CITY OF LAGUNA NIGUEL
CITY COUNCIL AGENDA ITEM
To: Honorable Mayor and Council Members
FROM: Tamara S. Letourneau, City Manager
DATE: February 21, 2023
SUBJECT: Letter to the California Department of Insurance, Insurance Commissioner Lara - Requesting Expansion of the California FAIR Plan
RECOMMENDATION
Staff recommends that the City Council authorize the Mayor to send a letter to the California Department of Insurance Commissioner Lara urging him to expand the California FAIR Plan.
BACKGROUND
In February 2019, the City Council adopted the City's Legislative Platform. The legislative platform is comprised of "Guiding Principles" and "Policy Statements," which provide an outline and means for summarizing the City's core legislative principles and positions on legislative matters.
In recent years California has experienced an increase in devasting wildfires. In May 2022, the neighborhood of Coronado Pointe in Laguna Niguel experienced the Coastal Fire, destroying twenty homes and damaging twelve others. An increase in wildfires across the state has led to many insurance companies not renewing or reducing existing coverage. In response, the California Insurance Commission created the California FAIR Plan, which provides basic fire insurance coverage for high-risk properties when traditional insurance will not. The California FAIR Plan is an association comprised of all insurers authorized to transact basic property insurance in California and was established by California law. This item was first mentioned on January 24, 2023, at the Special City Council Meeting Brainstorming Workshop by Council Member Oddo. This item was placed on the agenda at the request of Mayor Rains.
ANALYSIS
Currently, the California FAIR PLAN limits commercial coverage to $8.4 million or less.
This results in many of the City's Homeowners Associations and condominium developments being unable to obtain master policy coverage for communal infrastructure (such as landscaping, swimming pools, parks, gyms, clubhouses, parking facilities, etc.).
The letter to California Insurance Commission Lara (attachment A) urges him to use his authority under Insurance Code Section 10095 to order the California FAIR Plan to increase the coverage limit for the Commercial Property Program from the current level of $8.4 million to at least $20 million. Expanding the coverage limit will provide access to insurance for many Homeowners Associations and condominium developments that cannot obtain master policy insurance. Failing to increase the insurance limit may cause residents to lose their homes because the master policies for their development have not been renewed.
FISCAL REVIEW
There is no fiscal impact as a result of this report
LEGAL REVIEW
No legal review is required for this report.
CONCLUSION
Staff recommends that the City Council authorize the Mayor to send a letter to the California Department of Insurance Commissioner Lara urging him to expand the California FAIR Plan.
Tamara S. Letourneau Kevin X. O'Connor
City Manager Management Assistant
Attachments:
A. Letter to Insurance Commissioner Lara - California FAIR Plan
ATTACHMENT A
Letter to Insurance Commissioner Lara - California FAIR Plan
CITY OF LAGUNA NIGUEL CITY COUNCIL
30111 Crown Valley Parkway, Laguna Niguel, California 92677 ayor Sandy Rair Phone: (949) 362-4300 Fax: (949) 362-4352 layor Pro Tem Rischi Paul Sharm Council Member Stephanie Oddo
February 22, 2023
Commissioner Ricardo Lara
300 Capitol Mall, 17% Floor
Sacramento, CA 95814
Dear Commissioner Lara,
As you know all too well, California's homeowners' insurance market is experiencing severe Associations (HA) communies and residents of condominium evelopments in wiland unban interface (WUI) areas of the state are facing particular difficulty accessing coverage because of the high concentration of risk. Most of the City of Laguna Niguel is considered a WUl area, and parts of the City are located in a Very High Fire Hazard Severity Zone.
These common-interest developments often require master policy coverage for communal infrastructure (such as landscaping, swimming pools, parks, gyms, clubhouses, parking facilities, etc.) worth tens of millions of dollars, in addition to the individual dwelling policy that each resident may maintain for their personal residence and belongings. Residents of HOA communities across the City may become suddenly at risk of losing their homes because the master policies for their development have been non-renewed by their insurers.
Many of these communities have sought coverage in surplus markets, where they pay exorbitant premiums for the bare minimum level of coverage. When such coverage is available, many residents cannot afford the premiums. This is especially true for some of our City's most vulnerable residents, such as senior citizens who live on fixed incomes.
This is an untenable situation that extends beyond the City of Laguna Niguel, potentially affecting millions of California homeowners. Left unresolved, this insurance market failure could spiral out of control and further exacerbate California's housing crisis.
The California FAIR Plan was created to address precisely this type of insurance market failure.
However, the FAIR Plan's current Plan of Operations limits commercial coverage to less than $8.4 million, leaving many common-interest developments ineligible for coverage. As the City of Laguna Niguel continues to rebuild after the devastation of the Coastal Fire last May, we know that it is imperative for all homeowners to have the appropriate insurance coverage. Therefore, we urge you to take immediate action using your existing authority under Insurance Code section 10095 to order the California FAIR Plan to increase the coverage limit for its Division I Commercial Property Program from the current level of $8.4 million to at least $20 million.
We recognize that this is a partial and temporary solution that must be paired with continued statewide efforts to mitigate wildfire risk and improve the availability of insurance in the traditional marketplace. However, this action is urgently needed to prevent further displacement and protect homeowners throughout the state.
Sincerely,
Sandy Rains
Mayor
CC: Mayor Pro Tem Rischi Paul Sharma
Council Member Ray Gennawey
Council Member Kelly Jennings
Council Member Stephanie Oddo
City Manager Tamara S. Letourneau