Oregon FAIR Plan Association

Some property is hard to insure. An older building, a property in a high-risk area or one with a poor loss history may be turned down by insurers in the normal market. A residual market is a mechanism that makes basic coverage available to owners who cannot get it from insurers voluntarily. For property in Oregon, that mechanism is the Oregon FAIR Plan Association.

Residual markets: Oregon FAIR Plan Association (ORS 735.005, 735.015, 735.045)

Creation and membership (ORS 735.045)

The Oregon FAIR Plan Association was created by statute (ORS 735.045), in 1971. Every member insurer must become and remain a member of the Association as a condition of its authority to transact insurance in Oregon.

A member insurer is any insurer authorized to transact insurance in Oregon that writes any kind of essential property insurance (ORS 735.005). Membership is not voluntary: every authorized insurer that writes any essential property insurance in Oregon must belong to the Association.

Purpose (ORS 735.015)

The FAIR Plan law has four stated purposes:

• To assure stability in the property insurance market for certain property located in Oregon
• To assure the availability of essential property insurance to the owners of insurable property
• To encourage maximum use of the normal insurance market provided by authorized insurers
• To distribute equitably among authorized insurers the responsibility for insuring property that cannot get essential property insurance through the normal market

The law is to be construed liberally to carry out these purposes (ORS 735.025).

What the FAIR Plan insures (ORS 735.005, 735.035)

The FAIR Plan law applies only to essential property insurance on domestic risks (ORS 735.035). Essential property insurance is (ORS 735.005):

• Insurance against direct loss to property as defined and limited in standard fire policies and extended coverage indorsements, as approved by the Director of the Department of Consumer and Business Services
• Insurance against vandalism and malicious mischief

It does not include automobile insurance, or insurance on any types of manufacturing risks the Director excludes.

Sidenote

Know this...

The FAIR Plan is property insurance only. It is the residual market for basic property coverage, not for auto insurance and not for liability.

How the Association works (ORS 735.055 to 735.105)

Board. The Association acts through a board of nine directors: five selected by the member insurers, subject to the Director’s approval, and four selected by the Governor, one of whom is an insurance producer appointed by a member insurer (ORS 735.055).

Issuing policies. The statute gives the Association authority, on behalf of its members, to arrange for policies to be issued by service insurers and to reinsure them (ORS 735.065), and, with the Director’s approval, to designate inspection bureaus and service insurers to handle applications and to inspect and insure property (ORS 735.075). The Association says that since 2002 it has issued policies itself, on its own paper, and that its gains and losses are shared by the member insurers as reinsurance.

Sharing the cost. The Association assesses its member insurers the amounts it needs to pay its expenses in meeting its obligations. Each member pays in proportion to its net direct written premiums for essential property insurance in Oregon for the second preceding calendar year, compared with all members’ for that year (ORS 735.065). A member’s assessment for a year may not exceed two percent of those premiums, and is at least $50. If the Association has more money than it needs, it may refund the excess to members in proportion to what each paid (ORS 735.075).

Plan of operation. The Association operates under a plan of operation that takes effect when the Director approves it in writing; if no satisfactory plan is in place, the Director prescribes one by rule. Every member insurer must comply with it (ORS 735.085). The plan sets the procedures for applications and the payment of claims, and must provide a procedure for appeal to the Director of the Association’s final actions or decisions (ORS 735.095).

Regulation. The Director regulates the Association in the same manner as an insurer, to the extent the Director finds necessary, and the Association files an annual financial report with the Director (ORS 735.105).

Public education. The Association must run continuing programs to make sure the public knows about the plan, and to advise the public how to make property more insurable against crime, personal liability and the insured perils (ORS 735.065).

The plan in practice

The statute does not set eligibility rules, coverage forms or limits. The Association sets them through its plan of operation and its underwriting manuals, using forms approved by the Director, so they can change without a change in the law. As the Association describes its current program on its website:

• It is meant for owners who cannot obtain coverage in the normal market; an applicant who can get coverage from a standard insurer is not eligible
• Applications are submitted through a licensed insurance producer
• Coverage is basic, named-peril property coverage: dwellings are written on the basic dwelling form, with fire, lightning and internal explosion included, extended coverage optional, and vandalism and malicious mischief available only with extended coverage
• Losses are settled at actual cash value, not replacement cost
• It does not write a homeowners package, liability, theft or “all risk” coverage, and does not insure vacant property

Sidenote

Know this...

What the statute sets: the Association exists by law, every authorized insurer writing essential property insurance in Oregon must belong to it, members share its costs in proportion to their premiums, and a final action or decision of the Association can be appealed to the Director. Eligibility rules, forms and limits come from the Association’s own plan and manuals and can change.

Lesson summary

• The Oregon FAIR Plan Association is Oregon’s residual market for basic property insurance, created by statute (ORS 735.045).
• Every insurer authorized in Oregon that writes any essential property insurance must be a member as a condition of its authority to do business in Oregon.
• Its purposes are market stability, availability of essential property insurance, maximum use of the normal market, and equitable distribution among insurers of property the normal market will not insure (ORS 735.015).
• Essential property insurance is standard fire and extended coverage plus vandalism and malicious mischief. It does not include auto insurance (ORS 735.005).
• Members are assessed for the Association’s expenses in proportion to their Oregon net direct written premiums for essential property insurance for the second preceding year, up to 2 percent a year.
• The plan of operation must allow an appeal to the Director of the Association’s final decisions.
• In practice the FAIR Plan writes basic, named-peril property coverage at actual cash value, with no liability or theft coverage, for owners who cannot get coverage in the normal market.