Department Issues Revised Pan of Operation for CA’s FAIR Plan

The California Department of Insurance on December 19 issued a revised plan of operation for the California FAIR Plan Association (FAIR Plan) as required under California law. The action furthers Insurance Commissioner Ricardo Lara’s November 14 order, which revoked portions of the FAIR Plan’s current plan of operation and ordered the “insurer of last resort” to make changes to its plan to better serve and protect California homeowners.

Source: CDI | Published on December 23, 2019

CDI and insurance lobbyists

The FAIR Plan is required under Insurance Code section 10095(f) to submit a plan of operation within 30 days of the November 14 order. The FAIR Plan failed to do that and decided to sue the Department instead.

Commissioner Lara is taking this action to help homeowners find adequate coverage to protect their homes by ordering the FAIR Plan to offer a comprehensive policy, known as HO-3 coverage, in addition to its current dwelling fire-only coverage by June 1, 2020, with traditional homeowner features, such as coverage for water damage and personal liability. The revised plan also requires the FAIR Plan to expand its coverage limits from $1.5 million to $3 million and to offer consumers a monthly payment plan and the ability to pay by credit card or electronic funds transfer all without fees.

These actions are also following up on requests made by countless wildfire survivors who are finding themselves without comprehensive insurance coverage from the admitted insurance marketplace and who, instead, have to rely on the FAIR Plan for their only homeowners coverage.

“My Department issued this revised plan of operation to show we are moving forward as required by law to protect homeowners throughout the state,” said Insurance Commissioner Ricardo Lara. “The FAIR Plan has become the only permanent option for many homeowners abandoned by the private insurance market. This plan will provide homeowners with the option of basic coverage they deserve in order to feel safe and protect our local economies from the state’s growing insurance availability crisis.”

The new plan of operation requires the FAIR Plan to file a rate application for the HO-3 coverage option only for review and approval by the Department. The FAIR Plan may also file any rate or rule application necessary to implement the increased $3 million maximum limits of liability. HO-3 coverage will save consumers from having to purchase a second companion policy to cover other hazards such as liability, water damage, and theft. While the FAIR Plan is intended as a temporary solution until consumers can find insurance on the standard market, it is important that its product mirrors traditional coverage as much as possible. Many of the affected California homeowners have already been inconvenienced by planned power outages by utilities, mandatory evacuations, and repeated wildfire threats year after year. Requiring these same homeowners to have to piece together multiple policies to achieve full coverage is needlessly burdensome and costly.

"As a 30-year resident with no insurance claims, the notice of non-renewal from my insurance company felt like a betrayal especially after the rate increases over the past five years," said Brenda Meyer, Realtor/Broker and Board Director of the East Valley Association of Realtors, located in Riverside and San Bernardino counties. "My only option was the California FAIR Plan and I knew I needed more coverage than it currently provided. The FAIR Plan modifications that many of us have asked for will be helpful to our clients so they can make informed decisions, and the added payment convenience is a necessity for many struggling owners."

This change is in addition to other changes that Commissioner Lara convinced the FAIR Plan to undertake earlier this year, including providing more transparency in their meetings and allowing the Department of Insurance to participate in those meetings as well as mandating the FAIR Plan obtain Department approval prior to disbursing any operating profits back to participating insurers.