Homeowner Surcharge to Bailout Insurers for FAIR Plan Losses Unfair and Illegal, Says Consumer Watchdog

LOS ANGELES, Feb. 11, 2025 /PRNewswire/ -- Insurance Commissioner Ricardo Lara announced today he would let home insurance companies charge every homeowner in the state for losses by the FAIR Plan in the Los Angeles fires. 

"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. Consumer Watchdog is exploring every legal option to stop a bailout if any insurance company seeks to make consumers pay," said Carmen Balber, executive director of Consumer Watchdog. 

No previous insurance commissioner has ever taken the position that insurance companies can charge consumers for FAIR Plan assessments. The move is contrary to the law, said Consumer Watchdog, because the statute enacting the FAIR Plan explicitly put insurance companies, not consumers, on the hook for these losses. The statute requires insurers to participate proportionally in the "writings, expenses, profits, and losses" of the Fair Plan.

At least one insurance company has publicly disclosed that it has reinsurance to cover FAIR Plan assessments. See Mercury Insurance press release in January 2025. 

"Does the insurance commissioner intend to allow insurance companies to double dip and be reimbursed twice for FAIR Plan assessments that should be their responsibility?" asked Balber.

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 such efforts have failed to gain support in the legislature. Today's action relies on a bulletin issued by Commissioner Lara eight months ago, not a regulation with the force of law. 

"This gift to insurance companies rewards bad behavior and will only incentivize insurers to drop even more homeowners and force them onto the FAIR Plan in future, because there's no consequence for abandoning these families," said Balber. 

"Bailing out insurance companies for FAIR Plan losses isn't going to keep them selling in California," said Balber. In Florida consumers have long been required to pay for assessments at their version of the FAIR Plan, but rates in that state are 2 and a half times higher than they are in California, three times as many homeowners are stuck on their insurer of last resort, and insurance companies still pulled back from the state.

Moving people off the FAIR Plan into comprehensive coverage is the way to protect consumers and stabilize the FAIR Plan, not a bailout, said Consumer Watchdog. The group called for new protections including a requirement for insurance companies to cover homeowners who meet statewide mitigation standards and protect their homes from wildfires.

SOURCE Consumer Watchdog