California Insurance Commissioner Dave Jones’s move to expand access to the state-sanctioned insurance market may create difficulties for private carriers, analysts are warning.
Jones signed the order, which makes it easier for Californians to qualify for the plan of last resort – The California Fair Access to Insurance Requirements Plan (FAIR) – earlier this week after a report confirming that last fall’s wildfires caused $1 billion in damages. The extensive loss has made it next to impossible for homeowners in high-risk fire areas to find coverage in the private market.
Specifically, the new order removes the requirement that consumers prove they were rejected three times for standard insurance before applying for coverage. It also increases the level of coverage from the FAIR Plan to include optional contents coverage and debris removal.
“The changes to the FAIR Plan included in this order will improve consumer access and the coverages available under the FAIR Plan,” Jones said in a statement.
Not all are celebrating the move, however. Insurance industry analysts have said that expanding access to the plan of last resort harms the private market’s ability to both properly address wildfire risk through actuarially sound rates and remain competitive.
“That’s a huge deal,” Ian Adams, senior fellow and Western regional director of the conservative R Street Institute, said of Jones’s order. “By making the coverage in the FAIR Plan better and by making it the case that you don’t have to be denied by others, it’s effectively making it very, very difficult for private insurance companies to compete.”
Insurance companies are pulling back from the area, however.
Allstate Corp. announced in 2007 that it would stop issuing new policies in California, and the number of policies filed with the Surplus Line Association of California jumped 30% between 2010 and 2014.
Meanwhile, demand is not slowing down. A 2014 white paper from the research firm Headwaters Economics found that high risk and high insurance premiums are not discouraging development in wildfire-prone areas.
“While homeowner premiums may be higher in the wildland-urban interface, reflecting the higher wildfire risk, it appears unlikely that they are high enough currently to be an actual deterrent to development,” the paper concluded.
