The controversial thinktank Consumer Watchdog is suing the CA insurance commissioner in order to stop FAIR Plan assessments of home insurance consumers in CA to make good the FAIR Plan’s losses in the Socal fires.
The FAIR plan is California’s homeowners’ insurer of last resort. Tens of thousands of homeowners have seen their home insurance policies canceled due to higher fire risk in their locations. In most cases, their only choice is to obtain an insurance policy with CA’s FAIR Plan.
The FAIR Plan functions more or less like a cooperative insurance. When it runs out of funds, it can draw funds on all of the insurance companies offering homeowner’s insurance in CA. In turn, these insurance companies may request a special assessment from their insured members for up to half the amount that they are asked to pay.
How the whole thing works
It appears complicated, but it is truly simple. Because of climate change, the risk of wildfire in CA continues increasing. Less insurance companies are willing to offer homeowners’ insurance in California, clearly because it is becoming too risky for them to do business with California’s insurance regulations. As a result, more and more homeowners are left with the single choice of the CA FAIR plan as their homeowners’ insurance carrier.
The only way for the CA FAIR plan to replenish its reserves when it is hit by catastrophic wildfires like the Southern California fires is to make an assessment on its member companies. If it is not possible for the CA FAIR Plan to replenish its reserves, it will necessarily stop issuing insurance policies to the consumers who are left with no other choice than the FAIR Plan—that is, us.
If the lawsuit succeeds, it may potentially destroy the last option left to homeowners in CA for homeowners’ insurance in areas subject to higher wildfire risk. It should be clear to all of us: this lawsuit may cause many of us to lose the only option we may have left for homeowner’s insurance.
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