California FAIR Plan policies can be expensive, its clients say. Bruce Silverstein, a Malibu resident and city council member, said his basic FAIR Plan insurance costs him about $9,000 a year, about double what his private insurer had previously charged to insure his home before dropping coverage.
Unlike private insurers that must file detailed financial reports with state regulators where they operate, California’s FAIR Plan operates in near-total secrecy. A consortium of approximately 300 insurance companies doing business in the state produces only limited public information about their financial condition, reserves and reinsurance arrangements. with other insurers.
The FAIR Plan does not publish a list of current executives, for example. FAIR plans in other states routinely disclose those details, a recent analysis by the California Department of Insurance found.
Losses from the recent Los Angeles fires could reach $30 billion, according to estimates. Autonomo Research, a financial services analysis firm, estimates that the FAIR Plan could be affected by up to $8 billion in losses from the fires. As of Jan. 10, the plan had only $377 million to pay claims, the Insurance Department said.
Among the scant data provided by the FAIR Plan: it has a total of 452,000 residential policies in force and $458 billion in total insurance exposure as of September 30, 2024, 61% more than the previous year. On Friday, Plan FAIR estimated its exposure in Pacific Palisades at $4 billion. It has not been determined how many of those properties have been damaged or destroyed by the fire.
“The FAIR Plan generally does not share its surplus, its estimates of cash on hand or the amount of reinsurance,” spokeswoman Hilary McLean said in a statement, without saying why. It is too early to anticipate the impact the latest fires will have on its customers, he said, adding: “We can share that FAIR Plan, primarily a catastrophe insurer, is prepared and actively serving customers who have filed claims.”
Defects in operations
In recent years, information about failures in the operation of the FAIR Plan has emerged both in consumer lawsuits and in rare evaluations of the plan issued by the Department of Insurance. A 2022 Department of Insurance examination, for example, found that between 2017 and 2021, the FAIR Plan’s claims handling practices repeatedly violated the state’s insurance code and code of regulations.
More than 400 violations were identified during the review. Among them, the FAIR Plan made “unreasonably low” settlement offers, delayed payments, and “failed to conduct thorough, fair, and objective investigations” in addressing claims. In response to the report, the FAIR Plan said it disagreed with most of the findings.
Another Department of Insurance investigation in 2022 characterized the operation of the FAIR Plan as opaque and underfunded, and noted inaccuracies in its financial reporting. Additionally, executives did not provide periodic inspection reports to the Department of Insurance as required.
A group of FAIR Plan policyholders claimed that it also failed to routinely provide internal investigation reports to policyholders filing claims as required by state law, according to an ongoing lawsuit. These reports allow homeowners to view FAIR Plan claim materials, such as third-party findings related to damage and repair costs. On January 6, the California Superior Court ordered the FAIR Plan to comply with California law in the case.
Asked about these criticisms and those of some customers, McLean, the spokeswoman, said in a statement: “The California FAIR Plan is focused on serving policyholders affected by the Southern California wildfires. “We disagree with the accuracy of several of the statements underlying your questions and have no further comment at this time.” He declined to specify what claims he disputed or why.
The California Department of Insurance has taken on the FAIR Plan for following state rules. In January 2021, after policyholders sued over policy limitations and denials of coverage for smoke damage, Lara’s office wrote to the president of the FAIR Plan alleging that he had illegally limited coverage for some claims. The FAIR Plan disagreed with the department and refused to reverse any of its claim denials, said Dylan Schaffer, the Oakland, California, attorney representing the plaintiffs.
“For these current wildfires, Commissioner Lara expects FAIR Plan to process and pay all claims (including all smoke claims) in accordance with industry standards and in compliance with all laws,” said Soller, the spokesperson for the insurance department, in a statement. Last week, Lara declined multiple interview requests from NBC News.
