May 27, 2022
The FAIR Clearinghouse Progam
What is the FAIR Clearinghouse Program?
When did Clearinghouse Start?
Who participates in the Clearninghouse program for FAIR?
How Does FAIR Clearninghouse Work?
What is the FAIR Clearinghouse Program?
The California FAIR Insurance program is required by Insurance Code 10095(i) “to develop…a clearninghouse program.” This program is for admitted insurers to “offer homeowners insurance policies to FAIR Plan policyholders.” The FAIR plan is only meant as a temporary policy. The general idea is that once consumers purchases a policy from FAIR that an insurer might go through the data and elect to make an offer of homeowners insurance to one of these policyholders. That is the general theory.
The Program Started June 5th of 2021. The Law required it Start July 1st of 2021.
Section 10095i requires three things:
- Reduce the concentration of policies and push the use of the regular insurance market
- Lower the quantity of policies in FAIR
- Provide the insurers the ability to take on additional business
About California FAIR Insurance:
The California FAIR plan is the state created insurer of last resort. Orgininally created in the 1960s as the insurer of last resort. Due to the California wildfire crisis numerous California families have no other insurance choices other than FAIR. It should be noted that FAIR insurance is an exceptionally limited named peril policy and should be paired with another insurance policy called a DIC, in most cases.
The FAIR plan is less than optimal insurance.
Recent Growth of FAIR:
According to the Mercury News, the number of new policies with FAIR have ballooned from about 23,000 in 2015 policies to about 78,000 in 2020. Renewals have grown too from 118,000 in 2015 to 164,000 in 2020. [All of these numbers are rounded.]
In essence this program was created to allow insurers to offer up home insurance policies to consumers that are already on FAIR. FAIR was never intended to be “the long term” solution for consumers. Due to the wildfire crisis in this state though – it has become that. Many consumers have gone on FAIR and never left. Our assumption is that the persistance or number of annual renewals is concerning to regulators.
Who Partipates in the FAIR Clearinghouse Program:
According to FAIR- the Clearinghouse program is available to “admitted insurers that have become Participating Insurers under the FAIR Plan Clearinghouse Program.” This wordy statement seems to mean that all insurers that would elect to participate in this program.
It would also seem that Admitted Insurers are almost expected to take part in this clearinghouse program. An admitted insurer is one that is regulated by the California DOI.
However the FAIR clearinghouse plan is limited to Admitted Insurers for only a set number of days. [Right of First Refusal.] According to a memorandum sent out by FAIR after “30 days” of policies being on ‘the platform’ nonadmitted insurers may also participate in offering up a homeowners policy to someone on FAIR.
Having nonadmitted or Surplus Lines insurers offering up policies to people on the FAIR plan probably will make the most sense due to the dynamics of this endevour. In our agency view it would be far more likely that a nonadmitted insurer might take on some of these policies.
This makes perfect sense in your opinion. When consumers are searching for hard to place home insurance, its typically a battle between FAIR and nonadmtted, not FAIR and admitted.
Therefore admitted insurers will get a first look at the policies followed by nonadmitted insurers. Nonadmitted also called Surplus lines policies could include those home policies from Lloyds of London. There are other nonadmitted insurers including Lexington, Scottsdale, HDI, Canopious, etc.
How Does the Clearninghouse Work:
Marindependent Insurance has little information on the internal workings of this program. Therefore we cannot really answer the question of how exactly does the Clearinghouse program work? In addition the program is so new, there is little to go on. There has also NOT been a lot of public information shared, The lack of communication regarding this program may [or may not] mean something.
Below is the little that we know:
One detail that is laid out is that the program seems intended to keep the broker or agent that set you up with FAIR in the first place. “Any offers of homeowners insurance through the policy’s listed agent or broker of record.” The exact details of how this would work could not be known.
Another known piece of information: It also states that “customer contact data will not be shared.” This statement or requirement is not at all clear to us. Any meaningful underwriting consideration would require the property address. Perhaps the FAIR program feels that simply sharing the address without the name would not be considered sharing “contact data.” Its unclear.
It is known that consumers can “Opt Out” of the FAIR clearinghouse program. The “form is to be completed by California Fair Plan (CFP) Policyholders, who do not want the CFP to share their personal information with Clearinghouse participating companies.” This form is available on the CFP website.
Lastly the program law does mention the term “homeowners insurance” and not a DP1 named peril policy. The term homeowners insurance, in the insurance world is typically associated with a HO3 or similar policy. Beyond that there is little information about details of what the “homeowners” policies might look like.
An open question exists about the term homeowners insurance though. Properties that are not owner occupied typically would not be offered a homeowners policy. Rather a Landlord policy or DP3 or the like. Therefore would these insurers that are offering up policies provide a Landlord Dwelling policy in place of the FAIR plan when there is a long term tenant in the property? I cannot say.
Will the California FAIR Clearinghouse Program Be Successfull?
It is impossible to say at this early stage if the Cal FAIR Clearinghouse plan will be successfull or a failure. Time will tell. We will await details from the California Department of Insurance or FAIR, whichever comes first. I suspect that the data may provide a clear answer as time goes on. Perhaps it may not.
[Special Note: the FAIR Clearinghouse program should not be confused with the FAIR planned implementation of FAIR CEA offers of Earthquake Insurance. This is an entirely different program.]
Full Text of California Insurance Code Governing FAIR Clearninghouse:
DIVISION 2. CLASSES OF INSURANCE [1880 – 12880.6], PART 1. FIRE AND MARINE INSURANCE [1880 – 10108.1]
CHAPTER 9. Basic Property Insurance Inspection and Placement Plan [10090 – 10100.2]
( Chapter 9 added by Stats. 1968, Ch. 574. )
10095.
(i) To reduce the association’s concentration and number of policies, and to encourage maximum use of the normal insurance market consistent with subdivision (c) of Section 10090, the association shall develop and implement a clearinghouse program on or before July 1, 2021, to help reduce the number of existing FAIR Plan policies and provide the opportunity for admitted insurers to offer homeowners’ insurance policies to FAIR Plan policyholders. An insurer that participates in the clearinghouse program shall sign an agreement with the association that sets forth the terms and conditions for the insurer to offer homeowners insurance through the policy’s listed agent or broker of record, if any. The clearinghouse program may include a provision to include nonadmitted insurers if admitted insurers have the first option.
All of this section is pulled right from the legalinfo site. We have just provided section i of 10095 and not the other portions of 10095. As discussed there is very little public information on this program. Just google it and you will see for yourself. 10095 is fairly long and deals with the set up of the FAIR plan program.
Why Would a Consumer Want to Get Off the FAIR Plan via the Clearninghouse Program?
FAIR insurance is not ideal insurance, even when paired with a great DIC plan. Certainly if an admitted insurer were willing to write you a homeowners policy in place of a FAIR plan, more than likely that would be a better option. And you may choose it. However it the offer came from a non admitted insurer – it may end up being better, based on the Premium or Coverages provided, but perhaps not.
Therfefore if a nonadmitted insurer were to make an offer the decision to switch may come down to the Premium, Total Coverages, Type of Coverages, etc. It will be situationally dependent. In these instances you should be in contact with your broker or agent and make an informed decision.
How many Insurance Policies have been Converted via the FAIR Clearinghouse Program?
At this time, we do not know how many policies have been converted by the clearinghouse program.
Final Thoughts on the FAIR Clearinghouse Program:
The Clearinghouse program is new. It is not fully clear how the program will work and progress. We have provided the most up to date information available as of May of 2022. Things can and will change. Most information on this post comes directly from FAIR. To reiterate the FAIR clearinghouse program was designed to attempt to alleviate some of the clients from the FAIR plan and place them into the private market.
Scott Johnson cited in Best Auto and Home Insurance here.
Speak with An Agent About FAIR:
Have you run out of options searching for insurance? Always speak with a licensed insurance agent in your jurisdiction whenever you are considering ammending, purchasing, or considering any type of insurance. The FAIR plan is complicated – I do not advise that consumers attempt it themselves.
