Commentary: Cal Fair Plan snippets

My phone is again ringing about fire insurance. Well, it always rings about such things, but the calls and questions seem to be picking up lately. With the increase in calls, I thought I would pen some insights about the infamous Cal Fair Plan. Due diligence requires I disclose I own an insurance agency, possess California Insurance License 0L34249 and am a licensed producer for Cal Fair. It is no secret insurance companies have been scaling back on writing fire policies in many parts of California and indeed, the country. According to the Congressional Research Source, the number of wildfires have increased 15.8 percent from 2018 to 2022. Without a doubt, newsworthy wildfires have obliterated entire neighborhoods and towns in the last decade. Insurance companies have sat up and taken notice. Many are cancelling longtime customers while some companies are pulling out of certain areas altogether. The companies are not actually leaving California, as there is too much business here. What they are doing is refusing to write the fire portion of the coverage. The reason is simple: With the increase in devastatingly large fires as global temperatures rise, they can no longer properly assess their risk profile when it comes to fire losses. Although insurance companies may be able to take a few houses burning down, a 1,000-house hit can cause devastating damage to company balance sheets and worse, drive them into severe financial duress, if not bankruptcy. As a result, many of the household name insurance companies have deleted fire from their policy coverage, along with some related coverage. Enter Cal Fair, which stands for "California Fair Access to Insurance Requirements." Simply put, the department of insurance wants property owners to be able to insure their investment. But since many insurers cannot accurately predict the risk to them from an ever-increasing number of devastating wildfires, many will no longer include fire in their coverage. Cal Fair was established in 1968 to supplement basic home coverage and now is mainly used for this wildfire risk. Cal Fair, contrary to what some believe, is not a state-owned company. Cal Fair is simply all the insurance companies that are licensed to do property insurance business in the state, slammed into one big ball of a company. Being an entity comprised of many massive companies, it might be said Cal Fair may be one of the most financially secure insurance companies on the planet. I get a lot of complaints about the price of Cal Fair plans. I answer, it's not the orneriness of Cal Fair that causes high premiums, it's the risk of fire in your area. I add to that, they may be the only company willing to insure you, and if you don't like it, don't buy it. Not much of a choice I know, but if you're stuck in a hole and only one guy throws you a rope, you don't complain. Either that or don't take the end of the rope. In general, you will get fire insurance from Cal Fair. After all, that is what they are there for. Insure your home when no one else will. Simply put, every insurance agent will first attempt to place you with a one-policy-covers-all company/policy. If the agent can't place you outside of Cal Fair, that is where they will go next. Remember, Cal Fair is last-ditch fire insurance when you can't find it anywhere else. If you do get your fire insurance through the Cal Fair Plan, you'll need to purchase a "Difference in Conditions" (DIC) policy written by a regular insurance company to cover other common perils like theft, water damage, falling objects, liability and power surges. While many home and business owners, neighbors and friends are getting cancellation notices in their mail box, don't panic if you get one. Many agents can accommodate your insurance needs by writing both policies, the fire portion through Cal Fair and the DIC with another insurance company. Although it is never ideal to have two policies instead of one, we do what we must. The other option is to not insure, and I have spoken to more than a few people who elect to do just that, forgo their fire insurance. I will close today's musing by just saying, I wouldn't do that if I were you. This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. His insurance agency is BAP INC. that can be contacted at 530-559-1214. Cuniberti was voted best financial advisor in the county 2021.