CDI and FAIR Plan Reach Agreement to Increase Commercial Coverage Limit to $20 Million

SACRAMENTO, CA, April 4, 2023--In a stopgap measure that will provide at least some relief for HOAs and other commercial property owners, the California Department of Insurance (CDI) and California FAIR Plan (CFP) agreed last week to increase its coverage on commercial property to $20 million.


The changes, when finalized later this Spring, will increase the combined coverage limits for the FAIR Plan, under its Division I Commercial Property Program, from $8.4 million to $20 million per location and, under its Division II Businessowners Program, from $7.2 million to $20 million per location.


Coverage Limits Applied per Location


However, CFP will continue to apply its coverage limits per location, not necessarily per building.  For a homeowners’ association, for instance, that would mean the $20 million cap would be applied not to each building in a condominium complex, but to all buildings within the HOA at that location.


Here is the agreement signed by Commissioner Ricardo Lara and FAIR Plan President Victoria Roach 


The new coverage limits will take effect after the FAIR Plan submits a new rule filing for approval by the Department of Insurance. The FAIR Plan has 60 days to submit a rule filing to the Department, with the goal of the Department approving these coverage limit increases, meaning coverage could be available in the fourth quarter.


Homeowners’ associations had been calling for legislation to require CFP to offer substantially higher coverage.  In an oversight hearing conducted by the Assembly Insurance Committee last month, Roach testified that the Plan could not offer higher coverages without facing insolvency—in light of the refusal of the Commissioner’s office to rule on a significant rate increase request, and to credit CFP for substantial reinsurance costs designed to spread potentially catastrophic wildfire risks.


IIABCal General Counsel Comments


IIABCal General Counsel Steve Young said brokers and agents welcomed the agreement, and hope it opens the door for resolution of other conflicts between CDI and CFP, including its need for significantly higher rates and the litigation over the Commissioner’s demand that the Plan begin offering full coverages, rather than the basic property insurance coverages it was created to write.


In November 2021, Commissioner Lara ordered the FAIR Plan to increase its combined commercial coverage limits for the first time and, in November 2019, he ordered the FAIR Plan to increase its personal dwelling coverage limit to $3 million, doubling it from where it had been for two decades.


IIABCal Opposes “Discriminatory” SB 263


The National Association of Insurance and Financial Advisors (NAIFA—California) this week joined IIABCal in officially opposing SB 263, a bill that would require agents selling annuities and similar products on commission to fully disclose all compensation but would not impose similar requirements on other sales channels.


SB 263 Would Have Imposed Radical Limitations


As originally introduced, SB 263 would have imposed radical new limitations on the sale of annuities and similar life insurance products. It would have created a “fiduciary relationship,” as a matter of law, and permitted private lawsuits whenever an agent or broker was accused of failing to act in a customer’s “best interests.”   


Amendments have been drafted, though not yet incorporated into the bill, that would remove much of the most objectionable provisions, except one:  requiring agents selling such products to disclose all compensation paid—but only if they are paid by commission. IIABCal supports an Annuity Suitability Model Act adopted by the National Association of Insurance Commissioners (NAIC) and enacted into law in over 30 states.


IIABCal's Letter of Opposition


“It recognizes that producer compensation is one relatively minor component in the overall cost of an insurance policy,” IIABCal wrote in its letter of opposition, “that the existence of multiple delivery systems and compensation models make an “apples-to-apples” comparison of producer compensation impossible, and that consumers should evaluate total premium cost, along with any number of other factors before purchasing any insurance policy or product.  As such, the Model Act requires disclosure of the fact of compensation and avoids discriminating against delivery systems.”


Compensation Disclosure Would Apply Only to Commissioned Agents


SB 263 only applies to insurance agents who are paid on commission. The bill thus appears to discriminate against independent agents who own their own businesses and pay all their own overhead and expenses. This is because independent agents are generally paid higher commissions to offset their cost of doing business, as compared with other sales systems.


SB 263 appears to ignore employee agents who are paid a salary, provided office overhead and support services, employee benefits, employee benefits, and sales bonuses or incentives. The bill also creates an unlevel playing field as compared to captive insurance agents because captive agents are generally paid a lower commission because of the financial support provided by the insurer.


IIABCal members in Senate Insurance Committee districts received a Grassroots Call to Action, urging them to email their Senator to express opposition to the bill, which is scheduled to be heard in that committee April 18.  To see a sample letter, click here.