When the government’s employer of last resort needed a rescue, insurers are now seeking to pay some of the costs of the fatal Los Angeles County fires that householders across California were facing.
The California FAIR Plan Association assessed its member providers$ 1 billion on February 11 with the acceptance of state insurance commissioner Ricardo Lara,  , when the program was flooded with hundreds of says following the devastating fires that occurred on January 7 in Pacific Palisades, Altadena, and Sylmar.
The schedule, which is run by and supported by the country’s licensed home insurers, announced it had received$ 2.75 billion in claims payments as of Friday and that it anticipated that$ 4 billion in costs would be too much for the state to include with its limited deficit and reinsurance funds.
In response to a policy Lara put in place last year that is , being challenged in court, insurers are now submitting software to the state Department of Insurance asking for a tax on consumers nationwide for half the cost of that judgment.
That means that even if a individual lives hundreds of miles away from the flames, they could still be asked to contribute to their insurers ‘ monthly payments, which some people have increased by hundreds or even thousands of dollars because many carriers have dramatically raised prices.
At least 10 home insurers and their affiliates have so far submitted applications for surcharges, with the costs typically costing$ 40 to$ 60 for a standard homeowners policy, while some are less or slightly more expensive. The fees range from about$ 6 or less for some rental policyholders to$ 20 or$ 30 for condo owners.
Starting this time, the insurers are attempting to use the charges, with some attempting to spread the charges over two monthly billing cycles.
In addition to companies with smaller market shares like Amica and Western Mutual, affiliates of , AAA, and , Mercury, two of the state’s largest household insurers, are among the carriers that have applied. Last decision is final between Laura and her about whether to let the fees to be implemented.
According to Denni Ritter, vice president for state government ties for the American Property Casualty Insurance Association trade group,” This modest, temporary expense treatment — just a few bucks a month for most consumers — is essential to preventing a catastrophic decline of California’s plan business.”
The FAIR Plan’s spokesperson, Hilary McLean, stated that it has no influence over how its member carriers choose to pay for assessments.
Most future surcharges could be in a similar range because the FAIR Plan evaluated its member carriers based on their share of California’s home insurance market, despite the state’s licensed home insurers ‘ refusal to submit applications.
Rex Frazier, president of the Personal Insurance Federation of California, which represents major property and casualty insurers, said,” That was the ballpark estimate.”
However, Carmen Balber, the executive director of Consumer Watchdog, a Los Angeles-based organization that brought the lawsuit to stop the surcharges, claimed that homeowners with larger policies could end up paying hundreds of dollars in surcharges because the application figures are only averages.
According to her,” the average doesn’t fully account for the impact on many homeowners, and$ 50 is not negligible for Californians who have already seen significant home insurance premium increases,” adding that this could be the “tipp of the iceberg” if the FAIR Plan examines its member carriers further.
According to Michael Soller, a spokesperson for Lara, regulators are reviewing the applications to make sure they adhere to the regulations set forth by the department regarding which policyholders are being charged, for how much, and for what duration. By separating the charges between their various lines of insurance, insurers are required to break down the costs.
To avoid overcollection, we also want to be aware of each insurer’s process. It’s about fairness, transparency, and keeping insurance companies in compliance with the law, he said.
The state’s home insurance market, which was hit with a number of devastating fires even before this year, including the 2018 blaze that nearly wiped out the town of Paradise in Northern California, started to suffer financially as insurers fled the state’s home insurance market.
The FAIR Plan’s rolls increased by 47 % last year, according to a , Times analysis , according to a , Times analysis . From 2020 to 2024, the number of homes in both areas on the plan nearly doubled from 14, 272 to 28, 440.
Lara’s surcharge policy was created as part of his Sustainable Insurance Strategy to increase insurer interest in the troubled homeowners market. Insurance companies are able to recover up to half of any FAIR Plan assessment, which is up to$ 1 billion for residential losses and$ 1 billion for commercial losses, from their policyholders. Policyholders can receive a full refund for any assessments that go beyond those limits. Commercial losses are not the responsibility of residential customers.
A Feb. 11 letter from the plan to Lara requests permission for the current assessment on its member carriers. However, an additional assessment may not be necessary.
The plan claimed that it was running out of money to pay claims after using up$ 510 million in unallocated funds and drawing money from the insurer’s$ 5.78 billion reinsurance program to spread its risk from fires and other catastrophic events. However, it estimated that as of June 30 it would have had cash amounts to$ 30 million following the assessments of its members.
Frazier claimed that despite having” no reason to believe” that the calculus would change if another significant fire occurred this year in connection with the January 7 fires. He said,” I think the worry is what will happen in November or December.”
According to McLean, the FAIR Plan” cannot speculate on losses resulting from unforeseen events.”
A bill that would work its way through the Legislature would grant the California Infrastructure and Economic Development Bank the power to issue bonds in support of the FAIR Plan to pay its claims and increase its liquidity.
Consumer Watchdog sued Lara in Los Angeles County Superior Court in April, alleging that nothing in the 1968 law that created the Fair Plan intended for such an assessment to be made on policyholders, and that Lara’s decision last year was referred to as an “industry bailout”. Additionally, it claimed that Lara allegedly violated state law by approving the assessment policy via “administrative fiat” rather than the proper rulemaking process.
The lawsuit, according to a Lara spokesman at the time,” serves to undermine our efforts to restore competition to all areas of our state, so people can get off the Fair Plan and return to the regular market.” It was described as a “reckless and self-serving stunt” by the American Property Casualty Insurance Association.
A group of Jan. 7 fire victims allege the state’s top 10 home insurers colluded to drop policyholders and force them to sign up for the FAIR Plan, which would pay more for less coverage, in a lawsuit filed last month. That helped to lower the insurers ‘ liabilities following the loss of the plan’s losses following the fires.
The lawsuit was referred to as meritless by the American Property Casualty Insurance Association.
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