Newsom signs 5-bill package to stabilize California's FAIR Plan

Gov. Gavin Newsom signed a package of bills Thursday aimed at shoring up California's fragile property insurance market and the state's insurer of last resort, the FAIR Plan.

The bills--AB 1, AB 226, AB 234, AB 290, and SB 525--collectively seek to increase oversight and access to capital for the FAIR Plan. Much like similar insurers in other disaster-prone states, the plan has been used to cover many more homes than envisioned when it was created.

Defending the plan has become the central project for Insurance Commissioner Ricardo Lara since he took office in 2019. Lara sponsored two of the bills and provided key support for the other three.

"These crucial reforms to the FAIR Plan mark a significant step forward in protecting consumers, stabilizing the market, and enhancing transparency," Lara said in the news release sent out by Newsom's office on Thursday afternoon. "As we implement the largest regulatory changes in our market, the insurance company-run FAIR Plan must meet the challenge of addressing our insurance crisis."

The bill signings came at a strange moment in California's long and storied fire history. Early October rains mostly wiped clean the online fire incident map maintained by the California Department of Forestry and Fire Protection. In prior years, people might have breathed a sigh of relief when Autumn showers appeared to bring the state's fire year to a close.

But, as Newsom noted in the release, the most recent major fires the state is now coping with occurred last January, well outside the normal fire season. The Eaton and Palisades fires also leveled dense and affluent parts of Los Angeles County as well as forested areas, but not as much as the national forests in the rural far north. In February, the private insurers who back the FAIR Plan stepped in with a $1 billion bailout to keep it solvent.

AB 1 grew directly out of a list of 10 bill proposals Lara unveiled at a news conference with lawmakers in February. It requires the Department of Insurance to regularly update its "Safer from Wildfires" mitigation regulations to provide a financial incentive to homeowners and communities to engage in expensive fire-mitigation efforts. Lara also sponsored AB 226. It allows the plan to access additional capital by setting up its own lines of credit.

Consumer Watchdog President Jamie Court has been a frequent critic of Lara. But Court and his organization stayed neutral on most of these bills and supported some of them.

"I don't think there's anything negative here," Court said on Thursday. "But I also don't think there's anything earth-shattering."

Court said he supported AB 234, which adds two non-voting legislative representatives to the FAIR Plan governing committee to enhance oversight, though he said it did not go far enough. He also praised AB 226 for not putting taxpayers on the hook--at least not directly.

"None of this addresses the fundamental problem we have of the Fair Plan doubling in size from September 2023 until June 2025, which is the elephant sitting on top of the gorilla in the room," Court said.

According to data published on the plan's website, it insured 610,000 homes in June. This is up from 330,000 in September 2023. Over the same period, its financial exposure more than doubled, from $284 billion to nearly $650 billion.

SB 525 requires the plan to offer coverage for manufactured homes. AB 290 will require the plan to offer autopay options to customers and put in safeguards to prevent surprise cancellations. The bills encountered little opposition, with much of the legislative wrangling occurring over the plan's efforts to clarify some of the rules it would face under AB 290.

Meanwhile, Lara and the plan are engaged in extensive litigation. Consumer Watchdog sued Lara to block FAIR Plan insurers from making one-time surcharges to offset their losses from the January fires. Lara and policyholders have filed several cases seeking to force plan insurers to cover smoke damage from the fires.