California residents, including those not impacted by the recent wildfires, will see a temporary surcharge on their homeowners insurance bill after state regulators this week green-lit a one-time fee for insurance companies.
California's Department of Insurance has ordered insurers to pay their portion of what will amount to a $1 billion pot of cash. Those funds will then be funneled to the FAIR Plan, which protects at-risk Californians who can't get a policy through a regular insurance company. The $1 billion infusion will help keep the FAIR Plan financially afloat as it continues paying out claims to victims of the Palisades and Eaton wildfires.
Insurers required to drum up the $1 billion can "issue a temporary supplemental fee as a percentage of the policy premium" to their customers as part of the order, according to California Insurance Commissioner Richardo Lara's office. State insurance regulators did not specify when the fee would appear on bills or how much on average customers are slated to pay.
"I took this necessary consumer protection action with one goal in mind: the FAIR Plan must pay claims just like any other insurance company," Lara said in a statement. "Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks."
The cost of homeowners insurance has been thrust into the spotlight this year as the Palisades and Eaton fires have scorched almost 40,000 acres of land in the Golden State. The wildfires have caused $29.7 billion worth of damage to single-family homes and punished the cash coffers of insurers large and small.
California is among a short list of states, including Florida and Texas, where major insurance companies have decided not to renew policies or stop offering coverage altogether. Companies such as Allstate and State Farm have argued that California has seen a rash of climate change-related weather disasters, making parts of the state too risky to provide coverage.
The FAIR Plan was created by state lawmakers in 1968 and offers insurance policies, including fire damage, to Californians who cannot find coverage in their area. The insurer had about 450,000 homeowners policies as of September, according to internal data. The FAIR Plan has processed about 4,800 homeowners claims tied to the wildfires and paid out roughly $914 million so far.
Commissioner Lara's $1 billion mandate comes just days after FAIR Plan President Victoria Roach told state officials that the insurance operation would run out of funds by the end of March if there's no immediate action. In a letter to Lara this week, Roach wrote that "the claims associated with these fires have presented a significant financial challenge to the FAIR Plan."
Order criticized
While Roach sees the $1 billion as a path to save the FAIR Plan, consumer advocates are calling it a bailout for insurance companies that leaves customers footing the bill.
Lara's order amounts to insurers charging every homeowner for the wildfire damages happening downstate, Carmen Balber, the executive director of Consumer Watchdog, said in a statement. Balber said the FAIR Plan is having financial problems, not because of wildfire claims, but "because insurance companies dumped too many homeowners."
“This gift to insurance companies rewards bad behavior and will only incentivize insurers to drop even more homeowners and force them onto the FAIR Plan in the future, because there’s no consequence for abandoning these families,” she said in the statement. "Bailing out insurance companies for FAIR Plan losses isn’t going to keep them selling in California."
The FAIR Plan move marks the latest chapter in a wave of insurance news related to the wildfires.
Earlier this month, State Farm asked California insurance regulators to approve an emergency interim rate increase to help the company cover ongoing payouts. If approved, rates would increase 22% for homeowners, 15% for renters and 15% for condominium unit owners. The increases would take effect May 1.