Insurance leaders are calling for FAIR Plan reforms ahead of summer wildfire season. (Credit: ALM archives)
The California FAIR Plan received approval this week to assess its member companies $1 billion to help pay for LA wildfire losses.
In a letter to the state’s insurance commissioner, Victoria Roach, the plan’s president, said wildfire claims have “presented a significant financial challenge to the FAIR plan.” As of Feb. 9, the plan has received 4,794 claims related to the Palisades and Eaton fires and expects losses of about $4 billion.
Under California statute, FAIR Plan members — any licensed property insurance company doing business in California — must help pay claims via a member assessment if the plan runs out of funds. Insurers’ assessment bills will be based on their market share in the state.
The last FAIR plan assessments in California were in 1993 and 1994.
In a statement announcing his approval of the assessment, California Insurance Commissioner Ricardo Lara said the assessment is essential to ensuring stability in the state’s insurance market.
“I took this necessary consumer protection action with one goal in mind: the FAIR Plan must pay claims just like any other insurance company,” he said. “I reject those who are hoping for the failure of our insurance market by spreading fear and doubt. Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks.”
Insurers might be able to pass some of the cost of the assessment on to policyholders. Under new rules issued by Lara last year, insurance companies can charge customers a temporary fee to help pay for the assessment.
However, the fee can only cover 50% of the assessment, and any fees have to be approved by the insurance commissioner. Assessment costs also can’t be a factor in future rate increases.
Several insurers, including USAA, Allstate and Chubb, have already reported LA fire losses of over $1 billion. Traveler’s this week said it expects $1.7 billion in losses from the fires. State Farm, the state’s largest home insurance, hasn’t disclosed losses but asked for an emergency rate hike last week to help it cover costs.
Last month, state legislators introduced a bill that would allow the California to issue bonds if the FAIR Plan ran out of money, but the bill has yet to move forward. Both Lara and Roach said they support the bill.
The American Property Casualty Insurance Association (APCIA) this week called for urgent reforms to help stabilized the California FAIR Plan over the long term.
“With peak fire season still ahead, the urgent need for reforms to stabilize California’s insurance market and protect consumer access to coverage now and in the future has never been greater,” said Mark Sektnan, APCIA’s vice president for government relations, in a statement. “A critical component of this effort is preserving the FAIR Plan’s long-term viability as a critical safety net for homeowners.”
Sektnan said the plan needs to be able to tap a diverse range of funding solutions, including bonds and lines of credit, and it must be allowed to charge actuarially sound rates.
Lara, as part of the assessment announcement, said he expects to ask for an ongoing financial examination of the FAIR Plan over the coming months.
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