(Bloomberg) --California's insurance commission plans to impose a $1 billion
Insurance Commissioner Ricardo Lara said the assessment is necessary for the FAIR Plan to continue paying out claims to survivors of the fires, which destroyed more than 16,000 structures and resulted in insured losses of as much as
"The FAIR Plan must pay claims just like any other insurance company," Lara said in a statement Tuesday.
The assessment is the first for the state-backed program in three decades, and the largest in its history. Under recently updated California regulations, insurers can pass up to half of the amount of the assessment onto their policyholders.
California created the FAIR Plan in 1968. Unlike private home insurers, who can turn customers down, the state program must take anyone who, through no fault of their own, can't obtain insurance otherwise. Every property insurer licensed in the state automatically becomes a member as a condition of doing business. By law, they may be called on to fund its continued operations in case of an extreme catastrophe.
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FAIR reported having received 3,469 claims for the Palisades Fire and 1,325 for the Eaton Fire as of Feb. 9, and paying out $914 million in claims as of that date. It has estimated that it has a potential exposure of $4 billion for the Palisades Fire and $775 million for the Eaton Fire. Approximately 45% of wildfire claims were reported as total losses, according to a statement from FAIR.
At a hearing in front of the California Assembly Insurance Committee last March, FAIR President Victoria Roach warned that the insurer of last resort was not being allowed to charge enough in premiums to cover its risk and that it was one major disaster away from an assessment.
The assessment, to be collected in March, is likely to deepen California's insurance crisis. Earlier Tuesday, Travelers Cos. said it anticipated losses of
On Feb. 3, State Farm General Insurance Co., the insurer with the largest share of the California home market,
The assessment shows that the wildfires will likely have ripple effects for all insured homeowners in California, already one of the priciest US housing markets, as companies pass along the cost through their policies. Consumer Watchdog, an advocacy group, called the charge a bailout for big insurers.
"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," said Carmen Balber, Consumer Watchdog's executive director.
The insurance department is still developing guidelines for how the assessment could be partially recouped from policyholders, said Nicole Ganley, a spokesperson for the American Property Casualty Insurance Association. It's unclear, for instance, if insurers would apply a flat or variable rate. That guidance is expected soon, Ganley said.
Dave Jones, who served as California's insurance commissioner from 2011 to 2019, said the $1 billion assessment could be just the start of insurance woes as summer nears with the state's plan already under strain.
"They acknowledge that they are going to roll into the summer with a cash position that is worse than when they rolled in the LA wildfires," he said. "There could be an additional assessment."
The FAIR Plan's last assessments came in the 1990s, after Southern California's Northridge earthquake and fires in Altadena and Malibu. Altogether, the program assessed $260 million, a fraction of the amount approved by Lara Tuesday.
Previous assessments were exclusively paid for by insurers, Jones said.
"We're in uncharted territory here," he said. "There's never been a direct assessment of policyholders."
(Updates with comment from industry group in 13th paragraph.)
To contact the authors of this story:
Leslie Kaufman in New York at
Michelle Ma in Los Angeles at
Eliyahu Kamisher in San Francisco at
