California Insurers Approved to Pass Hefty FAIR Plan Loss Assessment Costs on to Policyholders | Insurify
The state's Fair Access to Insurance Requirements (FAIR) Plan provides coverage for residential and commercial properties that may not be able to get insurance through the standard market.
If the plan ever faces a large volume of claims from a single event that threatens to overwhelm the insurer's solvency, it can ask the state's insurance commissioner to approve a special assessment on FAIR Plan member insurance companies.
"In the highly unlikely event that the Plan is substantially threatened with insolvency, the FAIR Plan may levy an assessment on its member insurers, with the insurance commissioner's prior approval," Insurance Commissioner
The Plan last levied such an assessment in 1994, according to the bulletin. FAIR Plan member companies can, in turn, ask the state for permission to pass some or all of the assessment costs on to policyholders in the form of temporary fees, Lara said.
FAIR Plan changes
Increasing wildfire risks and catastrophic weather events have made it difficult and costly for many Californians to find homeowners or commercial insurance. Insurance companies also cite the state's strong consumer protection law, Proposition 103, as an obstacle to profitability for insurers operating in
When property owners can't find coverage elsewhere, they turn to the state's 50-year-old FAIR Plan. The number of Californians buying FAIR Plan coverage has steadily increased in recent years. In 2023, the insurer of last resort reported 89,995 residential and commercial policies on its books. In the first nine months of 2024, the number of policies ballooned to 134,576.
"While the FAIR Plan is a vital safety net, its expansion creates a negative feedback loop," the department said in a July press release. "When the FAIR Plan takes on more customers, it causes traditional insurance companies to withdraw from certain areas, further increasing dependence on the FAIR Plan."
Insurers may leave high-risk areas to avoid the possibility of major assessments by the FAIR Plan.
Commissioner Lara has taken multiple actions aimed at shoring up the state's struggling property insurance market since taking office in 2019. Updates to
Sheltering insurers from assessment losses
Lara's
Allowing FAIR Plan insurers to recoup assessment losses from policyholders will help keep
What's next: Potential effect on
Allowing insurers to recoup FAIR Plan assessments will help ensure "a stable and solvent FAIR Plan," Lara said in the bulletin.
"I believe this sounder financial sustainability structure is necessary to ensure the FAIR Plan's financial resiliency," Lara said. The approach "is similar to other existing
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