Reprinted by permission of CAI’s California Legislative Action Committee. For more information, visit CLAC online at CAICLAC.com.

Perspective: With historic property losses to California’s homeowners came an equally historic exodus of its property insurers – leading to 5x to 10x increases in the cost of property insurance – if same could be obtained at all.  Members of Community Associations Institute (“CAI”) California Legislative Action Committee (“CLAC”) have been petitioning the California Department of Insurance (“CDI”) to revise its guidelines, as well as helping to influence the CA FAIR plan in ways that will allow them to provide an insurance safety net to condominiums. Here is a report from the front lines:

Guest Blog By:

Kimberly Lilley, CIRMS, CMCA, EBP, of Berg Insurance Agency.

Edited by:

Mark Guithues, Esq, of Community Legal Advisors Inc, HOA lawyers.

On Wednesday, July 13, 2022, the CDI called a public hearing to determine whether California’s FAIR Plan has been fulfilling its role as “the insurer of last resort,” and to determine whether further actions are needed to revise the FAIR Plan to meet the expanding needs of California consumers.

What is California’s FAIR Plan?

Originally established by California law, the FAIR Plan is administrated by a board made up of the Mandatory Plan Members (insurance carriers “admitted” in the state) and some non-voting consumers. It was established so that homeowners and businesses who could not otherwise obtain commonly-available property insurance, still obtain basic property coverage.

The idea was to provide some sort of minimal financial assistance in case their structure burned down and needed to be rebuilt.  To clarify, this is not intended to be comprehensive long-term property insurance… but instead gap coverage until better options evolve in the free market to entice owners away from the FAIR Plan. 

The Public Hearing

During the approximately eight-hour meeting, presentations and testimony from the public indicated that: while the coverage is generally understood to be “basic” and the FAIR Plan commonly understood to be the “insurer of last resort,” customer service and accessibility should not be poor. 

For example, Tom Stinson, from Assembly Member Marie Waldron’s office, pointed out that because insurers are cancelling an increasing number of traditional policies, the FAIR Plan must be staffed properly to address a rising number of applications. Joe Pradetto, on behalf of the Riverside County Supervisor’s Office of Chuck Washington, quipped that the FAIR Plan has evolved from “insurer of last resort,” to the “Plan of the ONLY choice.”  El Dorado County Supervisor Wendy Thomas called the situation in her area a “state of crisis.”  Speaking to service, Amy Bach, co-founder of United Policyholders, stated that, “They need to become more customer-centric.” Or, more dramatically, “There seems to be no there, there.”

Responding to calls to expand coverage options available under the FAIR Plan, Stephen Young of the Independent Insurance Agents & Brokers of CA openly opposed the idea, stating that, “it’s like taping some fiberglass panels onto [a Pinto] and calling it a Corvette.” The FAIR Plan board members present insisted they did not want to do anything that would compete with the traditional insurance market.

But being able to get insurance AT ALL…..was what most folks wanted to discuss. The impacts are more nuanced than simply being personally responsible to pay for property destroyed in a fire.  An insurance broker in the Los Angeles area, Jose Olivares, stated, “IF YOU CAN’T GET INSURANCE, YOU CAN’T GET A LOAN.” Some condominium owners have spent the last of their savings to pay the increased insurance costs of their association, knowing that these increases may not only persist, but increase. Then, having come to the ugly determination they can no longer afford to live in their homes, they learned that their sale to a cash-only buyer will be much more difficult and net a far lower sales price.  Listening to testimony like this was devastating.

Those of us who place insurance for condominiums identify with their statements. Our clients, so often first-time or retired homebuyers, are facing huge hikes to premiums and/or a complete inability to obtain property coverage.  Nor is the “insurer of last resort” even a last resort to them, since most condominiums in California do not meet the underwriting requirements of the FAIR Plan. This is a crisis which neither they nor their families have the continuing resources to weather. Deputy Insurance Commissioner Bryant Henley of the CDI acknowledged as much in his initial presentation based on data received from the CAI-CLAC’s Insurance Task Force. 

Was it a success? Well, it was a packed hearing with hours of testimony, so yes, people were heard. From the view of CAI-CLAC’s Insurance Task Force, we were introduced to multiple allies who are willing to join in our work to make the FAIR Plan accessible to California’s condominium owners and their communities.

Next Steps

Now What? We will be continuing to work with the CDI and looking for ways to take the pressure off our communities, including giving our input on the new wildfire regulations they are working on. CAI-CLAC’s Insurance Task Force continues to meet with the Insurance Commissioner Ricardo Lara and the CDI on issues impacting common interest developments. In the meantime, here are some things you can do to help:

1.  Support your community’s actions to prevent large losses due to wildfire. Help your community become a Firewise community and do what you can to clear brush around your own home.
2. Join our fight to make our “insurer of last resort” really function as such.  Join CAI-CLAC in our efforts to educate legislators and the CDI.  Please subscribe to our email list and follow us on Facebook, Twitter and LinkedIn for real-time updates.
3. If your community association has been hit by massive and un-budgeted insurance increases, we want to know! Share your story and make your voice heard by visiting our Current Campaigns page.

You can find more information regarding the California FAIR Plan on their website here. If you have any questions, you can contact us at office@caiclac.com.