Consumer Advocates Sue Over California Insurance Plan Funding Amid Wildfire Claims

Consumer advocates have initiated legal action against the California Department of Insurance, challenging the legality of a new funding mechanism for the FAIR Plan, the state's last-resort insurance program for high-risk properties. The FAIR Plan, which provides basic fire damage protection, has faced financial challenges due to increased claims following severe wildfires in Los Angeles. The state recently allowed the FAIR Plan to collect $1 billion from other insurers to cover these costs, a burden that may be passed onto homeowners across California. This lawsuit, filed by the advocacy group Consumer Watchdog in Los Angeles County, argues that this emergency collection lacks legal authority and unfairly socializes the financial burden onto homeowners while preserving profits for the insurance companies.

The lawsuit emerges amid growing concerns about California's insurance market stability. The number of policyholders relying on the FAIR Plan has surged, with more than 350,000 properties now covered, largely due to traditional insurers withdrawing from regions prone to wildfires. Critics, including the American Property Casualty Insurance Association, argue that blocking the ability to recover the additional costs could push the already fragile insurance market towards collapse. Meanwhile, major insurers like State Farm and Allstate have halted new policies in the state, citing rising risks and rebuilding costs. State regulators are attempting to address these issues by allowing rate increases reflecting the growing threat of climate change and expanding coverage in high-risk areas.