California homeowners might soon face a new financial burden as the state struggles with its ongoing insurance crisis.
The California Department of Insurance recently unveiled a plan that could require homeowners to pay extra if the state’s insurer of last resort can’t cover losses from a major wildfire.
The FAIR Plan, which provides fire insurance coverage to those who can’t find it elsewhere, is at the center of this development. It’s backed by major insurers like State Farm and Allstate, who are on the hook if the plan runs out of money. Now, these companies might be able to pass some of that cost on to consumers.
Here’s how it would work: If a catastrophic wildfire hits, insurance companies would cover half the losses up to $2 billion. The other half? That could come from homeowners through a surcharge, if the insurance commissioner approves.
This move comes as California’s insurance market faces tough times. Big insurers are pulling back, citing growing wildfire risks and state-imposed limits on rate hikes. As a result, the FAIR Plan has become a go-to option for many, now covering over 419,000 properties with a risk exposure of nearly $400 billion.
HOME INSURANCE SHOCK
Allstate to increase home insurance rates for California customers by an average of 34.1%
The rate hike will take effect in November, and will impact 350,000 policyholders across Californiahttps://t.co/9kTdhnEF8u
— Lance Lambert (@NewsLambert) August 29, 2024
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Insurance Commissioner Ricardo Lara says these changes will strengthen the FAIR Plan’s finances. “We’re taking no chances,” he stated, emphasizing the need to ensure all future claims can be paid promptly.
I have been in Real Estate for 25 years. Insurance Companies are leaving California. Nationwide GONE, State Farm is not taking new policies, and if you are a day late they will cancel you. We have a huge problem. The STATE wants you to use the Cal Fair Plan which is not fair,… https://t.co/dQkphU2bhw
— Lori Mills (@LoriMills4CA42) March 24, 2024
But not everyone’s on board. Consumer advocates are crying foul. Carmen Balber of Consumer Watchdog called the plan “outrageous,” arguing that insurance companies, not homeowners, should bear the brunt if the FAIR Plan falters.
This development is part of a larger effort to overhaul California’s insurance market. The state is considering letting insurers use future climate data and reinsurance costs to set premiums, a significant shift from current rules.
For Californians, this could mean more financial uncertainty. Many are already struggling with skyrocketing premiums or inability to find coverage. Now, they might face the prospect of additional charges if disaster strikes.
Critics argue this approach unfairly shifts the burden to homeowners, while supporters say it’s necessary to keep the insurance market afloat in a high-risk state. Either way, it’s clear that California’s insurance woes are far from over.
As wildfires continue to threaten the Golden State, homeowners face a clear message: be prepared for more changes, and higher costs for insurance.
