Overhaul of FAIR Plan last-resort home insurance proposed

Takeaways:

• Make It FAIR Act follows authorization of bond funding
• Regulator said the plan was not complying with previous recommendations
• Wildfire compensation fund overhaul also proposed

California's legislature and insurance commissioner have proposed an overhaul of the state's home insurance of last resort, the FAIR Plan.

The Make It FAIR Act, AB 1680, aims to improve claims handling, coverage options and transparency for wildfire survivors. Lisa Calderon, chair of the state assembly insurance committee, and commissioner Ricardo Lara announced the proposal on February 2.

The proposed legislation follows authorization of a bond issue to help fund the plan, called the FAIR Plan Stability Act, which took effect on January 1. 

In December, Lara and the state's Department of Insurance issued a report of examination of the FAIR Plan, which said the plan was not complying with recommendations for its financial condition, corporate governance and consumer protection. The report covered from October 2020 to September 2023, before last year's wildfires further strained the plan.

The Make It FAIR Act includes the following measures:

• Providing more comprehensive homeowners coverage
• Increasing operations staff
• Improving clearinghouse programs to move policyholders to the regular market
• Creating a three-to-five-year strategic plan to anticipate market changes
• Providing public access to meetings and documents of the FAIR Plan's governance committees, including an annual report
• Adopting a formal climate risk assessment
• Creating a capital and liquidity management plan for unexpected events

The American Property Casualty Insurance Association (APCIA), which represents home insurers, stated in a press release that the proposed Make It FAIR Act would expand coverage "without sustainable pricing and adequate reserves," which would strain the state's insurance market and worsen its insurance crisis.

"It is bad for FAIR Plan policyholders because it expands coverage through a plan that lacks the financial capacity to absorb the next major catastrophe. And it's bad for all other Californians, who will inevitably be forced—yet again—to absorb the cost of future FAIR Plan shortfalls after the next major event," stated Nicole Ganley, assistant vice president for public affairs at APCIA. "California should focus on sustainable reforms that will restore balance to our broken insurance market. The FAIR Plan was designed to serve as an insurer of last resort—not to replace a healthy private market or take on risks it was never built to support."

In a related development, AB 1554, a bill introduced by Calderon on January 8, would overhaul the state's Wildfire Fund based on a study authorized by previously passed legislation, SB 254. The study will be open for public comment at two hearings scheduled for February 6 and March 6.

Jamie Court, president and chairman of Consumer Watchdog, in a February 2 article, stated that a state-run wildfire fund would allow insurance companies to walk away from wildfire risk. "There is a better way," he wrote. "Force insurance companies to sell coverage to all policyholders who meet state wildfire mitigation standards with the stick of being forced from the home and auto insurance market if they don't and the carrot of a government-backed reinsurance plan if they do."

Previously, Consumer Watchdog sued the insurance commissioner to stop the FAIR Plan from passing on the costs of the January 2025 wildfires to consumers.