California’s home insurer of last resort requests 36% rate hike following January wildfires

The California FAIR Plan, the state’s home insurer of last resort, is seeking an average rate hike of 35.8 percent, the largest in years, following billions of dollars in losses incurred in January’s wildfires.

The Los Angeles-based insurance pool, managed and supported by the state’s licensed home insurers, filed a request this week for a home insurance rate hike, which must be reviewed and could be reduced by the state insurance commissioner.

“Under the law, FAIR Plan rates must be sufficient to pay anticipated claims and expenses,” FAIR Plan spokesperson Hilary McLean said in a statement. “The FAIR Plan works 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 added hundreds of thousands of policyholders in recent years as insurers withdrew from the market in the face of rising wildfires, estimated losses at $4 billion from January’s fires. These losses forced it to assess its member carriers at $1 billion in order to pay all claims.

The rate hike would hit homeowners unevenly, with many seeing larger increases and others seeing decreases if they live in neighborhoods that aren’t prone to wildfires. The new rates would apply in April and homeowners can benefit from discounts of up to 15% if they take steps to reduce the risk of fire on their property.

The rate hike, if approved, would easily exceed increases of 20.3% in 2019 and nearly 16% in 2021 and 2023. However, the 2023 rate hike of 15.7% was reduced by Insurance Commissioner Ricardo Lara from the 48.8% sought by the plan.

The request for an increase is bound to be controversial given accusations over how the plan has handled smoke damage claims stemming from the Jan. 7 fires and other blazes dating back to the last decade.

The plan is the subject of lawsuits from homeowners in Altadena, Pacific Palisades and neighboring communities who allege the plan refuses to properly test and remediate homes infiltrated by smoke, soot and ash. In June, a Superior Court judge issued a landmark ruling saying the plan’s smoke damage policy violated state law, although the plan has since changed the legal justification for its denials.

Citing more than 200 complaints the state has received from policyholders, Gov. Gavin Newsom sent a letter to the plan last month asking it to process smoke damage claims stemming from January’s wildfires “promptly and fairly.”

The Insurance Department also filed a cease and desist order against the plan in July over its handling of claims, while a 2022 state investigation found that in 2017 and 2018 the plan issued smoke damage insurance policies that were illegal and then failed to “diligently pursue” an investigation into the claims. The plan has denied any wrongdoing.

Created by state law, the plan offers limited policies that generally cost more than those offered by traditional insurers. It is also not subject to Proposition 103, the 1988 initiative that established current insurance regulations in California. This means the public cannot participate in any rate revisions, even though the insurance commissioner has the final say on any increases.

Carmen Balber, president of Consumer Watchdog, a Los Angeles insurance advocacy group that regularly weighs in on rate reviews, said Lara should use her authority to refuse any rate hikes until disputes over smoke damage claims are resolved.

“He has the power to resolve the eight-year-old investigation into the handling of FAIR Plan claims tomorrow,” she said. “This would be another blow to people whose rates are already high and benefits low – on top of their claims not being paid. »

The demands to delay the rate increase would duplicate the conflict that erupted over a request by State Farm General, the state’s largest home insurer, for a 30 percent rate increase. Lara granted the company an emergency 17 percent rate hike in May, despite complaints from 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 percent increase that fire victims and area lawmakers want Lara to stop while the complaints are resolved. However, the commissioner said the two issues had no legal connection.

Michael Soller, a Lara spokesman, said the department would “evaluate this rate filing through the data-driven process we use for all rate change requests.”

The number of applications filed under the FAIR plan is significantly higher than other companies whose rate hikes have been pending since the January fires. Mercury Insurance and CSAA both submitted requests for a 6.9% increase.