California FAIR Plan policyholders to pay more while insurers are incentivized to re-issue policies in the state

The hundreds of thousands of homeowners who are now getting their insurance through the California FAIR (Fair Access to Insurance Requirements) Plan will soon be paying even more. The state is announcing an average increase of almost 30% for those already paying the highest rates. But industry observers say it may actually be a good sign for the state's insurance market.

The announcement came from the California Department of Insurance: Effective October 15, all FAIR Plan policyholders will see a change in their monthly bills. Industry expert Karl Susman said it was not unexpected.

"Which means some people are going to see plus-50%, some might see minus-20%, and it's going to average out across all policyholders of about 29.1%," he said.

That's going to include a lot of people in the Contra Costa County town of Orinda. About two years ago, when State Farm began shedding policies in California, it was the hardest hit place in the entire state. More than 1,700 policies were non-renewed and most of those people got kicked to the FAIR Plan. 

Local Coldwell Banker Real Estate agent Tom Stack said, back then, people trying to buy a home or keep a mortgage were stuck.

"We're surrounded by open space and trees and all this," he said. "So, it became a bit of a panic for people.  There were no solutions."

But he said that has changed a bit, and he's starting to see more options for those looking for insurance.

"So, solutions are popping up," Stack said. "There's a lot of private market options that are available now because people are finding a need and filling it."

As the cost of the FAIR Plan rises, it provides an incentive for insurance companies to begin writing policies again, albeit at a higher price.

"We're going to see the primary carriers back and writing those risks," said Susman, who owns his own insurance agency. "I'm already starting to see it now. But I think in general, as homeowners, we have to accept that we were down at the fifth or sixth least expensive state in the country for property insurance. Which is kind of wacky when you think about it, since we're the one that has the fires and the earthquakes and all sorts of other bizarre weather events. That's not going to get easier. That's just going to get tougher."

The new rules will allow insurers to charge based on actual risk, which means homes in a forested community like Orinda will likely pay more, but they can reduce that amount by home hardening measures. Alfonso Pating, director of insurance and risk for the Natural Resources Defense Council, said that's where the state can play an important role.

"The insurers have no incentive, essentially, to help homes mitigate the hazards," Pating said. "So, what can the state do about that? The state needs to have programs to help incentivize and help subsidize these hazard mitigation measures and home hardening measures. So, that's what needs to be done. Especially in areas that are in danger."

Which means the FAIR Plan could once again become what it was intended to be, the insurer of last resort, for those who cannot lessen the risk. And even a place like Orinda can once again have some options, even if they won't be as cheap as they once were. Stack said he already sees it happening.

"Some of the big players are trying to find a way to get back in again," he said. "They're redoing their underwriting; they're seeing what's where, what's happening. They're trying to find a way to get a piece of that market. Because when 1,700 homes are being struck from the rolls, well, who's going to handle those 1,700 homes? Ingenuitive companies are going to come up with the solutions."

Susman said several large companies have already filed to be part of the market again, and he expects people will leave the FAIR Plan as private insurers come back. He said he expects that to begin happening in the next few months.