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California Insurance Commissioner Ricardo Lara approved a California FAIR Plan request for a $1 billion assessment on admitted market insurers to cover claims from the Los Angeles wildfires.

The FAIR Plan reported it has paid more than $914 million to policyholders, including advance payments, to cover claims related to the Palisades and Eaton fires.

As of Feb. 11, the FAIR Plan received 3,469 claims for damage caused by the Palisades Fire and roughly 1,325 claims for damage caused by the Eaton Fire. The claims vary according to the type and amount of coverage and loss. Roughly 45% of the wildfire claims are reported as total losses, 45% reported as partial losses, and 10% as fair rental value only, which covers lost rental income due to a covered peril, according to the FAIR Plan.

A handful of major California insurers have reported losses in excess of $1 billion from the Los Angeles area wildfires.

Travelers Companies Inc. announced it will lose an estimated $1.7 billion from last month’s wildfires, which swept through the region and destroyed tens of thousands of homes earlier this month. The L.A. wildfires could result in insured losses of up to $40 billion, according to preliminary estimates.

The FAIR Plan’s Accounting Subcommittee and Governing Committee each recommended an assessment of $1 billion – the first assessment on insurers in more than 30 years, according to Lara – to enable the FAIR Plan to access additional available layers of reinsurance and maintain operations. In another bulletin, Lara said member insurers can request to recoup 50% of the assessment paid to the plan if the insurer can show its assessment payment was not subject to reimbursement through reinsurance or other means.

Generally, assessments are based on an insurer’s market share of dwelling and commercial policies from two years ago.

The FAIR Plan is also accessing reinsurance as a payment mechanism to help pay claims.

To date, it has met its $900 million deductible and has accessed $350 million in reinsurance. The FAIR Plan can access additional layers of reinsurance based on losses incurred and outstanding reserves up to a $5.78 billion limit, which includes varying percentages of co-reinsurance, similar to co-pays, subject to certain conditions. To access all layers of available reinsurance, the FAIR Plan is responsible for paying up to roughly $3.5 billion, including the $900 million deductible, and copays, according to the FAIR Plan.

The FAIR Plan was established by statute in 1968 as the state’s insurance safety net. Every property insurance company licensed in California becomes a FAIR Plan member as a condition of doing business in California.

The American Property Casualty Insurance Association (APCIA) said the assessments on the admitted market to help fund FAIR Plan wildfire claims means the state must explore other funding options.

“As wildfires grow in frequency and intensity, rebuilding the FAIR Plan’s reserves is critical for long-term stability,” said Mark Sektnan, APCIA vice president for state government relations. “To achieve this, the state must explore a diverse range of funding solutions—including catastrophic bonds, lines of credit, and other financial tools—to equitably spread risk and strengthen the FAIR Plan. For the FAIR Plan to recapitalize, they must be allowed to charge actuarily sound rates.”

Meanwhile, the Consumer Watchdog called the move a “homeowner surcharge to bailout insurers for FAIR Plan losses.”

“The FAIR Plan is in trouble because insurance companies dumped too many homeowners,” stated Carmen Balber, executive director of Consumer Watchdog. “That’s why insurers are on the hook for FAIR Plan losses. Homeowners across California should not have to pay a penalty to repair the damage from home insurance companies’ predatory behavior.

The group said it is exploring legal options to stop what it called a “bailout.”

Topics Catastrophe Natural Disasters California Carriers Wildfire Claims