California Insurance Commissioner Ricardo Lara has ordered California’s FAIR plan — the state’s homeowner insurer of last resort — to increase coverage options. Currently the plan only offers coverage for fire, some water damage and personal liability.
Lara’s order would force FAIR to sell additional insurance for things like theft, water damage and liability.
His reasoning has to do with the growing number of homeowners in fire prone areas who’ve lost insurance because companies haven’t renewed them or have seen policy pricing go beyond their means. California Department of Insurance figures say since 2015 insurance companies have given non-renewal notices to 350,000 policyholders in areas prone to fire.
To stay insured they’ve had to turn to the FAIR Plan but it doesn’t cover the items just noted. And some people haven’t been able to even afford FAIR Plan coverage because FAIR Plan policies have risen by 8% a year in those areas since 2016.
Lara wants that to change and the order will become effective on April 1, 2020.
“I am taking this action after meeting with thousands of California homeowners across the state who are struggling to find coverage to protect their homes,” the Commissioner said. “People forced to use the FAIR Plan as temporary insurance deserve the same coverage provided by traditional insurers. This crisis requires the FAIR Plan to provide a comprehensive option for Californians who have no other option for homeowners insurance.”
Lara has also ordered the FAIR Plan to increase the limits for coverages and to offer no-fee monthly payment plans. He also wants payment to be allowed via credit cards or other electronic services and at no fee.
It will increase the dwelling coverage limit from $1.5 million to $3 million. Lara said that’s because in many areas the $1.5 million limit isn’t enough coverage. To get the coverage they need homeowners have been forced to go to surplus lines.
“Restoring stability to the homeowners and fire insurance marketplace will take everyone working together to find solutions,” Commissioner Lara said. “By involving homeowners, advocates, local and state government, and insurance companies, I am confident we will find common sense solutions.”
Common sense — he says — but California FAIR Plan Association President Anneliese Jivan said the commissioner’s plan is not common sense. She called it a “misguided approach” to solve a complex problem.
For one thing, Jivan said FAIR is not funded by the taxpayers. Funding comes from premium dollars and from contributions from insurance companies working in California.
She said Lara’s plan to force FAIR to offer more complex comprehensive plans will just cause rates to rise and “have unintended consequences that could ultimately hurt consumers. It will also result in increased operating costs that will be passed along in the form of higher rates for all policyholders.”
Department spokesman Michael Soller agrees and disagrees. Yes, the comprehensive policies will cost policyholders more but they’ll actually save money because they won’t have to pick up multiple policies. “The goal of this part of the order is to allow consumers to purchase a single policy, which we expect will be less expensive than having to buy two policies to get comprehensive coverage,” Soller said.
The department’s deputy commissioner of Consumer Services Tony Cignarale also pointed a finger at the FAIR Plan and said the department is expecting it to set break even rates and not gouge policyholders.
Insurers aren’t real crazy about the idea either. They generally don’t like last resort insurers — like the FAIR Plan — to offer insurance that competes with their lines of insurance.
On the consumer side of things, the commissioner’s plan has the wholehearted support of the United Policyholders and its executive director Amy Bach. “United Policyholders is hearing from panicked consumers daily. Homeowners throughout the state are between a rock and a hard place and desperate for help finding affordable insurance,” Bach noted. “Commissioner Lara has heard their pleas and is taking decisive action.”
Source links: California Department of Insurance, Associated Press