The FAIR plan has an estimated $4 billion in liabilities from January's fires. (Credit: Amanda Bronstad/ALM)
Legislation moved forward this week to help California’s FAIR Plan better balance its finances.
The FAIR Plan Stabilization Act (AB 226) would allow the California Infrastructure and Economic Development Bank to issue bonds and give the plan access to a line of credit if it needs funds.
It passed the state assembly on Tuesday and will head to the state senate for consideration.
"AB 226 stabilizes the FAIR Plan by allowing bonds to spread costs over time, preventing sudden insurer assessments that could spike premiums or bankrupt small companies,” said Assemblymember Lisa Calderon, chair of the assembly’s insurance committee and a co-author of the bill, in a press release. “This urgent fix protects homeowners and safeguards our insurance market from catastrophic failure. I look forward to seeing this critical bill make its way through the senate."
The FAIR Plan has struggled with finances following the LA wildfires at the beginning of the year. The plan has an estimated $4 billion in liabilities from the fires, and earlier this year, it issued a $1 billion assessment to its member companies — the state’s admitted insurers — to help cover the costs.
In February, the plan’s president, Victoria Roach, said it had just $510 million in unallocated cash to put toward its $900 million reinsurance deductible. Including the deductible, the plan had up to $3.5 billion in payments it needed to make to access all available layers of reinsurance.
In a statement this week, California Insurance Commissioner Ricardo Lara said the FAIR Plan Stabilization Act, which he supports, is just one of the reforms headed for the FAIR Plan.
“AB 226 builds on the many actions I have taken to fix the FAIR Plan through increased oversight and financial planning,” he said.
In recent months, Lara has required increased public reporting on FAIR Plan activities, and he is supporting a bill that would add two public members, appointed by the state’s senate and assembly, to the FAIR Plan governing committee.
He is also finalizing an audit of the plan, expected to take place in the next few months, to look at its governance and operations, underwriting and claims handling and financial planning strategies.
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