By Megan Fan Munce, SAN FRANCISCO CHRONICLE
https://www.sfchronicle.com/california-wildfires/article/home-insurance-fair-plan-20279165.php
A consumer group sued California Insurance Commissioner Ricardo Lara and his department this week in a bid to stop consumers from paying part of the California FAIR Plan’s losses from the Los Angeles wildfires.
In February, the FAIR Plan warned regulators that it was running out of money to pay claims stemming from the destructive and deadly wildfires in Los Angeles County. The California Department of Insurance then authorized the insurer to collectively charge private insurance companies $1 billion to cover claims payments.
Under an agreement brokered by Lara and the FAIR Plan last summer, private insurers are allowed to pass on $500 million of that payment on to policyholders — and state records show some have already requested permission to do so. But in its complaint, filed Tuesday in Los Angeles Superior Court, consumer group Consumer Watchdog challenges Lara’s authority to approve such filings.
The group argues that Lara didn’t follow state law requiring public participation when negotiating the agreement. It also alleges the statutes that created the FAIR Plan in the 1960s require insurance companies, and not their policyholders, to bear the burden of FAIR Plan losses.
Under California statute, excess FAIR Plan losses are charged to insurers based on their market share. Lara has said that creates a perverse incentive for insurers to write less policies, or drop customers, in order to limit how much they could be asked to pay if the FAIR Plan runs out of money. His agreement, he previously said, would eliminate that incentive by allowing companies to divvy up part of their payment to their consumers.
Both the department and the FAIR Plan declined to comment directly on the allegations, citing the active litigation.
But Gabriel Sanchez, spokesperson for the Department of Insurance, said blocking insurers from passing on costs would not address the ongoing insurance crisis and would end up negatively impacting consumers if it makes private insurers want to take on fewer customers.
“It undermines our efforts to enhance competitiveness across the market, which would allow people to transition from the costly and limited FAIR Plan back to the standard insurance market,” Sanchez wrote in a statement.
Divided amongst the more than 8 million privately insured homes in the state, the $500 million payment from the Los Angeles wildfires would end up as a one-time charge of about $60 per household. But under Lara’s agreement with the FAIR Plan, if the FAIR Plan were to run out of money again this year due to an additional wildfire, private insurers would be able to pass on 100% of those costs to consumers.
Though the FAIR Plan is California’s insurer of last resort, the privately-run insurer has come to cover a disproportionately large number of homes in wildfire-prone parts of the state, such as Los Angeles County.
“We recognize that the FAIR Plan has dramatically grown in recent years and agree with the Commissioner that something must be done to address the situation,” Ryan Mellino, staff attorney for Consumer Watchdog, said in a statement. “But the answer is not a unilateral bailout of hundreds of millions — and in the future, potentially billions — of dollars for insurance companies at the expense of their policyholders. California homeowners have suffered enough, and unlawful pass-throughs are just another insult on top of the significant injuries they’ve already faced.”