California Commissioner Orders FAIR Plan to Offer Increased Coverage

September 24, 2021

California Insurance Commissioner Ricardo Lara on Friday ordered the FAIR Plan to offer a homeowners policy, in addition to its current dwelling fire coverage, with more traditional homeowner features, such as coverage for water damage, theft, and loss of use.

The order requires the FAIR Plan to submit a revised plan of operations to the California Department of Insurance within 30 days.

The order comes after the FAIR Plan Association, comprised of all admitted insurance companies to be the state’s property insurer of last resort, sued Lara to contest his original order of November 2019.

A court recently upheld the commissioner’s authority to require the FAIR Plan to offer more comprehensive homeowners policies to those residents who need it, especially in wildfire-risk areas of the state.

The order will give roughly 200,000 Californians who currently rely on the FAIR Plan a more comprehensive option besides the bare-bones coverage that the FAIR Plan currently offers today, according to Lara.

He says requiring the FAIR Plan to offer a more comprehensive homeowners’ policy will save consumers from having to purchase a second companion policy to cover other hazards such as premises liability, water damage, and theft.

These changes are in addition to previous changes Lara successfully compelled the FAIR Plan to undertake last year, including increasing the combined coverage limit from $1.5 million to $3 million, providing more transparency in their Governing Committee meetings and allowing the CDI to participate in those meetings, and mandating the FAIR Plan to seek department approval prior to disbursing any operating profits back to participating insurers.

The FAIR Plan issued the following statement in which the organization said it’s reviewing the order:

“The Commissioner’s previous order was invalidated by the Los Angeles Superior Court, and we are working in good faith to address issues raised by the Court in ways that strengthen consumer choices in the voluntary insurance market without unnecessarily raising rates for FAIR Plan policyholders.”

The statement notes that the FAIR Plan was created to provide California property owners with the basic property insurance coverage, and that coverage options to complement a FAIR Plan policy, referred to as difference-in-condition policies, are readily available and listed on the CDI website.

“Requiring the FAIR Plan to expand coverages without first having the necessary infrastructure in place, and on an unrealistic timeline, would lead to unintended consequences, including higher rates for FAIR Plan policyholders,” the statement continues. “Further, this order puts the FAIR Plan in direct competition with the voluntary market.”