Sarah Mapel counted herself fortunate when a huge wildfire ripped through her area in Northern California in the late summer of 2020. Her 1898 historic home was saved by firefighters using water from a nearby creek.
Making her home safe to live in again after it had been filled with ash and toxins, however, became the subject of a protracted and intense court struggle with her insurer, the California FAIR Plan Association. The plan, which was established by state officials in 1968, provides insurance to people and businesses in susceptible areas, such as those that are prone to wildfires, who are unable to get coverage from private insurers.
According to records, Mapel’s issues with FAIR Plan started when her insurer gave her a cheque for $1,151 for a home repair estimate that was more than $50,000. Other difficulties and annoyances ensued for months.
The same frustrating procedure and scant coverage may soon befall thousands of victims of the most expensive wildfires in Los Angeles history. According to an update released on Friday, nearly 3,600 policyholders in Altadena, Pacific Palisades, and other areas of greater Los Angeles have filed claims with the FAIR Plan in an attempt to recoup some of their losses. Mapel offers them some guidance: Prepare for combat.
Additionally, a policy change released in July by California’s insurance commissioner, Ricardo Lara, may require all FAIR Plan policyholders to pay fees to the participating insurers. In order to modernize and stabilize the business, Lara and the insurance companies that manage FAIR reached an agreement that would allow insurers to collect money from policyholders in order to recover half of any assessed losses up to $2 billion.
According to a statement from Michael Soller, a spokesperson for the state Insurance Department, the new rule was a component of a package intended to protect the financial viability of the FAIR Plan, which is itself a part of a larger project Lara refers to as the Sustainable Insurance Strategy. However, it implies that all FAIR Plan policyholders—not only those impacted by the most recent wildfires—will probably have to cover a portion of the damage expenses they had previously believed the insurer would cover.
The way private insurance companies process damage claims following fires, hurricanes, and other disasters has long been a source of annoyance for property owners. However, an NBC News investigation revealed that many consumers interacting with the California FAIR Plan have had serious issues just getting compensated for losses.
Additionally, the plan doesn’t tell the public or even the state’s Department of Insurance much about how it operates. Additionally, according to a 2022 department study, the plan seems to have been profitable for the insurance companies who manage it in recent decades, which irritates policyholders.
Launched with good intentions
Although California has the biggest insurance market in the nation, some property and casualty insurance firms have experienced losses as a result of earthquakes, wildfires, and other natural catastrophes. Residents now depend more on the FAIR Plan as a result of certain insurers ceasing operations in the state or dropping clients in high-risk locations in recent years.
The plan, which solely covers damages from fire, lightning, internal explosions, and smoke, offers coverage to people who are unable to get insurance from private insurance firms. The maximum amount for residential policies is $3 million.
California’s FAIR plan, like those of some other states, was drafted by the state legislature and governor in 1968, during a time of civil unrest and burning metropolitan neighborhoods. In order to ensure that citizens in locations where private insurers had abandoned their property, states established what they called Fair Access to Insurance Requirements schemes as insurers vacated these neighborhoods.
The National Association of Insurance Commissioners reports that there are 33 FAIR plans in the United States.Private insurance companies operating in the states provide funding for the plans, and they split the earnings, losses, and costs of the FAIR Plan according to their respective market shares in the states.