SACRAMENTO, Calif. — This week saw new developments in California’s ongoing insurance crisis.
Homeowners insurance is increasingly unaffordable and unavailable. It’s driving up housing costs for owners and renters alike.
This week, a judge’s ruling moved California one step closer to changing the state-mandated Fair Access to Insurance Requirements (FAIR) Plan. This insurance safety net known as the ‘insurer of last resort’ is increasingly becoming many homeowners’ only resort. The California FAIR Plan Association told ABC10 that as of September, the plan had reached more than 330,000 policies statewide, with about 1,000 applications per weekday. That’s a 22% increase over the number of policies held in 2022, according to the California Department of Insurance.
The FAIR Plan is bare-bones, offering just fire insurance.
Since 2019, however, California Insurance Commissioner Ricardo Lara has been trying to expand what is covered under the FAIR Plan.
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Four years ago, Lara ordered the FAIR Plan to start offering additional coverage, similar to a comprehensive homeowners policy, including coverage for theft, on-property liability, water damage, snow damage and more.
In response, the FAIR Plan Association filed a lawsuit, asking a judge to block the orders, saying the move would force the FAIR Plan to offer more than what it’s legally required to cover.
The issue has gone back-and-forth in the courts for the past four years, including a judge ruling in favor of Commissioner Lara in 2021.
This week, a second judge issued a ruling in favor of the state, saying the insurance commissioner does have the authority to order the FAIR Plan to expand what it offers for coverage.
“We’re one step closer to making this a reality for Californians to be able to offer them a FAIR Plan comprehensive policy option,” said California Dept. of Insurance spokesperson Michael Soller.
If the FAIR Plan does not appeal this most recent judicial ruling, Soller said, changes to the FAIR Plan could come as soon as next year.
A FAIR Plan spokesperson said they’ll carefully review the judge's ruling and its potential impact on policyholders and the insurance marketplace.
“The FAIR Plan is committed to ensuring all Californians have access to basic property coverage and the peace of mind they deserve,” the spokesperson said. “The FAIR Plan serves as the state’s ‘insurer of last resort’ and exists to provide insurance to property owners who are unable to obtain coverage in the voluntary or surplus lines markets. By statute, the FAIR Plan is not intended to compete with or replace traditional insurers.”
Currently, someone on the FAIR Plan just gets fire coverage for their home. If they want additional coverage, they have to buy extra insurance - something called a Difference in Conditions policy. However, if the FAIR Plan expands its coverage, someone could get fire insurance plus a lot of those other coverages they’re currently having to purchase separately.
The Department of Insurance says their latest data shows nearly two-thirds of FAIR Plan policyholders who live in the home they own have not purchased additional coverage, meaning they only have the most basic protection against fire and nothing else.
If the Commissioner’s order is allowed to move forward, the FAIR Plan changes have the potential to impact the more than 330,000 existing policyholders, in addition to the many people who – every day – are finding themselves newly without any option but to turn to the FAIR Plan.
Patti Cherry owns a home in Tuolumne County and has experienced California’s homeowners insurance crisis firsthand.
“Our insurance has been canceled twice on us,” she said. “We all feel angry because you don't know what to do and you don't know where to turn.”
She now gets her homeowners insurance through the FAIR Plan.
“It's probably tripled, maybe (quadrupled) from what we were paying,” Cherry said.
Over the past few years, Californians have seen homeowners insurance policies skyrocket in price or become entirely unavailable where they live. That comes as most of the major companies in the state’s homeowners insurance market have paused or restricted new business. They cite the rising risk of wildfires due to climate change, the increasing cost of materials to rebuild a house and a need for updated state regulations.
“Having an uninsurable state is not an option,” Commissioner Lara said in a recent interview with ABC10.
He has announced major changes in the insurance industry, which ABC10 has covered, in order to entice insurance companies to return to fully writing homeowners policies in the state.
“They want to do business in California. California is still the largest insurance market in the country, fourth in the world. Nobody wants to leave California, but we need to find ways to incentivize them, again, to grow in California, stay in California,” Lara said. “The way we do that is by bringing down the risk and investing in mitigation, which is what we put at the forefront of the department through this agreement.”
Still, Lara acknowledges change takes time and people are hurting now.
“That's a legit problem that we're seeing. We welcome them to call our department. We can help them try to figure out what other options are,” Lara said.
This crisis of affordability and availability of homeowners insurance started with people living in areas at high risk of wildfire, but the problem has creeped into more suburban and urban areas now too. Homeowners insurance isn’t optional for people with a mortgage, so as prices go up, most people have no option but to pay the increased premium, opt for a bare-bones policy or raise their deductible. Less coverage is better than no coverage, experts say.
For experts’ tips on how to find affordable homeowners insurance, check out ABC10’s article HERE.
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