California's Insurance Market Is Buckling

While demand for California's fire insurer of last resort FAIR Plan is surging, the company's response times are increasingly slower, leaving many homeowners guessing whether their policies would be renewed on time, according to recent reports.

As the risk of wildfire has increased in the Golden State in recent years, with extreme weather events expected to be more frequent and more severe due to climate change, so has the risk for homeowners and their insurers. Fearing a potential future deluge of damage claims, several private insurers have stopped offering new policies in the state—leaving Californians with less options when shopping around for fire insurance.

Many, especially those living in wildfire-prone areas, have looked at the state's FAIR Plan to fill this gap. FAIR Plan is a backstop insurer that steps in to cover California homeowners with basic fire insurance when no private insurer would do so. Created in 1968 following the brush fires of the 1960s, it's not a state agency nor a public entity, but it's backed by all property insurers licensed in California.

But the state's FAIR Plan, which underwent a software update in late October and has seen a huge surge in demand in recent months, has been plagued by delays, as reported by the San Francisco Chronicle. Homeowners told the newspaper that they have not yet received the renewal paperwork they would normally receive in the month of January.

A FAIR Plan spokesperson told the newspaper earlier this month that "quotations for some applications were delayed due to the high volume of applications combined with our recent system modernization."

Jay Zemansky, president of Sadler & Company Insurance Brokers, told the California newspaper that the delays are causing homeowners to remain uninsured while waiting for FAIR Plan's quotes.

Newsweek contacted the FAIR Plan and Sadler & Company Insurance Brokers for comment by email on Wednesday morning.

The California FAIR Plan specifies on its website that it considers itself as a "temporary safety net" for Californians struggling to find coverage, and not a permanent alternative to traditional insurers.

Homeowners are not really incentivized to stay with the FAIR Plan, as rates are higher than the ones they can find in the traditional market and additional plans are necessary to cover liability, theft and water damage. But finding an alternative within the traditional market has become difficult.

The number of FAIR Plan policies has grown more than 25 percent since the end of 2022, adding up to a total of over 350,000 policies now, according to the Chronicle.

Steve Tolle, who has lived with his wife in the foothills east of Sacramento since 2015, told Newsweek that State Farm covered his home for six years before letting him know they were not issuing new policies in his location.

Tolle got temporary coverage from Lloyds of London and then from Merced Insurance, which went under after Camp Fire in 2018 and left him "scrambling" to find a new policy. He got a new policy from Lloyds but four months in, he was told they would not renew his policy once expired.

"The only option after that was the Fair Plan, the State's insurer of last resort for fire, plus a wrap-around policy from Travelers," Tolle told Newsweek. "I believe the combined policies ran around $3,400 (2020). Since then, $3,800 (2021), $4200 (2022), $4,500 (2023), and $5,600 (2024)."

Fortunately, Tolle and his wife have been able to afford these increases, "but at some point, it will cause us to reassess if it keeps going up by $100 a month every year," he said.