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FAIR Plan Officials Balk At Providing Comprehensive Homeowners Coverage

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Sacramento, CA – California FAIR Plan insurers are balking against recent orders from the state’s Insurance Commissioner to provide comprehensive homeowners coverage plans.

In a letter sent Thursday to Insurance Commissioner Ricardo Lara, FAIR Plan Association President Anneliese Jivan stated that while the group appreciated his efforts to address devastating wildfire impacts on homeowners, it needed to weigh in on what it described as potential unintended adverse consequences that some of Lara’s orders might create, including higher rates to consumers for insurance products across-the-board.

Jivan asked that Lara withdraw his mandate for FAIR Plan insurers to offer comprehensive homeowners coverage and to instead work with all stakeholders to addresses broader issues of affordability and availability.

Under state law, the FAIR Plan was established as an insurance pool to assure the availability of basic property insurance for those who for reasons beyond their control are otherwise unable to obtain it in the voluntary insurance market. As reported here, Lara ordered FAIR Plan insurers last month to expand their offerings as part of a critical response to assist rising numbers of homeowners in need of comprehensive coverage.

Jivan’s primary argument is that the FAIR Plan is not and was never intended to be a state agency or a disruptor or competitor with the existing insurance market and that Lara, in overseeing its operations and obligations, should not permit it to conduct itself in violation of its statutory principles and constraints.

Letter Airs Litany Of Reasons

She indicated among the immediate consequences of the order would be the distraction of the group from its core mission of being ready for the next catastrophic wildfire and building capacity to improve services for the coverage they already offer.

Jivan pointed out that the FAIR Plan does not include liability or workers’ compensation, which are components of expanded coverage Lara is ordering. She added that FAIR Plan insurers do not have the infrastructure or expertise to support such complex DIC policy coverages such as water damage and liability.

She argued that requiring such coverage would compete with the voluntary market and increase the cost to above what a FAIR Plan policyholder would otherwise pay for a FAIR Plan Dwelling policy and a Difference in Conditions (DIC) policy through the voluntary market. She noted that policyholders currently benefit from multi-line discounts when they buy FAIR Plan and DIC coverage together, also maintaining that brokers say there is no demand for the FAIR Plan to over comprehensive coverage.

She also acknowledged that operations-wise, the FAIR Plan will not be able to not comply with Lara’s order by the June 2020 deadline because it lacks the essential infrastructure.

The association is also taking issue with Lara’s order to require credit card transactions, electronic funds transfers and monthly payments with no additional fees. Lara ordered FAIR Plan insurers to implement a credit card payment option by next February, which Jivan stated was too soon to get it up and running.

She stated that since the FAIR Plan is not a profit-making entity, it could not afford to cover additional fees associated with those payment methods. She also countered that a survey of current policyholders and insurance brokers should be a mid-step to determine which payment options are most needed and once identified, insurers could work with Lara’s office on appropriate timelines and cost structures to facilitate those options.

Over concerns of increasing voluntary market insurers sending non-renewal notices to customers across the state, as reported here, Lara yesterday ordered a one-year moratorium on non-renewals to policyholders in recent fire disaster areas and requested insurers to extend the same grace to residents of all high fire risk areas.

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