LOS ANGELES — In a significant move to address California’s ongoing insurance crisis,unveiled a breakthrough agreement to modernize the California FAIR Plan Association (FAIR Plan), the state’s “insurer of last resort.” This initiative is a key component of Lara’s Sustainable Insurance Strategy, marking the largest insurance reform since Proposition 103 was passed in 1988.
Modernizing the FAIR Plan
“Modernizing the FAIR Plan is a crucial step in our strategy to stabilize California’s insurance market,” said Commissioner Lara. “It’s critical for Californians to understand that a growing FAIR Plan contributes to our insurance crisis. By strengthening the FAIR Plan while providing financial stability and solvency protections, we are creating long-term security for consumers, homeowners, and businesses across the state that is long overdue.”
The FAIR Plan serves as a safety net for residents and businesses unable to secure insurance through traditional markets. However, its expansion has inadvertently caused traditional insurers to withdraw from certain areas, further increasing dependence on the FAIR Plan and threatening its financial stability.
Key Components of the Agreement
The agreement to modernize the FAIR Plan includes pivotal reforms to improve its efficiency and financial strength. It introduces updated underwriting guidelines that target risks associated with high-risk properties through advanced risk assessment models, allowing for better evaluation and coverage of these properties.
The reforms also enable the inclusion of a wider array of insurance products, addressing diverse consumer needs and attracting more policyholders, which is crucial for the program’s stability. Furthermore, the agreement promotes collaboration with traditional insurers to create risk-sharing arrangements, reducing dependence on the FAIR Plan as a primary coverage source in high-risk areas. These strategic enhancements are set to strengthen California’s insurance framework while ensuring sustainable growth.
Overview of Key Reforms
The following bullet points highlight the essential reforms and features of the modernization agreement aimed at revitalizing the California FAIR Plan and ensuring a more resilient insurance market.
- Expanded Coverage: Introducing a new “high-value” commercial coverage option with limits up to $20 million per building and increasing past limits for residential policies.
- Financial Stability: Implementing a sound financial formula to protect policyholders in extreme loss scenarios.
- Improved Transparency: Increasing public reporting on FAIR Plan activity and customer service metrics.
The forthcoming Plan of Operation, to be released within 30 days, aims to clarify options for insurance consumers who may struggle to secure coverage in the regular insurance marketplace as well as surplus companies.
Addressing the Insurance Crisis
California’s home insurance crisis, fueled by destructive wildfires in recent years, has led many insurers to stop writing new policies, raise prices, or exit the state entirely. More than 467,000 acres have burned in wildland fires in 2024 alone, according to Cal Fire, exacerbating the crisis.
Lara’s Sustainable Insurance Strategy aims to stabilize the market by implementing reforms that allow insurers to set policy prices more flexibly, which may result in higher premiums but promise increased availability of policies in wildfire-prone areas. Notable progress has been made, with companies like Allstate and Farmers Insurance Group announcing plans to resume offering policies in California.
The Role of Reinsurance
Reinsurance—the insurance that insurers purchase to cover large disaster claims—has also been a significant factor in the crisis. Rising reinsurance costs have contributed to the reduction of business in the state. Lara has been actively engaging with reinsurance firms, which have shown a willingness to invest in California contingent on the passage of insurer-friendly reforms.
Looking Forward
Despite the uncertainty posed by climate change and its impact on wildfires and extreme weather events, Lara remains hopeful. He acknowledged the need for a decade of action to expand insurance affordability but noted positive signals from the market.
“I don’t have an exact timeline, but I know that the signals and how markets are reacting already are starting to change,” Lara said. “I wish I could predict what’s happening, but the future is unpredictable with climate change, especially in California.”
Support from Industry and Stakeholders
Commissioner Lara’s initiative has garnered broad support from various groups, including the California Farm Bureau, Community Associations Institute, California Building Industry Association, California Association of Winegrape Growers, California Association of REALTORS®, and California Collaboration for Youth.
- Shannon Douglass, President, California Farm Bureau: “The increased coverage limits and enhanced financial stability measures will provide much-needed security for our agricultural community.”
- Kieran Purcell, Chair, Community Associations Institute – California Legislative Action Committee: “This reform is an important step toward providing stability and peace of mind to homeowners and associations alike.”
- Dan Dunmoyer, President and CEO, California Building Industry Association: “This reform is not only beneficial but long overdue, paving the way for continued growth and development in a more secure and predictable insurance market.”
The modernization of the FAIR Plan represents a significant step toward stabilizing California’s insurance market and providing much-needed security to consumers, homeowners, and businesses. While challenges remain, especially with the unpredictable nature of climate change, Commissioner Lara’s efforts signal a move towards a more resilient and stable insurance landscape in California.