California’s FAIR Plan, the state’s insurer of last resort for homeowners unable to obtain private insurance, requires an additional $1 billion to cover claims from the recent Los Angeles wildfires. The California Department of Insurance approved a request allowing the plan to collect funding from insurers, who will cover half the cost directly while passing the remaining burden to policyholders through a one-time fee. This marks the first such request in more than 30 years, highlighting the financial strain on the FAIR Plan as wildfire-related claims escalate.
The Eaton and Palisades Fires, which ignited on January 7, caused an estimated $4 billion in damages, destroying nearly 17,000 structures and leading to at least 29 fatalities. With more than 4,700 claims filed, the FAIR Plan has already disbursed over $914 million and anticipates receiving $1.45 billion in reinsurance assistance. However, it projects having only $400 million remaining by July, underscoring the need for additional funding.
Growing Dependence on the FAIR Plan and Market Implications
Initially designed as a temporary solution with limited coverage and high premiums, the FAIR Plan now serves a growing number of Californians due to a shrinking private insurance market. The number of policies under the plan more than doubled from 2020 to 2024, reaching over 452,000.
The state has implemented regulatory measures to stabilize the insurance market, including allowing insurers to adjust premiums based on climate risks and recover reinsurance costs from consumers. These measures aim to encourage private insurers to remain in the market and reduce reliance on the FAIR Plan. Industry representatives argue that spreading wildfire-related costs among policyholders is necessary to prevent further disruptions, while consumer advocacy groups oppose shifting financial burdens to residents and are exploring legal challenges.