California Insurance Commissioner Ricardo Lara recently announced a breakthrough agreement to modernize the California FAIR Plan Association, the state’s “insurer of last resort,” as part of his ongoing efforts to stabilize the California insurance market and address the insurance crisis. The move is part of his Sustainable Insurance Strategy, the largest insurance reform since voters passed Proposition 103 in 1988.
“Modernizing the FAIR Plan is a crucial step in our strategy to stabilize California’s insurance market,” said Commissioner Lara. “It’s critical for Californians to understand that a growing FAIR Plan contributes to our insurance crisis. By strengthening the FAIR Plan while providing financial stability and solvency protections, we are creating long-term security for consumers, homeowners, and businesses across the state that is long overdue.”
While the FAIR Plan is a vital safety net, its expansion creates a negative feedback loop. 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. A recent news story called the growing FAIR Plan a “hidden crisis” because, partially due to fear of possible major assessments by the FAIR Plan, several insurance companies are further withdrawing from the California market by pausing writing new policies or reducing their market share in at-risk areas. This cycle can ultimately weaken the FAIR Plan’s financial stability and limit consumer choice.
Commissioner Lara’s agreement with the FAIR Plan is targeted at homeowners and condo associations that need expanded coverage, as well as farms, builders, and businesses with multiple buildings in the same location. This will help “break the cycle” by strengthening the FAIR Plan as he pursues other reforms to safeguard the integrity of the insurance market while holding true to the spirit and intent of Prop. 103.
Specifically, the FAIR Plan has agreed in a binding legal stipulation to issue a new Plan of Operation within 30 days that will implement Commissioner Lara’s plan to offer homeowners, consumers, and business owners:
Expanded Coverage: Establishing a new “high-value” commercial coverage option with limits up to $20 million per building, along with past increases for residential policies.
Financial Stability: Creating a sound financial formula to protect policyholders in extreme loss scenarios.
Improved Transparency: Requiring increased public reporting on FAIR Plan activity and customer service metrics.
A stable and solvent FAIR Plan — established more than 50 years ago as the state’s insurer of last resort — provides important certainty for insurance consumers who otherwise cannot find insurance coverage in the traditional or surplus lines markets. Modernizing the FAIR Plan is critical to ensure a reliable, yet temporary, safety net that is there when consumers need it.
“Ultimately, we want to reduce the number of homeowners and businesses on the FAIR Plan by strengthening the market overall. My action is intended to close coverage gaps in the short term for many homeowners’ associations, housing construction projects, and larger businesses, so they aren’t forced to pay even higher costs or go without insurance,” concluded Commissioner Lara. “Requiring the FAIR Plan to take concrete steps to protect policyholders in an extreme disaster will keep it an effective safety net for homeowners and businesses while my reforms to fix the state’s overall insurance market take effect.”
The agreement with the FAIR Plan has broad support from groups representing homeowners’ associations, supportive housing providers, farmers and ranchers, and builders, among many others.
“The California Farm Bureau applauds Commissioner Lara’s efforts to modernize the FAIR Plan. Our farmers and ranchers have been disproportionately affected by the limitations of the current system, especially in high-risk wildfire areas,” said California Farm Bureau President Shannon Douglass. “The increased coverage limits and enhanced financial stability measures will provide much-needed security for our agricultural community, ensuring that farms can recover and thrive after disasters.”
“FAIR Plan is often the only insurance available for the winegrape growing community. Our industry has been severely impacted by wildfires and the lack of adequate insurance coverage has hindered growers all over California,” said Michael Miiller, Director of Government Relations for the California Association of Winegrape Growers. “The Department of Insurance and FAIR Plan coming together for these improvements is crucial to ensuring that insurance remains available in the marketplace.”
