In­sur­ance plan fights over­haul for fire ar­eas

Antelope Valley Press (Sunday) - - News - By ADAM BEAM

SACRA­MENTO — As Cal­i­for­nia home­own­ers in wild­fire-prone ar­eas strug­gle to find in­sur­ance, a law­suit filed Fri­day will test the state’s au­thor­ity to help them.

Cal­i­for­nia’s in­sur­ance in­dus­try pays into a fund that sells cov­er­age to peo­ple who can’t buy it through no fault of their own. Known as the “in­surer of last resort,” the Cal­i­for­nia Fair Ac­cess to In­sur­ance Re­quire­ments Plan only of­fers fire in­sur­ance. Home­own­ers must pur­chase a sec­ond plan in the pri­vate mar­ket to cover other haz­ards like flood­ing and theft.

Last month, state In­sur­ance Com­mis­sioner Ri­cardo Lara or­dered the FAIR Plan to be­gin sell­ing com­pre­hen­sive in­sur­ance plans next year. His goal was to save home­own­ers money by not forc­ing them to pur­chase mul­ti­ple in­sur­ance plans.

But Fri­day, the FAIR Plan As­so­ci­a­tion sued Lara, ar­gu­ing his order is il­le­gal. They said state law only re­quires the plan to sell ba­sic prop­erty in­sur­ance. They ar­gued Lara’s order would hurt the pri­vate in­sur­ance mar­ket, which con­flicts with the FAIR Plan’s state-man­dated goals of en­cour­ag­ing “max­i­mum use” of the “nor­mal in­sur­ance mar­ket.”

FAIR Plan As­so­ci­a­tion Pres­i­dent An­neliese Ji­van said the order would desta­bi­lize the in­sur­ance mar­ket be­cause there would be no in­cen­tive for pri­vate com­pa­nies to sell plans in wild­fire prone ar­eas.

“We re­gret hav­ing to take this ac­tion, but we will do ev­ery­thing we can to con­tinue to pro­tect pol­i­cy­hold­ers and pro­vide sta­bil­ity in the in­sur­ance mar­ket­place,” Ji­van said. “Un­for­tu­nately, the Com­mis­sioner’s Order would lead to un­in­tended con­se­quences that will harm con­sumers by in­creas­ing costs of prop­erty in­sur­ance and re­strict­ing op­tions in the vol­un­tary in­sur­ance mar­ket.”

Lara vowed to “fight for con­sumers against this in­dus­try-driven law­suit.”

“In­sur­ers can’t have it both ways,” Lara said. “They can­not con­tinue to can­cel pol­i­cy­hold­ers at an alarm­ing rate, leav­ing them with the FAIR Plan as their only op­tion, with woe­fully in­ad­e­quate cov­er­age.”

Lara’s order also re­quired the FAIR Plan to in­crease cov­er­age lim­its to $3 mil­lion from $1.5 mil­lion. Lawyers for the FAIR Plan say their rates are “woe­fully in­ad­e­quate” to cover that in­crease, adding that Lara can’t order them to in­crease cov­er­age lim­its un­less their rates are ad­e­quate.

The FAIR Plan is not a state agency and is not funded by tax­pay­ers. It is funded by pri­vate in­sur­ance com­pa­nies, who are re­quired to par­tic­i­pate in the plan if they want to do busi­ness in Cal­i­for­nia.

FAIR Plan poli­cies have in­creased an av­er­age of 8% per year since 2016, coin­cid­ing with some of the most de­struc­tive wild­fires in state his­tory. The Camp Fire in 2018 killed 85 peo­ple and de­stroyed roughly 19,000 build­ings, gen­er­at­ing $12 bil­lion in in­sur­ance claims.

In­sur­ance com­pa­nies in Cal­i­for­nia have de­clined to re­new nearly 350,000 poli­cies since 2015 in ar­eas at high risk for wild­fires. That data, which comes from the state Depart­ment of In­sur­ance, does not in­clude in­for­ma­tion on how many peo­ple were able to find cov­er­age else­where or at what price.

Ear­lier this month, Lara in­voked a new state law by tem­po­rar­ily ban­ning in­sur­ance com­pa­nies from drop­ping cus­tomers in ar­eas hit by more than a dozen re­cent wild­fires. That order will last for one year, and it only cov­ers peo­ple who live within or next to the perime­ter of 16 wild­fires that burned across the state in Oc­to­ber.

The Per­sonal In­sur­ance Fed­er­a­tion of Cal­i­for­nia says in­sur­ers have strug­gled to stay prof­itable fol­low­ing sev­eral years of dev­as­tat­ing wild­fires. In 2017, state in­sur­ers paid $2 for for ev­ery $1 they col­lected in pre­mi­ums, ac­cord­ing to data from the Cal­i­for­nia Depart­ment of In­sur­ance. Last year, in­sur­ers paid $1.70 for ev­ery $1 they col­lected in pre­mi­ums.


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