Bailout: Insurance Commissioner Would Force Homeowners to Pay for FAIR Plan Losses, says Consumer Watchdog

LOS ANGELES, July 26, 2024 /PRNewswire/ -- Insurance Commissioner Ricardo Lara today proposed a multi-billion dollar policyholder bailout of the insurance industry for its exposure to wildfire losses at the FAIR Plan.

Commissioner Lara's proposal would relieve insurance companies of their responsibility for covering the largest claims under the California FAIR Plan, which insurers control. All California property insurance policyholders would be required to pay with an added surcharge on their insurance bills – a surcharge that could reach hundreds or potentially thousands of dollars.

California law requires insurance companies to pay if the FAIR Plan can't pay claims. Nothing in the law empowers the Insurance Commissioner to allow insurance companies to pass those costs on to consumers today. 

For the last several years insurance companies and other industry groups have sought to change the law to create the authority for insurance companies to pass on such losses, but these efforts have failed to gain support in the legislature.

"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," said Carmen Balber executive director of Consumer Watchdog. "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."

Moving people off the FAIR Plan into comprehensive coverage is the way to protect consumers and stabilize FAIR Plan finances, not a bailout, said Consumer Watchdog. The group called on the Insurance Commissioner to endorse a requirement for insurance companies to cover homeowners who meet mitigation standards and protect their homes from wildfires. Commissioner Lara's prior proposals fail to require insurance companies to cover more Californians (read Consumer Watchdog's comments.) 

Commissioner Lara cites the California Insurance Guarantee Association and the California Earthquake Authority as examples of agencies that allow consumer bailouts. However, to the extent those agencies assess policyholders in certain circumstances they have explicit authorization to do so in the law. The FAIR Plan and the insurance companies that run it have no such statutory authority.

Requiring consumers to bail out insurance companies for FAIR Plan losses is the latest proposal by Commissioner Lara to mimic failures in the Florida insurance market. Florida insurance companies may slap surcharges on all policyholders if Citizens Property Insurance, its FAIR Plan equivalent, experiences shortfalls. Florida also has limited rate oversight, allows insurance companies to use black box models to set rates, and insurers may pass the unregulated cost of reinsurance on to consumers -- all of which are elements of the deregulatory policies Commissioner Lara has advanced in California. Each, however, has failed to stabilize Florida's market where home insurance premiums are 2 – 3 times higher than California's, the insurer of last resort covers four times as many policyholders as our FAIR Plan, and insurance companies have still abandoned the state.

The plan announced by the insurance commissioner would also direct the FAIR Plan to cover commercial developments worth up to $100 million. That change would improve the safety net for condo owners and renters struggling to find, or pay the extreme cost of, insurance when HOAs and landlords are forced into the less-regulated surplus lines insurance market. 

SOURCE Consumer Watchdog