For hundreds of thousands of California homeowners who rely on the state’s FAIR Plan, what was supposed to be an insurance pool of last resort has become the only option.
But state officials never intended that to be the case. Instead, “a series of loopholes quietly negotiated by the insurance industry” neutralized requirements that would’ve resulted in many of those homes being covered by traditional insurance companies, the New York Times reports.
Perhaps the most consequential loophole detailed by the Times involves the state’s list of 662 “distressed” ZIP codes, which were supposed to be locations prone to disastrous fires that insurance companies would need to be incentivized to cover.
Some of those ZIP codes, however, were mostly fine, with only a small part of them deemed high-risk.
Insurance companies figured that out, realizing that they “can load up on coverage in areas the state considers to be safer and still qualify” for the state’s incentive: the ability to charge higher rates, the Times found.
California Insurance Commissioner Ricardo Lara noted to the Times that because insurers weren’t renewing policies, the state was negotiating from a state of “crisis,” and he felt the industry “bullied” the state.
That said, while consumer advocates claim the current situation benefits insurance companies, Lara said it’s too early to know for sure if the changes worked or not, something that could take a year or more.
As Lara told the Times, rising rates are likely to increase competition, which he believes will push insurance companies back toward covering riskier areas.
“You constantly have to strike the balance between, you know, the consumer protections, giving consumers options, and having a robust and thriving insurance market,” Lara told the Times.
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