farms can recover and thrive after disasters.”
“The modernization of the FAIR Plan is a significant and much-needed step forward. As an organization representing community associations, we have long faced challenges in securing adequate insurance coverage due to outdated limits and lack of options,” said Kieran Purcell, Chair of the Community Associations Institute – California Legislative Action Committee.
“The California Building Industry Association fully supports the modernization of the FAIR Plan. For builders and developers, securing adequate insurance coverage has been a persistent challenge throughout the state, particularly in high-risk areas,” said Dan Dunmoyer, President and CEO of the California Building Industry Association.
“The California Association of REALTORS® (C.A.R.) supports the Commissioner’s work to update the FAIR Plan,” said C.A.R. President Melanie Barker. “REALTORS® work every day with clients struggling to get the insurance they need, and the actions of the Insurance Commissioner to increase access to insurance coverage options is vital.”