FAIR Plan receives $1 billion bailout – law allows insurers to recover 50% from CA property owners

CALIFORNIA – California Department of Insurance (CDI) commissioner Ricardo Lara approved the FAIR Plan’s $1 billion request for additional funds – an action that could raise insurance rates for all property owners in the state.

The Palisades and Eaton Fires collectively burned over 37,000 acres in the Los Angeles area. According to recent updates, the fires damaged over 18,000 structures including over 16,000 that were completely destroyed.

The commissioner said the approval — or assessment, makes sure wildfire survivors in Southern California keep getting their claims paid and helps keep the plan financially strong.

The FAIR Plan will collect the $1 billion assessment from the insurance companies that are part of the FAIR Plan. They can then recover part of that amount by passing a surcharge onto homeowners and businesses through increased premiums.

Companies can recoup 50% of assessment

The FAIR Plan is a state-mandated program offering basic property insurance to high-risk homeowners and businesses unable to secure traditional coverage.

All insurance companies that provide basic property insurance in California, like State Farm, Allstate, Farmers, and Liberty Mutual, must be part of the FAIR Plan to do business in the state.

Lara released a notice to help insurers understand how to recover costs from the $1 billion assessment.

“To assure the stability of the property insurance market and the availability of basic property insurance in the event the FAIR Plan is authorized to issue assessment(s) of up to $1 billion for personal lines or up to $1 billion for commercial lines in one calendar year, the FAIR Plan’s member insurers may recoup 50% of the amount the insurer paid for the assessment(s), but only if the insurer confirms that its assessment payment was not covered by reinsurance or reimbursed through other means,” said guidance in the bulletin.

The 50% recoupment is the amount insurers can pass on to consumers through increased premiums, provided they have not already been reimbursed through reinsurance or other means.

‘Homeowners across California should not have to pay’

In California, a growing number of homeowners are facing insurance cancellations or non-renewals as insurers pull back from high-risk areas due to increasing wildfire threats and rising claims costs.

According to Consumer Watchdog, the FAIR Plan is in trouble because insurance companies ‘dumped too many homeowners’.

“That’s why insurers are on the hook for FAIR Plan losses. Homeowners across California should not have to pay a penalty to repair the damage from home insurance companies’ predatory behavior,” said Consumer Watchdog executive director Carmen Balber.

The advocacy group says it is exploring legal options to stop a bailout if any insurance company seeks to make consumers pay.

In addition, it says moving people off the FAIR Plan into comprehensive coverage is the way to protect consumers and stabilize the FAIR Plan, not a bailout.