Customers say California’s FAIR Plan policy can be costly. Bruce Silverstein, a Malibu resident and city council member, said his basic FAIR Plan insurance costs about $9,000 a year, and that his private insurance company had previously charged it toward his home before it discontinued coverage. He said the amount was about double that of the previous year.
Unlike private insurance companies, which are required to submit detailed financial reports to state regulators in which they operate, California’s FAIR Plan operates in near-total secrecy. The company, a consortium of about 300 insurance companies operating in the state, provides limited public information about its finances, reserves and reinsurance agreements with other insurance companies.
For example, the FAIR plan does not publish a list of current executives. FAIR plans in other states routinely disclose such details, a recent analysis by the California Department of Insurance found.
According to estimates, losses from the recent Los Angeles fires could reach $30 billion. Autonomous Research, a financial services analysis firm, estimates that the FAIR project could suffer up to $8 billion in losses due to the fire. As of Jan. 10, the plan had just $377 million in insurance payments, according to the Department of Insurance.
Among the scant data provided by the FAIR Plan: As of September 30, 2024, there were a total of 452,000 home insurance policies with a total insured value of $458 billion, an increase of 61% year over year. On Friday, FAIR Plan calculated its exposure in Pacific Palisades at $4 billion. It is unclear how many of these buildings were damaged or destroyed by the fire.
“The FAIR Plan typically does not publicly disclose surpluses, estimated cash reserves or reinsurance amounts,” spokeswoman Hilary MacLean said in a statement, without specifying why. It is too early to predict how the recent fires will affect customers, he said, adding that “FAIR Plans, which is primarily a catastrophe insurance company, is prepared and actively servicing customers who have filed claims.” We can share that we are providing the following.”
Operational deficiencies
In recent years, information about deficiencies in the operation of FAIR plans has come to light both in consumer lawsuits and, in rare cases, in plan evaluations issued by the Department of Insurance. For example, a 2022 Department of Insurance investigation found that from 2017 to 2021, FAIR Plan’s claims processing practices repeatedly violated state insurance and regulatory provisions.
The inspection revealed more than 400 violations. It says FAIR Plan offered “unreasonably low” settlement offers, delayed payments and “failed to conduct a thorough, fair and objective investigation” in addressing the claims. In response to the report, the FAIR program said it disagreed with most of the findings.
A separate Department of Health investigation in 2022 characterized the FAIR plan’s operations as opaque and underfunded, and cited inaccuracies in its financial reporting. Additionally, the executives failed to submit required periodic inspection reports to the health department.
According to an ongoing lawsuit, a group of FAIR Plan policyholders alleges the company fails to provide periodic internal investigation reports to policyholders who make claims as required by state law. These reports allow homeowners to review FAIR Plan billing materials, including third-party findings of damage and repair costs. On January 6, the California Superior Court ordered FAIR Plan to follow California law in this case.
When asked about these criticisms and those of some customers, spokesperson MacLean said in a statement: “California Fair Plan is focused on serving policyholders affected by the Southern California fires. We disagree and have no further comment at this time.” She did not specify which claims she disputed or why.
The California Department of Insurance has been battling FAIR Plan over following state rules. In January 2021, Lara’s office sent a letter to the president of FAIR Plans, calling some insurance coverage illegal after policyholders filed lawsuits over policy limits and denial of coverage for smoke damage. He claimed that it was limited to. Dylan Schaefer, an Oakland, Calif., attorney representing the plaintiffs, said FAIR Plan disagreed with the department and refused to reverse the department’s denial of claims.
“For these current wildfires, Secretary Lara said the FAIR Plan will process and pay all insurance claims (including all smoke claims) in line with industry standards and in compliance with all laws. We look forward to working with you,” Health Department spokesperson Soler said in a statement. Last week, Lara declined multiple interview requests from NBC News.
