LOS ANGELES, July 26, 2024 /PRNewswire/ -- Insurance
Commissioner Ricardo Lara today proposed a multi-billion dollar
policyholder bailout of the insurance industry for its
exposure to wildfire losses at the FAIR Plan.
Commissioner Lara's proposal would relieve insurance
companies of their responsibility for covering the largest claims
under the California FAIR Plan, which insurers control. All
California property insurance policyholders would be required to
pay with an added surcharge on their insurance bills – a surcharge
that could reach hundreds or potentially thousands of dollars.
California law requires insurance companies to pay if the FAIR
Plan can't pay claims. Nothing in the law empowers the Insurance
Commissioner to allow insurance companies to pass those costs on to
consumers today.
For the last several years insurance companies and other
industry groups have sought to change the law to create the
authority for insurance companies to pass on such losses, but these
efforts have failed to gain support in the legislature.
"It's outrageous and outside the law for the insurance
commissioner to force consumers to bail out home insurance
companies and then call that consumer protection," said
Carmen Balber executive director of Consumer Watchdog. "If the
FAIR Plan gets into trouble it will be because insurance companies
dumped too many Californians onto its books. Those companies should
be on the hook for the fallout, not every homeowner in the
state."
Moving people off the FAIR Plan into comprehensive coverage is
the way to protect consumers and stabilize FAIR Plan finances, not
a bailout, said Consumer Watchdog. The group called on the
Insurance Commissioner to endorse a requirement for insurance
companies to cover homeowners who meet mitigation standards and
protect their homes from wildfires. Commissioner Lara's prior
proposals fail to require insurance companies to cover more
Californians (read Consumer Watchdog's comments.)
Commissioner Lara cites the California Insurance
Guarantee Association and the California Earthquake Authority as
examples of agencies that allow consumer bailouts. However, to the
extent those agencies assess policyholders in certain circumstances
they have explicit authorization to do so in the law. The FAIR Plan
and the insurance companies that run it have no such statutory
authority.
Requiring consumers to bail out insurance companies for FAIR
Plan losses is the latest proposal by Commissioner Lara to
mimic failures in the Florida insurance market. Florida insurance
companies may slap surcharges on all policyholders if Citizens
Property Insurance, its FAIR Plan equivalent, experiences
shortfalls. Florida also has limited rate oversight, allows
insurance companies to use black box models to set rates, and
insurers may pass the unregulated cost of reinsurance on to
consumers -- all of which are elements of the deregulatory policies
Commissioner Lara has advanced in California. Each, however, has
failed to stabilize Florida's market where home insurance premiums
are 2 – 3 times higher than California's, the insurer of last
resort covers four times as many policyholders as our FAIR Plan,
and insurance companies have still abandoned the state.
The plan announced by the insurance commissioner would also
direct the FAIR Plan to cover commercial developments worth up to
$100 million. That change would improve the safety net for
condo owners and renters struggling to find, or pay the extreme
cost of, insurance when HOAs and landlords are forced into the
less-regulated surplus lines insurance market.
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SOURCE Consumer Watchdog