Will there be enough money to pay out California FAIR Plan claims from the LA wildfires?
- smaughan3
- Jan 11
- 1 min read
Updated: Jan 13
3 facts that should reassure homeowners on the future of California FAIR Plan
By Sheldon Maughan 01/11/2025
1. California FAIR Plan has purchased Reinsurance.
Reinsurance is a contract between an insurance company and a reinsurer that transfers risk from the insurer to the reinsurer. It's also known as "insurance for insurance companies".
According to the linked article below, they have access to up to 2.63 bn of reinsurance protection through a partially placed tower that tops out at $4.85bn of limit.
2. California FAIR Plan can use State Bonds to pay claims if needed
The FAIR Plan Stabilization Act (Assembly Bill 226) authorizes the Fair Access to Insurance Requirements Plan to request the California Infrastructure and Economic Development Bank to issue bonds if the FAIR Plan faces liquidity challenges in the event of a major catastrophe such as a wildfire. Legislation was recently introduced to put this into place.
This option to use bonds if needed has been discussed in prior months so the groundwork should be in place:
3. California FAIR Plan is backed financially by all private insurers licensed to write insurance in the state
In the event of a catastrophic loss, the FAIR Plan may “assess” its member insurance companies to make sure consumer claims are paid — something that has not happened in 30 years despite multiple major wildfires. This must be approved by the CA Department of insurance and has negative consequences for homeowners not in wildfire risk areas, so it should be a last resort.
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