Since the LA fires on January 7, much more attention has been put on the California FAIR Plan, the state’s fire insurer of last resort. Once thought of as a small, rarely-used backstop, the plan is now one of the largest in the state. Yet, it’s also one of the most secretive insurers in California, able to withhold more information than even the private companies that run it.
This may not have mattered much when the plan was small and needed little oversight. But new rules passed last September mean that anyone with property insurance will now pay to cover the FAIR plan’s debts.
“The reason all of us should care is that we’re now on the hook, all of us, in case the FAIR Plan runs out of money,” said Dave Jones, California’s Insurance Commissioner from 2011-2018.
The plan did run out of money and, on February 11, current Insurance Commissioner Ricardo Lara signed an order authorizing the California FAIR Plan to collect $1 billion from its member companies — half of which can be passed on to ratepayers.
A CBS News California review of public records and data found:
- The California FAIR Plan is one of the only home insurers in the state that doesn’t publicly disclose basic financial data.
- Unlike FAIR Plans in many other states, its board meetings, minutes, audits, and reports are secret.
- The plan’s operators publicly reveal who is on the FAIR Plan’s 9-member Executive Governing Board.
- A Department of Insurance audit found California’s FAIR Plan is far more secretive than FAIR plans in other states.
- The Department directed the board to increase transparency and accountability. That was in 2022, and little has changed.
- While the FAIR plan does post some point-in-time data and statistics online, its board chooses what to disclose and when.
Growing pains
Often misidentified as a “state-run” plan, the California FAIR Plan has only a loose connection to the government. It operates as an independent non-profit and is run by a “Governing Committee” mostly consisting of people from the insurance industry. In most years, the plan operates like any other by collecting premiums from customers and paying claims from its revenue and reserves. But, when times are good and the plan runs a surplus, the committee can decide to “disburse” some of those funds back to the member companies like in a stock dividend. If the plan runs out of money, it can request additional funds from its member companies in what’s called an “assessment,” as it did last month.
The last time the plan issued a disbursement was in 2017, right before the historic Tubbs and Thomas fires. At that time, the plan was still small and not yet a major player in fire insurance.
“The FAIR Plan used to be an insurance policy mostly in urban areas that would cover your mortgage,” said Michael Wara, who researches climate and energy policy at Stanford University.
He said the original purpose was never to cover fire catastrophes but to cover inner city homes that had trouble finding coverage after the Watts riots in 1965. California is one of about 30 states nationwide that have FAIR plans. Each has its own rules and governing structure.
Sometime after 2017, said Wara, the FAIR Plan began to transform into something different.
“It’s been changed into something that’s much more like a normal insurance policy that will allow you to rebuild after a catastrophe,” he said.
A spate of non-renewals by major insurers, including State Farm and Farmers, fueled the FAIR Plan’s rapid growth. According to the latest data, the California FAIR Plan is the sixth largest in the state and is on track to grow even larger.
Just a few months before the LA Fires in January, Helen Meisel in the Pacific Palisades received a strange letter from State Farm, her home insurer. As she feared, it was a notice of non-renewal — but only partially.
“Fortunately,” the letter read, “State Farm is keeping your policy, but will exclude fire insurance.”
Now she had two policies: The California FAIR Plan for fire and State Farm for everything else. She said the total cost was more than $6,000.
“I’m paying two policies,” she said, “more than double what I was paying before.”
What we don’t know
Along with its unique status as the insurer of “last resort,” the California FAIR Plan also enjoys protection from Prop 103, the main law governing California’s notoriously strict insurance regulation. While most every other private insurer in the state must publish regular financial statements, as well as detailed justifications for its rate increases, the California FAIR Plan discloses only the rate filings. That means the details of how much money it has and how it spends it are effectively secret to the public unless the plan chooses to disclose.
Unlike similar plans around the country, such as the Florida Citizen’s Plan, the California FAIR Plan’s governing meetings and minutes are not public. The plan won’t even reveal the names of the governing committee members.
“I’m a pretty well-known insurance consumer advocate,” said Amy Bach, Executive Director of United Policyholders. “People say to me, Amy, who’s on the FAIR Plan governing board? I can’t find that information out. Like, it’s not public.”
Jones — California’s former insurance commissioner — recalled that he tried to send a deputy to attend the FAIR Plan meetings. But when his deputy arrived, the FAIR Governing Committee went into a closed-door “executive session.”
“He showed up, they convened the meeting, and then they went to executive session and left the meeting,” said Jones.
Lara, the current insurance commissioner, is backing a bill that would add two representatives from the legislature to the committee. But it’s not clear how much that would increase transparency if those members are excluded from any real decision-making just as Jones’ representative was.
While the FAIR Plan posts some select data and statistics online, its board chooses what to disclose and when. Prior to the LA fires, the last time the California FAIR Plan disclosed significant financial information was before the California State Assembly Insurance Committee more than a year ago. President Victoria Roach verbally described the plan’s cash flow and reinsurance structure — leading Representative Jim Wood to remark, “If this were on Wall Street, I’m not sure you’d be able to get away with this.”
The latest FAIR Plan bylaws seem designed to increase transparency on this front. The plan would be required to issue new reports that include details such as policy counts and total written premiums in distressed areas. However, this all resembles the data currently available on the FAIR Plan’s website and fails to include any data about surplus cash or reinsurance.
Insurance companies take out their own insurance to help manage particularly large disasters such as the LA fires. In 2022, a Department of Insurance audit found that the California FAIR Plan carried far less reinsurance than comparable plans in other states. Experts told CBS News that this leaves the FAIR Plan significantly more exposed to big disasters.
“What that tells you is the FAIR plan is banking on the ability to assess,” said Wara. “They’re not charging the high-risk people enough, and the plan is to just assess on everybody else.”
The department’s audit had a similar conclusion: “The FAIR Plan believes that its reinsurance needs are much different than a traditional market insurer since it can assess its insurance company members to fund liquidity needs.”
Prior to the latest rule changes, an assessment would have been a relatively private affair between the FAIR Plan and the insurance industry. But now, every ratepayer in the state is paying as well.
For Rex Frazier, a lobbyist for the insurance industry, a lot of this amounts to growing pains.
“Right now, this is a private organization that has come into prominence and is growing in an obviously haphazard way,” said Frazier.
When asked whether he thought the public should be privy to its meetings and financial statements now that the public is on the hook, he replied, “You can understand how someone would have that opinion. But that’s not the law today.”