By Blanca Begert, POLITICO
A consumer advocacy group on Monday sued the California Department of Insurance over its decision to let insurance companies charge customers for catastrophic losses that overwhelm the state’s insurer of last resort.
What happened: Consumer Watchdog filed a lawsuit on Monday alleging that Insurance Commissioner Ricardo Lara’s decision last summer (opens in new tab) to allow insurance companies that contribute to the FAIR Plan to pass through costs after a catastrophe — like the Los Angeles fires in January — violates the Administrative Procedure Act’s requirements for public input.
The suit, filed in Los Angeles Superior Court, also argues that the FAIR Plan doesn’t allow insurers to pass on costs to other ratepayers.
“It is palpably unfair to allow companies that for decades have privately enjoyed the profits of the FAIR Plan to now foist its losses onto their policyholders,” Consumer Watchdog staff attorney Ryan Mellino said in a statement.
Spokespeople for Lara and the FAIR Plan didn’t immediately respond to requests for comment.
The agreement: The suit targets an agreement Lara struck with a pool of insurance companies that are required by state law to offer insurance to Californians who can’t find traditional coverage in July. In addition to increasing the FAIR Plan’s coverage limits from $20 million per location to $20 million per building and $100 million per location, it also defined how much traditional insurers would be responsible for covering the FAIR Plan’s claims in case of a catastrophic loss.
Under the new agreement, the FAIR Plan would have to first seek out credit to help cover a massive loss, and then be allowed to recoup up to $1 billion from most traditional property insurers. Those insurers can then ask the Insurance Commissioner to pass along up to 50 percent of those costs to their policyholders. If they get assessed more than $1 billion, the insurers can ask to pass along the costs to policyholders.
Los Angeles fires: Six months after the deal, the contingency plan in case of catastrophic loss is going into effect. In February, after payouts from the Los Angeles fires surpassed the FAIR Plan’s cash reserves and reinsurance payments, Lara approved the plan’s request (opens in new tab) to assess its member companies for a total of $1 billion to help pay out its claims. That allowed traditional insurers to apply to pass along assessment costs to their own customers..
What’s next: Lara has yet to approve any insurers’ applications to pass through costs; Consumer Watchdog’s petition asks the court to forbid him to approve any.
