California's Make it FAIR Act: Transforming Property Insurance in Wildfire Regions
California legislators are poised to implement transformative changes to the California FAIR Plan, the state's last resort insurer. These efforts address critical property insurance coverage gaps exacerbated by wildfire risks. This proposed overhaul is significant for insurance brokers as it impacts homeowners' policies in one of the United States' most complex markets.
Proposed Legislation: Assembly Bill 1680
Assembly Bill 1680, known as the Make it FAIR Act, seeks to enhance transparency, governance, and coverage within the FAIR Plan. Faced with private insurers withdrawing from wildfire-prone regions, the plan has rapidly expanded, affecting industry giants like State Farm, Allstate, Farmers, and USAA.
The legislation bases its reforms on a 2025 report from the California Department of Insurance, highlighting operational gaps within the FAIR Plan, issues exacerbated by events such as the 2025 Los Angeles wildfires. Insurance Commissioner Ricardo Lara noted that recent disasters have underscored the plan's weaknesses, and stressed that the Make it FAIR Act aims to enforce regulatory compliance requirements regarding claims processes.
Industry Reactions and Market Implications
Assembly Insurance Committee Chair Lisa Calderon argues that these initiatives address existing market imbalances. As private carriers retreat from high-risk markets, the FAIR Plan must evolve to offer reliable coverage options, adapting to the insurance industry's changing needs.
Legal experts, like Richard Giller from Greenspoon Marder, have voiced mixed reactions to the Act. Giller sees it primarily as symbolic, questioning its potential for significant enhancement of homeowners’ insurance options. Often, brokers must combine FAIR Plan policies with additional insurance, like Difference in Conditions from surplus lines, to overcome limitations in underwriting coverage like personal liability and living expense protection.
Enhancing Claims and Operational Framework
The Make it FAIR Act responds to enduring operational shortcomings, including unaddressed recommendations from a 2022 evaluation. Expert Joe Balice highlights the necessity of improving claims handling, particularly in large-scale disaster scenarios like smoke and ash damage from wildfires, emphasizing regulatory compliance in claims processing.
Balice further suggests that aligning FAIR Plan offerings with standard homeowners’ policies by adding features like higher coverage limits and additional liabilities could benefit policyholders. However, this could also result in increased premiums due to regulatory challenges in pricing catastrophic risks, such as wildfires.
Feedback on Legislative Changes
Industry reactions include concerns from the American Property Casualty Insurance Association (APCIA) about potential financial instability if expanding coverage outpaces pricing adjustments. While AB 1680 imposes no new direct duties on brokers, it underscores the need for industry professionals to stay informed of FAIR Plan changes to continue effective risk management and client service.