PD Editorial: Finding a fix for home insurance

News item: Enrollment is surging in California’s stopgap homeowners insurance program.

The so-called FAIR Plan offers bare-bones coverage at a high price, but it’s the only option for a growing number of property owners, even in parts of the state with low risk of wildfires.

In February, it added 15,000 new policyholders, for a total of about 375,000 — more than double the amount from 2018.

That isn’t good news for anyone — even the FAIR Plan.

“We’re one of the largest writers in the state right now in terms of new business coming in,” the FAIR Plan Association’s president, Victoria Roach, told an Assembly committee last week. “As those numbers climb, our financial stability comes more into question.”

The crisis in California’s homeowners insurance market shouldn’t be a revelation to anyone who owns a home, especially in rural Sonoma County and other fire-prone areas of the state. But the instability of the state’s insurer of last resort may be a surprise. Regardless, it underscores the need for action by lawmakers or the elected insurance commissioner.

Mortgage lenders require borrowers to maintain homeowners insurance, and even if a home is paid off, it would be risky to go without coverage.

The FAIR Plan — for Fair Access to Insurance Requirement — is funded by insurers doing business in the state. But the number of insurers is dwindling, and the FAIR Plan’s exposure to catastrophic losses is growing — $311 billion at the end of 2023, a sixfold increase since 2018.

The growing liability is one of the reasons insurers are leaving California, so reducing the FAIR Plan’s exposure is essential to stabilizing the market.

Last week, Insurance Commissioner Ricardo Lara proposed regulations that would allow insurers to raise premiums to account for projected losses from future wildfires, terrorism and floods, replacing a regulatory structure that based rates on losses from past disasters. In turn, insurers would be required to cover more homes in areas at high risk for fires, easing pressure on the FAIR Plan and allowing more people to obtain conventional insurance.

Insurers contend the current system ignores the growing threat of climate-driven disasters and leaves them underfunded and overexposed. Consumer groups counter that reforms like those proposed by Lara have done little to stabilize homeowners insurance rates in Florida.

Lara’s proposal is the subject of an online workshop on April 23. We’re hoping for more clarity from supporters and opponents about the likely effect on premiums and availability of coverage. To register for the workshop, click here.

But the discussion shouldn’t be limited to how much higher premiums should go. Polices that could ease the blow of higher rates, including premium discounts home-hardening and requiring insurers to risk rating models used for individual properties. Insurers need stability, and ratepayers do too.

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