By Karl D. Susman
The California FAIR Plan Association was created in July 1968 following a series of brush fires and riots in the 1960s. Since then, it has been the organization of last resort for agents and brokers to obtain basic fire insurance for their clients. Times are certainly changing. Due to the multiple brush fires throughout California over the last several years, most insurers have either stopped writing fire insurance in many areas while others have filed for massive rate increases. Non-admitted insurance companies have also begun to increase premiums significantly to the tune of over 500% or more while FAIR plan is taking rate increases over 20%.
The standard and even substandard market for homeowners and fire insurance is tightening
Karl D. Susman
It is no surprise as the standard and even sub-standard market for homeowners and fire insurance tightens more agents and brokers are looking to place their clients with the FAIR plan. The FAIR plan has enacted new guidelines for eligibility on new business being written through the organization. Brokers submitting applications to the FAIR Plan will now be required to e-certify that a diligent search was made as mandated by the California Insurance Code. The certification states that a diligent search has been completed as pursuant to California Insurance Code section 10093(a). This states in part that the Broker has made an attempt to place this risk with a standard insurer prior to submitting the application to the FAIR plan.
Additionally, recognizing the extremely limited coverage that the FAIR plan offers, a recent bulletin was sent to agents and brokers to remind them that the policies they offer do not cover such things as water damage, liability, theft, worker’s comp etc. This bulletin to me signifies the fact that the FAIR plan knows it will be seeing claims for these types of losses and they are putting producers on notice to be certain and obtain that important coverage elsewhere.
The FAIR plan may be seeing more claims, so customers are receiving a new checklist with policies and renewals.
Karl D. Susman
Supplemental coverage for a FAIR plan policy comes in many forms, most frequently a Difference in Conditions policy (DIC). In addition, FAIR plan policyholders are receiving a new insert with their new policies and renewal policies. This insert includes an “Annual Insurance Checklist for FAIR Plan Policyholders” and lists items such as “Shop around at least annually for coverage with other insurers” and “Call insurance companies on your own.” It also states to contact your Broker with questions about coverage including coverage that is not offered by the FAIR plan. Finally, it goes as far as to say that reviewing the coverage you have is “your responsibility” and it is underlined just like that. It seems clear by notices sent to agents and FAIR plan policyholders that the message is get better coverage elsewhere. So if the FAIR plan is telling us to look elsewhere for better coverage and even provides a list of types of coverage to look for, the begging question is are people going to pay attention now or is this just a massive claim bubble waiting to burst?
I believe that not only are agents and brokers going to be in for a huge influx of claims from FAIR plan customers who thought they had more coverage, pointing to these continual reminders and warnings from FAIR plan will do little to protect them from the onslaught of potential litigation that will follow. At some point a permanent solution will need to be found to solve the chronic risk that now exists in California; wildfires. There is absolutely precedent for this too.
Other states have either state or federal programs for chronic risks already in place such as the National Flood Insurance Program for Flood damage, Windstorm Insurance, Hurricane insurance and more. Remember the concept of insurance is to insure against the potential for a loss. When there is an almost certainty for a loss then it isn’t possible for private insurers to shoulder the losses that will come.
Karl Susman, owner of Susman Insurance Agency in Los Angeles, California has been helping clients obtain insurance for over 26 years. He also is an Insurance Expert Witness for complex litigation.
