Commissioner Lara orders FAIR Plan to offer increased commercial coverage to businesses

News: 2021 Press Release

SACRAMENTO, Calif. — As part of his ongoing effort to help California businesses across all sectors continue to operate and thrive, Insurance Commissioner Ricardo Lara today took action by amending the Plan of Operations for the California FAIR Plan Association (FAIR Plan), an association made up of all admitted insurance companies to be the state’s property “insurer of last resort,” and ordering the FAIR Plan to implement his mandated increases to its decades-old commercial property coverage limits offered to businesses.

“My Order is part of an ongoing commitment to helping businesses in California thrive as our economy recovers from the COVID-19 pandemic. A top concern that many business owners large and small have voiced to me are their challenges in getting insurance coverage which, in turn, impacts their ability to serve their customers as best they can,” said Insurance Commissioner Ricardo Lara. “Our state’s economic recovery can’t wait. I will no longer tolerate delays from the insurance companies running the FAIR Plan when businesses and consumers need help today. I will continue to use every tool available to help businesses and protect consumers as we continue to seek long-term solutions to hold the FAIR Plan accountable and responsive to California consumers and businesses.”

Today’s action increases the combined coverage limits for the FAIR Plan, under its Division I Commercial Property Program, from $4.5 million to $8.4 million and, under its Division II Businessowners Program, from $3.6 million to $7.2 million. These coverage limits have not been raised since at least 1997 and 1994 respectively despite the Consumer Price Index showing costs have nearly doubled during that time in California.

Commissioner Lara’s Order directly revises the FAIR Plan’s Plan of Operations and gives the FAIR Plan no more than 60 days to file a rule change application for review and approval by the California Department of Insurance for these new increased commercial coverage limits. Upon approval, the insurance companies operating the FAIR Plan then have 90 days to implement these plan changes ordered by the Commissioner, which for many businesses represents additional coverage that is urgently needed to operate and stay in business, especially in high wildfire risk areas of the state.

The FAIR Plan was required under Insurance Code section 10095(f) to submit a revised Plan of Operations to the Department of Insurance within 30 days in response to the Commissioner’s previous Order from October 12 describing how it would increase its commercial property coverage limits. The Commissioner’s action today was taken because of the FAIR Plan’s failure to meet this reasonable and standard deadline.

The Commissioner is invoking his authority under Insurance Code section 10095 to write the revisions to the Plan of Operations for the FAIR Plan on his own as he deems necessary, and is ordering the FAIR Plan to now implement those revisions. While the FAIR Plan is intended as a temporary solution for many businesses that cannot otherwise find insurance coverage in the admitted and surplus lines markets, the FAIR Plan has not taken the initiative to increase its own coverage limits to keep pace with California’s economy and annual inflation.

The Commissioner’s action today is similar to 2019 when the FAIR Plan failed to meet his deadline for a response, and he subsequently revised its Plan of Operations to increase the combined homeowners dwelling coverage limit from $1.5 million to at least $3 million. The then-decades-old coverage limit was found to be insufficient in today’s real estate market. This increased limit is now provided to FAIR Plan homeowners insurance policyholders today.

Over the past two years, Commissioner Lara and Department of Insurance representatives have met with businesses and non-profit entities throughout the state on insurance availability challenges. Groups such as agricultural operators, wineries, residential care facilities, affordable housing entities, and summer camps have informed the Commissioner about the lack of availability of commercial property insurance coverage in the traditional insurance market. Many of these businesses noted that the FAIR Plan’s current commercial property coverage and business owners’ coverage limits are insufficient to meet their needs.

The Commissioner’s Order is an important step toward creating long-term solutions for businesses and consumers alike, especially for those forced to purchase FAIR Plan coverage when traditional coverage is not available.

“My Department continues to work on creating a competitive insurance market so that available insurance coverage options meet the needs of the individual business owner. By involving local businesses, state and local governments, consumer groups, fire safety officials, and insurance companies, we are creating necessary long-term solutions while being responsive to businesses’ immediate needs,” concluded Commissioner Lara.

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Media Notes:

• Commissioner Lara’s Order to the FAIR Plan
• On October 12, Commissioner Lara directed the insurance companies responsible for running the FAIR Plan to revise its Plan of Operations within 30 days in order to increase its decades-old commercial coverage limits.
• The FAIR Plan failed to respond, thereby leaving many businesses without additional coverage they urgently need, potentially stalling our state’s economic recovery.
• Based on these urgent needs and inaction by the insurance companies operating the FAIR Plan, the Commissioner is invoking his authority under Insurance Code section 10095 to write the revisions to the Plan of Operations on his own, and order the FAIR Plan to implement those revisions.
• The FAIR Plan has not adjusted its coverage limits for inflation for either its Division I Commercial Property Program or its Division II Businessowners Program since the mid-1990s.
• Today’s Order is in addition to several other changes that Commissioner Lara has ordered on the FAIR Plan, including providing more transparency in their Governing Committee meetings, allowing the Department of Insurance to participate in those meetings, and mandating the FAIR Plan obtain Department approval prior to disbursing any operating profits back to participating insurance companies, among other necessary reforms.