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Court: California Can Expand Insurance For Wildfire Areas

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A judge in California has ruled the insurance commissioner can order the “insurer of last resort” to offer more options for homeowners.

Speaker 1: 00:00 Homeowners in high-risk wildfire areas will soon be able to get more insurance coverage at a lower cost. According to a state court ruling this month, the decision expands the coverage California's so-called insurer of last resort must offer to consumers. The California fair access to insurance requirements plan or fair plan has been offering fire only policies to people who can't get traditional homeowners insurance because of wildfire risk. The ruling allows the state insurance commission to order the fair plan to include insurance coverage for things like theft and liability. Johnnie Mae is Amy Bach. She is executive director of United policy holders, a nonprofit that advocates for consumers. Amy, welcome to the program,

Speaker 2: 00:47 Maureen, thanks so much for having us on now,

Speaker 1: 00:50 California is incredibly destructive wildfires in recent years have led up to the creation of the fair plan. Tell us why it was needed.

Speaker 2: 01:00 The insurance industry, uh, is like any other, uh, profit oriented industry. And, uh, they have looked at wildfire risk in California and decided almost in a sort of a hurt like way, uh, that they are less interested in selling insurance to customers in wildfire prone areas of the state. So that meant that those residents suddenly had a big problem on their hands. Many of them came to our organization for help and to the California department of insurance and the bottom line. The fair plan is a very important plan and it's not perfect. And this ruling is trying to make it a little bit better.

Speaker 1: 01:43 Who makes up the fair plan? Insurers are the, are these private insurance companies?

Speaker 2: 01:48 Yes, primarily the bear plan is run by a governing board that is consists of mostly insurance company executives. Uh, there, uh, there's a, there's a public member. Um, the governor and the insurance commissioner has some role as well, primarily though. Uh, it's private insurance companies that call the shots on how the, their plan runs.

Speaker 1: 02:12 The fair plan stepped in to cover fire risk for many homes, but that's all the insurance the plan would provide. What did homeowners do for the other protections? A traditional insurance policy would give them,

Speaker 2: 02:25 They either went bare, didn't have insurance for things like, uh, you know, your dishwasher, hose breaks, and there's a flood. Um, the fair plan wouldn't pay for that, you know, the, uh, somebody trips on your property sues you the fair plan wouldn't wouldn't cover that. So either people went bare for those exposures, those risk exposures, or they could buy something called a difference in conditions, policy, and there hadn't been a whole lot of options for those, uh, difference in conditions, policies up until about a year or two ago when, uh, suddenly there was a demand in the market for more of these they're gap fillers that you can call them DIC policies, gap fillers, um, the consumer demand, more people were going into the fair plan, finding out that they didn't have full coverage and then wanting to, to fill the gap and then shopping for DIC. So while a couple of years ago, there would have just been a handful of DIC options. Now there are many most insurers, uh, started selling these gap fillers so that they could hold on to customers even after they went to the fair plan. And are

Speaker 1: 03:38 Those gap filler policies expensive?

Speaker 2: 03:40 Yes. You know, we're hearing, uh, quotes from anywhere from 3000 to as high as 20,000, depending on the size of the house and location. So

Speaker 1: 03:51 State insurance, commissioner, Ricardo, Lara ordered the fair plan association to broaden its coverage options. The fair plan refused. Why did they refuse

Speaker 2: 04:03 The insurers that run the program? Uh, really, uh, don't well, they don't really like the program that much, to be honest. Um, it's an involuntary program, so they have to participate. And I think, um, you know, insurance executives are always, you know, looking at the bottom line and I think they, they felt well, uh, we don't want the fair plan to be competing, um, in the, you know, with private options and they want to live at the fair plans, pay out exposure because, uh, they, some of that money comes out of their, uh, you know, out of their resources, the private insurers pet, you know, how they have a, um, proportional share in pain losses that the fair plan, uh, has to pay out on.

Speaker 1: 04:51 So the court ruled that the state has the authority to order a fair, to provide expanded coverage. How quickly could that expanded coverage go into an effect?

Speaker 2: 05:01 My guests, it's not going to be tomorrow. Um, my guess is that the fair plan may, uh, is likely to pursue all avenues of appeal and or reconsideration.

Speaker 1: 05:14 This is a victory for homeowners in high-risk fire areas, but in the larger picture, isn't the high cost of insurance. One of the factors that's meant to discourage people from living in high risk fire areas, considering that most of our wildfires are caused by human activity.

Speaker 2: 05:32 Absolutely. Maureen, there's no question, uh, that the, uh, that the risk of wildfires has increased and yes. Um, to a certain extent, the cost of your insurance relates to your risk to a, to a large extent, you know, that said there are a lot of people that are living that are getting charged, um, a lot more than they had been being charged for their home insurance that don't live in the highest risk areas. So we're, we're pursuing solutions on a number of levels. There's no question, you know, that there should be, um, there should not be new development, new building going on in Rui, in the wild land, urban interface at the same rate that it had been happening, you know, that we now know that, um, it's just, it's, it's just too risky for, um, for there to be large numbers of people living in areas that, that have a habit of burning. Uh, however, you know, this is, it's all a matter of degree, right. You know, somebody has been living in an area their whole lives, um, and, and suddenly, you know, they're, they're, they're being priced out because of the cost of insurance that doesn't sit well with people.

Speaker 1: 06:43 The damage figure for last year's wildfire season in California is estimated at $10 billion in property damage. How is the fair plan going to be able to handle losses like that now or in the future?

Speaker 2: 06:57 Well, they do have the full, um, financial strength of all the participating insurers. You know, it's actually, technically it's an association, the fair plan of, uh, of multiple insurance companies. So each one of them has their own financial resources, uh, and their own re-insurance, you know, so the fair plan, their financial strength, uh, has, uh, has to meet state standards. And so, you know, it's, as, as things stand now, you know, the num the fair plan can handle the number of customers that they've got. At least they should be able to, uh, if their policy count continues to grow at the same rate it's been growing, the coverage is going to continue to be expensive. Uh, and the state may need to come up with some more creative solutions to, to making sure that the fair plan has all the, the reserves and the financial capacity that it needs to meet its obligations.

Speaker 1: 07:58 And I've been speaking with Amy Bach, she's executive director of United policy holders, a nonprofit that advocates for consumers. Amy, thank you very much. Thanks so much.

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Maureen Cavanaugh and Jade Hindmon host KPBS Midday Edition, a daily radio news magazine keeping San Diego in the know on everything from politics to the arts.