How Does California’s New FAIR Law Protect Vulnerable Residents?

California officials announced Wednesday, December 18, 2019, that a new law passed in the state temporarily stopping insurance companies from dropping customers in recently affected wildfire areas. The new law protects more than a million homes in these areas.

Source: Neilson Marketing Services | Published on December 20, 2019

global cost of wildfires

Almost 1 Million Affected by Wildfires

This comes as welcomed news to more than 800,000 residents of Contra Costa, Riverside, San Bernardino, Solana, and Ventura counties. The temporary ban is intended to help homeowners who are being plagued by wildfires in the state and cannot find coverage in the commercial insurance market.

California’s Insurance Commissioner Ricardo Lara extended a moratorium passed earlier this month that covered 800,000 homes affected by recent wildfires to include 200,000 more additional homes. The moratorium, which lasts for a year, will cover residents who live next to or inside the perimeter of the October wildfires that plagued California.

The Insurance Industry is Also Impacted

The insurance industry is struggling to adapt to this record-breaking series of natural disasters in the U.S., including wildfires and hurricanes that have hit a record $500 billion in clean-up costs just in the last five years.

Part of the reason for the record devastation, according to the insurance industry, is climate change that is leading to more frequent and intense natural disasters. This makes it nearly impossible for the insurance industry to stay profitable in the midst of so many record-breaking natural disasters.

According to Rex Frazier, president of the Personal Insurance Federation of California, “Year-over-year losses that the industry has seen are not sustainable for companies or good for homeowners.”

The FAIR Plan Protects Those Most Affected

Residents of California who can’t purchase homeowner’s insurance due to no fault of their own are allowed to purchase insurance plans from a state-mandated insurance pool called the California Fair Access to Insurance Requirements Plan (FAIR Plan). However, these plans often only cover fire damage which leaves residents scrambling to purchase separate plans to cover other disasters such as landslides and other natural disasters or even theft.

Commissioner Lara ordered last month the FAIR Plan to begin selling comprehensive insurance plans by June 1st of next year. The California FAIR Plan Association is fighting back by suing Lara, arguing that it is illegal to force insurance companies to provide comprehensive coverage when the plan was to sell basic property insurance. The association states that it will severely hurt the private insurance industry.

It is unclear, at this time, if the insurance industry and Commissioner Lara will be able to reach some type of agreement before June 1st. However, it is unlikely that California residents will see a break in natural disasters or in the rise in their future insurance premiums in the foreseeable future.