FAIR Plan’s Share of California Residential Market Nearly Doubles Since 2017-18 Wildfires

The California FAIR Plan’s share of the state’s overall residential policies in force rose to 3.1% in 2022, nearly double the 1.6% it held before wildfires in 2017 and 2018 caused tens of billions of insured losses, according to state Department of Insurance data.

Source: AM Best | Published on May 30, 2024

Wildfires and insurance in CA

The California FAIR Plan’s share of the state’s overall residential policies in force rose to 3.1% in 2022, nearly double the 1.6% it held before wildfires in 2017 and 2018 caused tens of billions of insured losses, according to state Department of Insurance data.

Growth in the FAIR Plan has come as new residential policies in the voluntary market declined from 1.1 million in 2019 to 905,620 in 2022.

However, the number of voluntary policies that were nonrenewed or canceled by admitted carriers fell from 1.02 million in 2019 to 900,797 three years later and renewals edged higher to 7.58 million from 7.54 million statewide in the same period.

“Data and its objective analysis have driven actions by Insurance Commissioner Ricardo Lara focused on preserving available and affordable insurance options for homeowners and businesses,” the department said in a statement.

“Wildfires are a reality for many Californians, and by analyzing multiple data sets over several years the department can identify trends affecting the insurance market,” it said.

In the 10 counties at highest risk of wildfire, FA— Toulumne, Trinity, Nevada, Mariposa, Pluma, Alpine, Calaveras, Sierra, Amador and El Dorado — carry the highest risk of the 28 California counties where at least 20% of the houses are at high fire risk.

Renewals more than doubled to 4,075 then jumped more than five-fold in 2020, climbing to 43,369 in 2022.
The California Department of Insurance plans to introduce changes in July to allow primary insurers to include the cost of reinsurance in rate filings if they agree to write coverage in areas at risk of wildfire and reduce enrollment in the FAIR Plan, Insurance Commissioner Ricardo Lara said.

But that transition back to private coverage won’t happen as intended unless the CDI also approves adequate rates for the FAIR Plan, said John Norwood, on behalf of the Independent Insurance Agents & Brokers of California.

Property insurance is a “very price sensitive product.” Lower rates at the FAIR Plan, even if the coverage isn’t complete, would hamper the process, said Norwood. He cited a wide gap between a recently requested and approved rate hike for the insurer of last resort.

The five largest homeowners multiperil writers in California in 2022, based on direct premiums written, were: State Farm Group, with a 20.58% market share; Farmers Insurance Group, 14.46%; CSAA Insurance Group, 6.66%; Liberty Mutual Insurance Cos., 6.43%; and Allstate Insurance Group, 6.36%, according to BestLink.