California Commissioner Announces FAIR Plan Modernization Deal

California Insurance Commissioner Ricardo Lara said on Friday that he and the California Fair Plan have agreed to establishing a new high value commercial coverage option with limits up to $20 million per building and other steps that he said will modernize the state’s “insurer of last resort.”

The changes are part of Lara’s so-called Sustainable Insurance Strategy intended to stabilize the California homeowners insurance market and address the insurance crisis.

Carriers are pulling back from the state’s homeowners market, blaming blamed wildfire losses as well as regulations.

State Farm has applied for large rate increases in California, a year after the carrier got rate approvals of 7% and 20%. The insurer, the largest in California, insures nearly one-in-five homes in the state. It recently requested a 30% rate increase for its homeowners line, a 52% rate increase for renters and 36% rate increase for condo coverage.

Related: California Wildfire Continues to Spread Rapidly to 164K Acres

Allstate, which stopped issuing new California homeowners insurance policies in 2022, is seeking an increase in its California homeowners insurance premiums by an average of 34%. It would be the largest rate increase this year and would impact more than 350,000 policyholders.

Those are two among several carriers that have pulled back writing homeowners in California.

This has driven buyers into the state’s FAIR Plan, a limited and expensive last resort. Brokers are also taking clients to the surplus lines market, where more buyers are now getting coverage. With the year only half over, homeowners insurance transactions in California’s surplus lines are up 70% for 2024, doubling the total 10 years ago. That follows a massive increase in homeowners surplus lines transactions last year.

“Modernizing the FAIR Plan is a crucial step in our strategy to stabilize California’s insurance market,” Lara said in a statement. “It’s critical for Californians to understand that a growing FAIR Plan contributes to our insurance crisis. By strengthening the FAIR Plan while providing financial stability and solvency protections, we are creating long-term security for consumers, homeowners, and businesses across the state that is long overdue.”

Related: California Homeowners Sue FAIR Plan Over Smoke Damage Coverage

Lara’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.

Specifically, the FAIR Plan has agreed in a binding legal stipulation to issue a new plan of operation within 30 days that will implement Commissioner Lara’s plan to offer homeowners, consumers, and business owners:

• Establishing a new “high-value” commercial coverage option with limits up to $20 million per building, along with past increases for residential policies.
• Creating a sound financial formula to protect policyholders in extreme loss scenarios.
• Requiring increased public reporting on FAIR Plan activity and customer service metrics.

The American Property Casualty Insurance Association called the action “an important step toward restoring the FAIR Plan’s financial stability and ensuring consumers have access to the coverage they need.”

“While some details still need to be finalized, we appreciate the Department’s commitment to implementing reforms that will bring balance back to the insurance market and increase access to coverage for all Californians,” reads a statement from the APCIA.

Consumer Watchdog called Lara’s proposal “a multi-billion dollar policyholder bailout of the insurance industry for its exposure to wildfire losses at the FAIR Plan.”

He group states that as a result of the changes, all California property insurance policyholders would be required to pay with an added surcharge on their insurance bills.

“It’s outrageous and outside the law for the insurance commissioner to force consumers to bail out home insurance companies and then call that consumer protection,” Carmen Balber executive director of Consumer Watchdog, said in a statement. “If the FAIR Plan gets into trouble it will be because insurance companies dumped too many Californians onto its books. Those companies should be on the hook for the fallout, not every homeowner in the state.”

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