California FAIR Plan Seeks Record Rate Hike After January Firestorms
The California FAIR Plan, the state's insurer of last resort, is requesting an average 35.8% rate increase, the largest in years. This request follows billions of dollars in losses stemming from the January firestorms, including the Eaton fire near Altadena. The proposed rate hike has already stirred controversy.
Reasons for the Proposed Rate Increase
The Los Angeles-based insurance pool, backed by California's licensed home insurers, filed for the rate increase this week. This increase is intended to cover significant losses incurred during the January fires. The California Department of Insurance must review the request, and the insurance commissioner has the power to reduce it.
"By statute, FAIR Plan rates must be sufficient to pay anticipated claims and expenses," FAIR Plan spokesperson Hilary McLean said in a statement. "The FAIR Plan is working closely with the California Department of Insurance to ensure its rates reflect the current risk portfolio, expenses and growth as the state’s insurer of last resort."
The FAIR Plan estimates losses of $4 billion from the January fires, forcing it to assess its member carriers $1 billion to cover all claims. This has placed significant pressure on the plan's financial stability.
Impact on Homeowners
The proposed rate hike would affect individual homeowners unevenly, with some experiencing larger increases and others potentially seeing decreases depending on wildfire risk in their neighborhoods. If approved, the new rates would take effect in April. Homeowners can seek discounts of up to 15% by taking steps to reduce fire risks on their property.
This requested increase surpasses previous hikes of 20.3% in 2019 and nearly 16% in 2021 and 2023. In 2023, Insurance Commissioner Ricardo Lara reduced the approved hike to 15.7% from the requested 48.8%.
Controversies and Lawsuits Surrounding Smoke Damage Claims
The request for a rate hike is generating controversy due to accusations concerning the plan's handling of smoke damage claims from the January 7 blazes and other fires in recent years. Homeowners in Altadena, Pacific Palisades, and surrounding areas have filed lawsuits alleging that the plan is failing to adequately test and remediate homes affected by smoke, soot, and ash.
In June, a Superior Court judge ruled that the plan's smoke damage policy violated state law. The plan has since changed its legal justification for claim denials. Governor Gavin Newsom sent a letter to the plan last month, citing over 200 complaints, urging them to process smoke damage claims from the January wildfires “expeditiously and fairly.”
Regulatory Scrutiny and Alternatives
The insurance department filed a cease-and-desist order against the plan in July regarding claims handling. A 2022 state probe found that in 2017 and 2018, the plan issued illegal smoke-damage policies and then did not "diligently pursue" investigations of the claims. The plan denies any wrongdoing. Consumer Watchdog, an insurance advocacy group, urges Commissioner Lara to deny the rate hike until smoke-damage claim disputes are resolved.
| Insurance Company | Rate Increase Request |
|---|---|
| California FAIR Plan | 35.8% |
| Mercury Insurance | 6.9% |
| CSAA | 6.9% |
The FAIR Plan's filing is considerably higher than other companies with pending rate hikes after the January fires. Mercury Insurance and CSAA have both submitted requests for 6.9% increases.
