The California FAIR Plan Association (Fair Plan), the state's "insurer of last resort," is set to undergo changes as announced by California Insurance Commissioner Ricardo Lara in a press release on July 26.
The FAIR Plan, established in 1968, is a syndicated fire insurance pool comprising all insurers licensed for property/casualty insurance in California. According to the California Fair Plan website, it issues policies on behalf of member companies, which share the profits, losses, and expenses proportionally to their market share. Initially intended as a temporary safety net, the plan has seen an increase in clients due to wildfires causing insurers to withdraw from affected markets. Homeowners join the FAIR Plan when they cannot obtain insurance from other agencies and are expected to remain only until coverage becomes available from individual insurers.
"Modernizing the FAIR Plan is a crucial step in our strategy to stabilize California’s insurance market. 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," said Lara in the July 26 press release.
According to Lara's announcement, changes to the FAIR Plan include a binding legal stipulation to issue a new Plan of Operation by August 26. This will implement expanded coverage with a high-value commercial coverage option (limits up to $20 million per building). Additionally, there will be the creation of a financial formula designed to protect policyholders in extreme loss scenarios and increased public reporting on the activity of the FAIR Plan and customer service metrics.
An increasing number of lawsuits is contributing to high costs for California consumers, the Northern California Record reported. Excessive litigation and large payouts are driving up insurance costs, piling on to the state’s high cost of living.
The California Department of Insurance has existed since 1868 with the mission of protecting consumers through state-based insurance regulation. The department ensures that rates are not inadequate, excessive, or discriminatory and enforces insurance laws regarding how insurers and licensees conduct business.