California homeowners may soon face higher insurance bills as insurers move to pass on wildfire-related surcharges, sparking widespread backlash and legal action.
According to a May 13 report by the Los Angeles Times, the controversy centers around the California FAIR Plan, a state-managed fire insurance pool. After the Los Angeles-area wildfires led to over 28,000 claims, the FAIR Plan imposed $1 billion in additional assessments on participating insurers. This accounts for 25% of the plan’s total $4 billion payout, the report said.
Now, more than 10 insurance companies, including AAA, Mercury, Amica, and Western Mutual, have filed requests to charge policyholders an additional $6 to $60 annually over two years, the report noted.
Insurers Argue Surcharges Are Necessary to Stabilize Market
Insurers argue these surcharges are essential to prevent the collapse of California’s insurance market. Denni (Harvey) Ritter, Vice President of State Government Relations, Western Region at the American Property Casualty Insurance Association (APCIA), stated, “For consumers, it may only be a few dollars, but for insurers, it’s a matter of survival.”
However, consumer advocacy groups are criticizing the move. Consumer Watchdog warned that the proposed fees could climb into the hundreds of dollars for owners of high-value homes. The group emphasized that, given the steep increases in standard premiums, an extra $50 fee still represents a significant burden for many homeowners.
Lawsuit Challenges Legality of Surcharge Orders
The organization has also filed a lawsuit against California Insurance Commissioner Ricardo Lara in Los Angeles County Superior Court in April, challenging the surcharge’s legality.
The complaint argues that the 1968 FAIR Plan law does not authorize the insurance department to impose such fees on participating insurers. It claims the decision to levy the charges via administrative order, rather than through legislative action, is unlawful.
Michael Soller, spokesperson for the California Department of Insurance, said the department is thoroughly reviewing the scope, amount, and duration of the surcharge requests to prevent excessive charges.
Meanwhile, separate tensions are mounting over State Farm’s handling of wildfire insurance claims. The insurance department is reportedly considering a formal investigation following complaints from over 200 wildfire victims during a May 3 online meeting. Attendees voiced frustrations over delayed payments, postponed toxic substance tests, and inadequate repair and rebuilding compensation.
Commissioner Lara acknowledged the concerns and indicated the department may initiate a service quality review of insurers’ claims handling and response practices.
BY BRIAN CHOI [choi.inseong@koreadaily.com]
