The California FAIR Plan, the state’s home insurer of last resort, is seeking an average 35.8% rate hike, its largest in years, following billions of dollars of losses incurred in the January fire storms.
The Los Angeles-based insurance pool, operated and backed by the state’s licensed home insurers, filed this week for the dwelling policy rate hike, which must be reviewed and could be reduced by the state insurance commissioner.
“By statute, FAIR Plan rates must be sufficient to pay anticipated claims and expenses,” said FAIR Plan spokesperson Hilary McLean 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 plan, which has added hundreds of thousands of policyholders in recent years as insurers have pulled back from the market amid rising wildfires, has estimated losses of $4 billion from the January blazes. Those losses forced it to assess its member carriers $1 billion in order to pay all claims.
The rate hike would hit individual homeowners unevenly, with many experiencing greater increases and others seeing decreases if they live in neighborhoods that are not prone to wildfires. The new rates would apply in April and homeowners can seek discounts of up to 15% if they take steps to reduce the fire risks on their property.
The rate hike, if approved, would easily top increases of 20.3% in 2019 and nearly 16% in 2021 and 2023. However, the 2023 rate hike of 15.7% was cut down by Insurance Commissioner Ricardo Lara from the 48.8% initially sought by the plan.
The request for the increase is bound to be controversial given accusations over how the plan has handled smoke damage claims stemming from the Jan. 7 blazes and other fires dating back to last decade.
The plan is facing lawsuits from homeowners in Altadena, Pacific Palisades and nearby communities who allege the plan is refusing to properly test and remediate homes that were infiltrated by smoke, soot and ash. In June, a Superior Court judge issued a landmark decision declaring the plan’s smoke damage policy violated state law, though it has since changed the legal justification of its denials.
Citing more than 200 complaints the state has received from policyholders, Gov. Gavin Newsom last month sent a letter to the plan asking it to process smoke damage claims stemming from the January wildfires “expeditiously and fairly.”
The state insurance department also filed a cease-and-desist order against the plan in July over its claims handling, while a 2022 state probe found that in 2017 and 2018 the plan issued smoke-damage policies that were illegal and then did not “diligently pursue” an investigation of the claims. The plan has denied any wrongdoing.
Created by a state statute, the plan offers limited policies that typically cost more than those offered by regular insurers. It also is not subject to Proposition 103, the 1988 initiative that established California’s current insurance regulations. That means that the public cannot participate in any rate review, though the insurance commissioner has the final say on any increase.
Carmen Balber, president of Consumer Watchdog, an insurance advocacy group in Los Angeles that regularly intervenes in rate reviews, said that Lara should use his authority to deny any rate hike until the disputes over the smoke-damage claims handing are resolved.
“He has the authority to resolve the eight-year-old FAIR Plan claims handling investigation tomorrow,” she said. “This would be another blow for people with already high rates and low benefits — added on top of their claims not being paid.”
Demands to hold up the rate increase would duplicate the dispute that has been playing out over a request by State Farm General, the state’s largest home insurer, for a 30% rate increase. Lara granted the company an emergency 17% rate hike in May despite complaints by Eaton and Palisades policyholders that the company was delaying claims, paying too little and outright denying them.
The company is now seeking an additional 11% hike that fire victims and area lawmakers want Lara to halt pending resolution of the complaints. However, the commissioner has said the two issues are legally unrelated.
Michael Soller, a spokesperson for Lara, said the department would “evaluate this rate filing through the data-driven process we use for all rate change applications.”
The FAIR Plan’s filing is substantially greater than other companies with pending rate hikes since the January fires. Mercury Insurance and CSAA both have submitted requests for 6.9% increases.
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