California FAIR Plan Controversy

The catastrophic wildfires that hit California late last year left the California FAIR Plan $800 million in the hole. To help do away with the deficit, the California Department of Insurance (CDI) levied an assessment on insurers to recover half of that money.

It’s a temporary fee on policyholder premiums that adds up to about $1 billion. It can’t be used to assess future rates.

California’s Consumer Watchdog immediately filed a lawsuit to do away with the assessment. The group’s litigation director, William Pletcher said state law doesn’t let insurers to pass FAIR Plan costs onto consumers.

A Superior Court judge tossed out two of the group’s arguments but will allow the issue at the heart of the matter to proceed.

“This is a significant procedural victory. It ensures that Insurance Commissioner Ricardo Lara’s arrangement, which could shift hundreds of millions of dollars from homeowners to insurers, will get the scrutiny it deserves,” Pletcher said.

Lara — of course — sees things differently and calls the judge’s decision a victory of sorts. He said the decision affirms his Proposition 103 authority to protect consumers and stabilize the state’s already topsy-turvy insurance market.

“Consumer Watchdog’s lawsuit fails to address the state’s insurance crisis and is merely another attempt to create chaos in an already complex situation. I’m pleased the judge saw through their charade, which only harms homeowners, small businesses, and non-profits that need better access to insurance options,” Lara said. “Consumer Watchdog — which itself admits it has no members — has not offered any viable solutions to our state’s insurance crisis and continues to undermine my efforts to restore our insurance market. They also continue to profit under Prop. 103 in the millions through higher rates on policyholders when insurance companies seek justified rates from my Department. I will continue to expose their hypocrisy, and make the difficult decisions needed to stabilize our market and bring insurance options back to Californians.”

Consumer Watchdog attorney Ryan Mellino argued the case and said this surcharge sets a dangerous precedent. 

“The law doesn't allow insurers to profit from the FAIR Plan while pushing their losses onto the people they're supposed to insure,” Mellino said. “This fight is just beginning —  and we intend to prove in court that the commissioner’s plan isn't just unlawful, it's a betrayal of the very consumers he's supposed to protect.”

Pletcher added to Mellino’s argument and said, “California consumers should not be forced to subsidize insurance companies when the law makes clear the amounts must be paid by insurers, not policyholders.”

Lara’s argument also highlights the growing problem with insurance in his state. A lot of carriers are cutting back on their exposure which — in turn — is driving consumers to the FAIR Plan. It has seen a 42% rise in exposure in the last nine months to over $650 billion. Way more than it can cover.

The bottom-line is just how the FAIR Plan will handle shortfalls in the future.

Source link: Insurance Business America — https://bit.ly/4fdS6yk

Source link: California Department of Insurance — https://bit.ly/4fnHU6n