Is the FAIR PLAN fair?

Under California’s insurance laws the FAIR plan was designed as an “insurer of last resort”.  In other words, persons who couldn’t get their residential property insured for whatever reason could apply to this source of insurance that is supported by numerous insurers.  This parallels the California Earthquake Authority which was created after major quakes caused billions of dollars in claims and which is also financially backed by major insurance organizations… i.e., investors hoping they’ll never have to pay out.

Since the wildfires, thousands of owners are facing the tedious claims process.  Some insurers have been slow to pay, others dropped or decided not to renew policies.  State Farm pulled out of the market and then asked the Insurance Commissioner for a 22% increase in premiums if it re-entered the market.  That percentage was denied but was negotiated to 17% after several issues were resolved.  Namely, the company was to increase its back up source of funds (re-insurance), and expedite its claims process.  And that rate is not permanent.

Aside from homes being destroyed, claims asserting fume and smoke damage in homes that didn’t burn have also emerged.  Health claims have surfaced and validating them will be a long process involving medical assessments, etc..

In the meantime, Assembly Bill #1 is slowly going through the legislative process.  It essentially promotes building materials that are fire resistant, and which should result in lower insurance rates.  (As readers may also be aware, “hardening” your home by clearing nearby brush, etc., may prevent it from catching fire.)

This bill is sponsored by Insurance Commissioner Ricardo Lara and supported by local government entities, the Personal Insurance Federation of California, United Policyholders, and other groups.

According to the sponsors of this bill, and as cited in the Assembly staff report, “As new and safer building materials come to market and wildfire prevention methods evolve, it is important that we periodically revisit the regulations and evaluate if they capture the best mitigation practices available and if the regulations are offering as much relief as possible to the people who are doing the right thing. This bill represents a reasonable step the Legislature can take to help consumers save money on their insurance bills and reduce the risk of disaster for vulnerable communities and the families that live there.”

Is this a fast fix?  No, it isn’t.  Is it prudent?  Yes, it is.  AB #1 will shortly pass to the Senate and will be reported on here.

(( Additionally, AB 1867 from last session, would have allowed personal income tax deductions for insurance premiums on primary residences but failed to move. ))