When a massive wildfire tore through Sarah Mapel’s Northern California neighborhood in the late summer of 2020, she considered herself lucky. Firefighters saved her historic home, built in 1898, using water from a nearby creek.
But making her ash- and toxin-filled home safe to live in again turned into an epic, yearslong legal battle with her insurer: the California FAIR Plan Association. An insurance pool created by state officials in 1968, the plan offers coverage to residents and business owners in wildfire-prone and other vulnerable areas who cannot obtain coverage from private insurers.
Mapel’s problems with FAIR Plan began when her insurer sent her a $1,151 check for a repair estimate on her home that exceeded $50,000, documents show. For months, other challenges and frustrations followed.
Thousands of victims of the costliest wildfires in Los Angeles’ history could soon face the same maddening process and meager coverage. More than 3,600 policyholders in Altadena, Pacific Palisades and other parts of greater Los Angeles have submitted claims to the FAIR Plan to try to recover some of what they’ve lost, it said in a Friday update. Mapel has some advice for them: Get ready for a fight.
In addition, all FAIR Plan policyholders may have to pay fees to the participating insurers thanks to a policy change issued last July by Ricardo Lara, California’s insurance commissioner. Under a deal struck by Lara and the insurance companies that run FAIR, insurers will be able to collect money from policyholders to recoup half of any assessed losses up to $2 billion as a way to “modernize” and “stabilize” the operation.
The new rule was part of a package designed to safeguard the FAIR Plan’s financial stability, itself part of a broader initiative Lara calls the Sustainable Insurance Strategy, said Michael Soller, a spokesman for the state Insurance Department, in a statement. But it means all FAIR Plan policyholders, not just those affected by the recent wildfires, will likely pay some of the damage costs they assumed the insurer would shoulder.
Property owners have long expressed frustration with how private insurance companies handle damage claims made after fires, hurricanes or other catastrophes. But many consumers dealing with the California FAIR Plan have experienced significant problems simply getting paid for losses, an NBC News investigation found.
The plan also discloses little information about its operations to the public or even the state’s Department of Insurance. And a 2022 assessment by the department shows that in recent decades the plan appears to have been profitable for the insurance companies running it, a situation that frustrated policyholders find galling.
Sarah Mapel in her San Francisco home on Jan. 17. Hiram Alejandro Durán for NBC News
Launched with good intentions
California is the largest insurance market in the country, but wildfires, earthquakes and other natural disasters have generated losses for some property and casualty insurance companies there. In recent years, some insurers have dropped customers in high-risk areas or stopped doing business in the state altogether, forcing residents to rely increasingly on the FAIR Plan.
The plan provides coverage for those who can’t obtain insurance from private insurance companies and only covers losses caused by fire or lightning, internal explosion and smoke. It caps residential policies at $3 million.
Like some other states’ FAIR plans, California’s was created by the governor and state Legislature in 1968 when urban areas were on fire amid civil unrest. As insurers fled these neighborhoods, states set up what they called Fair Access to Insurance Requirements plans to guarantee that residents in areas abandoned by private insurers could protect their properties.
There are 33 FAIR plans across the U.S., according to the National Association of Insurance Commissioners. The plans are funded by private insurance companies doing business in the states, and those companies share in FAIR Plan profits, losses and expenses in amounts proportional to their market shares in the states.
First the fires, now the fight: Flaws in California insurance plan will test L.A. homeowners
