Insurers to Be Assessed for Fire Damage

Faced with claims of well over $100 million from the wildfires of the last two weeks, the California Fair Plan will call on its 280 insurance company members to replenish its depleted reserves--the first time in the organization’s 25-year history that it has been forced to make such a cash call.

The Fair Plan, the industry-sponsored insurer of last resort for homeowners in brush-fire-prone areas, was easily the hardest hit of any insurance entity by the fires that swept the San Gabriel and Santa Monica mountains. It had no losses in the Laguna Beach blaze because that was not in a designated brush-fire zone.

As of Monday, with claims still coming in, the Fair Plan had set aside reserves of $98 million for the Calabasas/Malibu fire alone, plus $23.5 million for the previous week’s Altadena fire, spokesman Mike Harris said.

Overall, the fires are expected to produce insured losses of $500 million to $700 million, by one industry estimate. That doesn’t count losses to public property or the multimillion-dollar costs of fighting the fires.

State Farm, California’s largest homeowners insurer with about 25% of the market, on Monday upgraded its loss estimate to between $125 million and $135 million for all of the fires. That includes about $45 million for the Calabasas/Malibu fire. Farmers Group estimated its total claims at $64.5 million. Allstate’s estimate is $57 million, not counting Calabasas/Malibu.

Nevertheless, homeowners insurance rates should not rise as a direct result of the fires, Deputy Insurance Commissioner William Ahern said Monday.

Insurers have had good returns on their investment portfolios recently, he said, and many have moved aggressively to persuade customers to increase their coverage. Upgraded coverage results in higher revenue to the companies without formal rate increases, Ahern said.

In fact, the state Insurance Department has begun an investigation of the top 20 homeowners insurance carriers in California to determine whether they overreacted to the disastrous Oakland Hills fire of 1991 by over-insuring some customers, Ahern said.

The industry was widely criticized for its handling of claims from the Oakland blaze. Under political pressure, many insurers upgraded their coverage after the fact, paying customers more than their policy limits.

Eager to avoid a repetition, insurers have tried to make sure that policy limits closely reflect actual home values.

John Snyder of A.M. Best, the insurance rating agency, said the recent fires will increase the urgency of that process. “Companies are going to be very adamant about inspecting the properties and making sure the estimates are up-to-date for the most current building costs,” Snyder said.

The Fair Plan will ask its members to contribute cash based on their market shares in the fire and homeowners lines. Some insurers, such as State Farm, which voluntarily insure homes in brush-fire zones, will have their levies from the Fair Plan reduced to reflect such coverage.

Harris said it is uncertain how much money the Fair Plan will ask its members to pay.

Although the Fair Plan was created by state law, no public money is at risk.

Fair Plans--”Fair” stands for Fair Access to Insurance Requirements--were created around the country in the wake of the 1965 Watts Riots. The plans were an outgrowth of federal legislation aimed at providing insurance for businesses and homes in the inner city.

The California Fair Plan was established in 1968. Besides providing coverage in the inner city, it was designed to insure homes in fire-prone areas that individual carriers considered too risky to cover.

Until now, the Fair Plan has always had enough of a balance between good years and bad to keep its reserves at an adequate level to cover claims and administration. Even last year, when it paid out more than $40 million in claims from the Los Angeles riots, there was still enough of a surplus to avoid a cash call.

However, “there’s no way we can absorb $100 million,” said Stuart Wilkinson, Fair Plan general manager.

Times staff writer Don Lee contributed to this report.

* ESCAPING DISASTER

Luck and foresight enabled some carriers to suffer only modest losses from the Southland fires. D2.