FAIR Plan Asks Court to Stop Insurance Commissioner's Order that Would Increase Insurance Costs for Homeowners

LOS ANGELES, Dec. 13, 2019 /PRNewswire/ -- The FAIR Plan today filed a petition for a writ of mandate asking the Los Angeles Superior Court to direct California's Insurance Commissioner to annul, vacate, or withdraw Order No. 2019-2 issued by his office last month.

The Order directed the FAIR Plan to offer comprehensive homeowners insurance, known as an HO-3 policy, which is outside of the FAIR Plan's statutory mandate to provide basic property insurance and would increase insurance costs for all of the FAIR Plan's policyholders. The Order also directed the FAIR Plan to take actions that were already underway by the FAIR Plan but, if implemented as directed by the Order, could compromise the privacy and security protections of policyholders' financial data.

The FAIR Plan filed the writ petition after attempting to work with the Department of Insurance to determine an alternative to the Order that would expand options for California homeowners seeking property insurance without unduly burdening them with additional risks and costs.  

"We have a responsibility to protect our policyholders and ensure their continuing access to affordable and reliable basic property coverage," said Anneliese Jivan, president of the California FAIR Plan Association. "We appreciate the efforts of the Commissioner to address the impact of California's devastating wildfires on homeowners. Unfortunately, this Order, as written, would negatively impact consumers and further destabilize the voluntary insurance marketplace because the Order provides no incentive for the private market to offer insurance in areas at risk of wildfire. We regret having to take this action, but we will do everything we can to continue to protect policyholders and provide stability in the insurance marketplace."

The writ argues that the Commissioner's order violates the law, and would force the FAIR Plan out of compliance with its statutory mandate to provide basic property insurance, serve as a stabilizing force in the insurance marketplace, and to maintain actuarially sound rates.  

"Unfortunately, the Commissioner's Order would lead to unintended consequences that will harm consumers by increasing costs of property insurance and restricting options in the voluntary insurance market," Jivan added.

Offering an HO-3 policy as directed by the Order would adversely impact homeowners and is contrary to the FAIR Plan's mission and role in the insurance marketplace. FAIR Plan rates are required to be actuarially sound, and a FAIR Plan HO-3 policy, as directed by the Order, would be more expensive than those that homeowners can purchase through the voluntary market or through a combination of a FAIR Plan policy and Difference-in-Condition coverage. The Order would ultimately limit choice and flexibility for consumers.

Further, attempting to comply with the HO-3 provision would divert the FAIR Plan's scarce resources from its core mission and lead to significant new costs absorbed by FAIR Plan policyholders. FAIR Plan resources are currently dedicated to scaling existing infrastructure to support a growing number of customers and brokers seeking FAIR Plan coverage and to streamlining the claims processing system in preparation for the next catastrophe. Taking resources away from these mission-critical projects would hinder the FAIR Plan from providing the service that its policyholders deserve.

The FAIR Plan remains fully supportive of three provisions of the Order: increasing the dwelling policy coverage limits from $1.5 million to $3.0 million, establishing a credit card payment option, and introducing a monthly payment option. Increasing the dwelling policy limits was approved by the FAIR Plan's Governing Committee last July. However, as noted in the writ, the FAIR Plan cannot offer the increased coverage limits without the Department of Insurance's approval of a rate change which is needed to ensure that the FAIR Plan's rates remain actuarially sound and sufficient to cover future losses.

Furthermore, the FAIR Plan asks the Court to vacate the provision of the Order that would prevent the FAIR Plan from passing along credit card charge fees to customers that choose that option to pay for their insurance. Without the ability to charge these fees to the select policyholders exercising this option, the FAIR Plan would be forced to pass them along to all policyholders to share. Passing along credit card fees to customers is standard practice among state agencies and many businesses. The FAIR Plan notes in the writ that it will continue to work diligently to implement a credit card payment option in a careful manner and timeline that protects policyholders' financial privacy and security.

Last week, the FAIR Plan sent a letter to Commissioner Lara and the Legislature outlining its concerns and the risks the Order presents to consumers. FAIR Plan leadership had hoped to work in collaboration with the Department of Insurance to address issues raised in the Order, but recognizes that this path forward is no longer viable.

The FAIR Plan remains committed to working with the Commissioner, the insurance industry and policymakers to solve California's insurance market crisis by crafting solutions that strengthen consumer choice in the voluntary insurance market and ensure that homeowners, especially those affected by wildfires, have access to the basic property coverage and the peace of mind they deserve.

About the FAIR Plan
The California Fair Access to Insurance Requirements (FAIR) Plan is an insurance pool established by law to assure the availability of basic property insurance to people who own insurable property in the State of California and who, beyond their control, have been unable to obtain insurance in the voluntary insurance market. The FAIR Plan provides stability in California's insurance marketplace. It is committed to strengthening consumer choices in the voluntary insurance market, while ensuring that all homeowners, including those who live in areas threatened by wildfires, have access to basic property coverage and the peace of mind they deserve. For more information, visit www.CFPnet.com.  

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SOURCE California FAIR Plan Association