California’s FAIR Plan policies can be costly, its customers say. Bruce Silverstein, a Malibu resident and city council member, said his basic FAIR Plan insurance costs him around $9,000 a year, roughly double what his private insurer had previously charged to insure his home before discontinuing coverage.
Unlike private insurers that must file detailed financial reports with state regulators where they operate, California’s FAIR Plan functions in near total secrecy. A consortium of roughly 300 insurance companies that conduct business in the state, it produces only limited public information on its financial position, reserves and reinsurance arrangements with other insurers.
The FAIR Plan does not publish a roster of current executives, for example. FAIR plans in other states routinely disclose those details, a recent California Insurance Department analysis found.
Losses from the recent Los Angeles fires could reach $30 billion, according to estimates. Autonomous Research, a financial services analytics firm, estimates that the FAIR Plan could be on the hook for up to $8 billion in losses from the fires. As of Jan. 10, the plan had only $377 million to pay claims, the Insurance Department said.
Among the sparse data the FAIR Plan does provide: It has a total of 452,000 residential policies in force and $458 billion in total insurance exposure as of Sept. 30, 2024, up 61% from the prior year. On Friday, the FAIR Plan calculated its exposure in the Pacific Palisades at $4 billion. It has not been determined how many of those properties have been damaged or destroyed by the fire.
“The FAIR Plan generally does not share its surplus, cash-on-hand estimates or amount of reinsurance,” said spokeswoman Hilary McLean in a statement, declining to say why. It is too soon to anticipate the impact the latest fires will have on its customers, she said, adding: “We can share that the FAIR Plan, primarily a catastrophe insurer, is prepared and actively serving customers who have made claims.”
Flaws in operations
In recent years, information about flaws in the FAIR Plan’s operation has emerged both in consumer lawsuits and in rare assessments of the plan issued by the Department of Insurance. One 2022 Insurance Department examination, for example, found that between 2017 and 2021, the FAIR Plan’s claims handling practices repeatedly violated the state’s insurance code and code of regulations.
More than 400 violations were identified in the examination. Among them, the FAIR Plan made “unreasonably low” settlement offers, delayed payments and “failed to make thorough, fair and objective” investigations when dealing with claims. In response to the report, the FAIR Plan said it disagreed with most of the findings.
Another Insurance Department investigation in 2022 characterized the FAIR Plan’s operation as opaque and insufficiently funded, and noted inaccuracies in its financial reporting. In addition, executives failed to provide periodic inspection reports to the Insurance Department as required.
A group of FAIR Plan policyholders claimed it also failed to routinely provide internal investigative reports to policyholders making claims as state law requires, according to an ongoing lawsuit. These reports allow homeowners to see the FAIR Plan’s claim materials such as third-party findings related to damage and repair costs. On Jan. 6, the California Superior Court ordered the FAIR Plan to comply with California law in the case.
Asked about these criticisms and those of some customers, McLean, the spokeswoman, said in a statement: “The California FAIR Plan is focused on serving policyholders who are impacted by the Southern California fires. We disagree with the accuracy of a number of the assertions that are the basis of your questions and have no further comment at this time.” She declined to specify which assertions it disputed or why.
The California Department of Insurance has sparred with the FAIR Plan over following state rules. In January 2021, after policyholders sued over policy limitations and coverage denials for smoke damage, Lara’s office wrote to the president of the FAIR Plan alleging it had illegally limited coverage for some claims. The FAIR Plan disagreed with the department and declined to reverse any of its claim denials, said Dylan Schaffer, the Oakland, California, lawyer representing the plaintiffs.
“For these current wildfires, Commissioner Lara expects FAIR Plan to process and pay all claims (including all smoke claims) in line with industry standards and in compliance with all laws,” said Soller, the insurance department spokesman, in a statement. Last week, Lara declined multiple requests for an interview from NBC News.
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