Insurers in California are trying to make homeowners pay for some of the costs of the devastating Los Angeles County fires that overwhelmed the state’s insurer of last resort, leading to a $1 billion assessment. The California FAIR Plan Assn., approved by Insurance Commissioner Ricardo Lara, imposed this assessment on its member carriers on Feb. 11 due to the high number of claims following fires in Pacific Palisades, Altadena, and Sylmar on Jan. 7. The plan, which is supported by the state’s licensed home insurers, has already paid out $2.75 billion in claims and expects total costs for the fires to reach $4 billion, exceeding its available surplus and reinsurance funds.
Insurers are now seeking approval from the state Department of Insurance to pass on half of the assessment costs to their policyholders statewide under a policy implemented by Lara last year. This could mean that homeowners far from the fires may have to contribute to their insurers’ expenses, on top of already increased annual premiums. Several insurers, including affiliates of AAA and Mercury, have already applied for surcharges ranging from $6 for rental policyholders to $60 for standard homeowners policies. Lara will have the final say on whether these surcharges are permitted.
Consumer Watchdog, a Los Angeles-based group, has filed a lawsuit to stop the surcharges, arguing that the impact on many homeowners could be significant, especially for those with larger policies. The FAIR Plan’s financial troubles have been exacerbated by insurers leaving the state’s home insurance market due to previous catastrophic fires. Lara’s surcharge policy is part of an effort to stabilize the homeowners market and attract more insurers. While the FAIR Plan does not anticipate further assessments related to the recent fires, the possibility of future disasters could change the situation.
A bill currently in the Legislature aims to authorize the California Infrastructure and Economic Development Bank to issue bonds on behalf of the FAIR Plan to help cover its claims and improve liquidity. The lawsuit against Lara and the state’s largest home insurers by Jan. 7 fire victims alleges collusion to push policyholders into the FAIR Plan, ultimately reducing the insurers’ liabilities post-fires. Despite pushback from various groups, including the American Property Casualty Insurance Assn., the surcharge policy remains in place as regulators review insurers’ applications for compliance with established rules. The outcome of these legal battles could have a significant impact on California’s insurance market moving forward.
