Should We Call It the California Unfair Plan?

The California FAIR Plan, the insurer of last resort for Californians struggling to find homeowners insurance, might be better renamed the “California Unfair Plan.” While intended to be a safety net, recent investigations and a comprehensive operational assessment 1 paint a troubling picture of an institution plagued by significant inefficiencies, questionable management practices, and poor customer service—issues serious enough to question whether the FAIR Plan is fair at all.

A recent CBS News exposé, California FAIR Plan Secrets: Why the State’s Insurer of Last Resort is so Secretive, has shined a glaring spotlight on the FAIR Plan, revealing tactics that many Californians might find far from fair. Notably, former employees reported pressure from management to undervalue claims deliberately. Such revelations would typically be shocking, yet in the context of FAIR Plan’s broader dysfunction, they are sadly unsurprising.

Digging deeper, the recent operational assessment commissioned by California Insurance Commissioner Ricardo Lara reveals systemic challenges. According to the assessment conducted by Rudmose & Noller Advisors, LLC, the FAIR Plan has nearly doubled its number of policies since 2018 yet remains critically under-resourced. Its employee-to-policy ratio stands alarmingly low compared to similar insurance entities in other states, resulting in substantial backlogs and subpar customer service. Thirteen percent of all phone calls from policyholders are simply abandoned. I wonder if the plan is to actively avoid its policyholders.

Adding insult to injury, the FAIR Plan’s financial oversight practices appear troublingly inadequate. The operational assessment highlights the FAIR Plan’s glaring lack of strategic direction, describing it as an organization operating without a coherent three-to-five-year strategy. Without such planning, FAIR Plan leadership is effectively steering a rudderless ship in stormy seas, placing thousands of policyholders at potential risk.

Transparency is seemingly an afterthought at the FAIR Plan. Unlike its counterparts in Texas, Louisiana, and North Carolina, the California FAIR Plan offers virtually no public visibility into its financial health, reinsurance strategies, or governance practices. Even its Governing Committee operates mostly behind closed doors, with meeting minutes not regularly disclosed. Californians deserve to know how an insurer managing policies for nearly a quarter-million households is functioning, particularly given its pivotal role as an insurer of last resort.

Further compounding these problems, the FAIR Plan has repeatedly found itself at odds with regulatory mandates intended to improve consumer protection. For example, Commissioner Lara’s orders to expand coverages—simple protections common in voluntary insurance markets—have repeatedly been challenged by FAIR Plan administrators. Instead of fulfilling its fundamental obligation to provide robust coverage to California homeowners, the organization has embroiled itself in litigation, prioritizing resistance over responsibility.

I spoke to insurance claims expert Sandra Moriarty about the claims handling of the California Fair Plan. California public adjusters and policyholders have been telling me horror stories about quick and irrational claims denials. She told me to read what its own managers said about how they performed. Astonishingly, the Operational Assessment Report noted that the Fair Plan’s claims management had this to say about its claims handling:

Management indicated the quality of claims handled by the non-field contract adjustors and managers was often not of good quality. This is consistent with data from the Department’s Consumer Services Division indicating that FAIR Plan’s consumer complaints involving claims increased significantly from 2017 to 2021.

What emerges from these revelations is a picture of a supposedly safety-net insurer seemingly more concerned with internal bureaucracy, legal maneuvering, not paying claims or paying as little as possible through various means rather than fulfilling its stated mission. For homeowners forced to rely on this plan, the irony is cruel: An organization named “FAIR” provides coverage that often feels anything but fair.

It’s time Californians demanded accountability from the California FAIR Plan. Transparent governance, adequate resourcing, and a clear commitment to consumer protection are not lofty ideals but fundamental expectations. Hopefully, significantly greater regulation and laws will cause those operating the California Fair Plan to have a change of heart and significantly improve policyholder service. Until then, perhaps the “California Unfair Plan” is a far more fitting name.

For those wanting to understand more about the California Fair Plan, I would suggest reading The California Fair Plan: A Guarantee Against Bankruptcy Amidst Los Angeles Wildfires, and Dan Veroff’s article, What Is the California FAIR Plan?

Thought For The Day 

“Never do business with someone who treats others poorly, for soon they will treat you poorly as well.” 
—Richard Branson

1 Operational Assessment Report, Cal. Dept. of Ins., June 15, 2022.