Commissioner Lara continues bold insurance reform agenda with landmark FAIR Plan modernization

Commissioner Lara continues bold insurance reform agenda with landmark FAIR Plan modernization

July 26, 2024 — Insurance Commissioner Ricardo Lara today announced a breakthrough agreement containing a series of actions to modernize the California FAIR Plan Association (FAIR Plan), the state’s “insurer of last resort,” as part of his ongoing efforts to stabilize the California insurance market and address the insurance crisis. The move is part of his Sustainable Insurance Strategy, the largest insurance reform since voters passed Proposition 103 in 1988.

 “Modernizing the FAIR Plan is a crucial step in our strategy to stabilize California’s insurance market, said Commissioner Lara. “It’s critical for Californians to understand that a growing FAIR Plan contributes to our insurance crisis. By strengthening the FAIR Plan while pursuing reforms that promote competition and consumer choice, we are creating long-term security for consumers, homeowners, and businesses across the state that is long overdue.”

The FAIR Plan is a private association managed by California’s private insurance companies. While not a government-sponsored or government-run program, the FAIR Plan is regulated by the California Department of Insurance to ensure it operates in compliance with state regulations and protects consumers’ interests.

While the FAIR Plan is a vital safety net, its expansion creates a negative feedback loop. When the FAIR Plan takes on more customers, it causes traditional insurance companies to withdraw from certain areas, further increasing dependence on the FAIR Plan. A recent news story called the growing FAIR Plan a “hidden crisis” because, partially due to fear of possible major assessments by the FAIR Plan, several insurance companies are further withdrawing from the California market by pausing writing new policies or reducing their market share in at-risk areas. This cycle can ultimately weaken the FAIR Plan’s financial stability and limit consumer choice.

Commissioner Lara’s unprecedented agreement with the FAIR Plan today is targeted to assist homeowners and condo associations that need expanded coverage, as well as farms, builders, and businesses with multiple buildings in the same location. This will help “break the cycle” by strengthening the FAIR Plan as he pursues other reforms to safeguard the integrity of the insurance market while holding true to the spirit and intent of Prop. 103.

Specifically, Commissioner Lara’s agreement with the FAIR Plan today will offer homeowners, consumers, and business owners:

• Expanded Coverage: Establishing a new “high-value” commercial coverage option with limits up to $20 million per building, along with past increases for residential policies.
• Financial Stability: Creating a sound financial formula to protect policyholders in extreme loss scenarios.
• Improved Transparency: Requiring increased public reporting on FAIR Plan activity and customer service metrics.

To learn more about the FAIR Plan Modernization details and the series of actions from Commissioner Lara, visit 2024 Press Releases (ca.gov).