California has approved a $1 billion cash infusion for the FAIR Plan, the state’s insurer of last resort, following the devastating wildfires in Los Angeles. The FAIR Plan is funded by pooled money from insurers in California and covers properties deemed too high risk by private companies. This $1 billion assessment will help cover losses from the fires, which destroyed over 16,000 structures in Pacific Palisades and Altadena.
Insurance Commissioner Ricardo Lara approved the assessment to cover these losses and prepare for the next wildfire season. Consumers will bear part of this cost as reforms allow insurance companies to pass half of the assessment to policyholders. If all insurers are permitted to do so, each policyholder would pay approximately $60.
The FAIR Plan was established in 1968, and this marks its first shortfall in over three decades. Participation has surged recently due to increased wildfire risks driving insurers out of California. Between 2020 and 2024, FAIR residential policies more than doubled to 451,800.
As of Sunday, over 4,700 claims had been filed with the FAIR Plan due to damage from recent fires, with payouts nearing $914 million. In Pacific Palisades alone, one in five homeowners held a FAIR Plan policy after State Farm dropped numerous policies statewide.
There is concern that this large assessment and perceived higher wildfire risk could destabilize California’s insurance market further. Commissioner Lara introduced reforms allowing flexible risk-based pricing last year to entice insurers back but too late for these wildfires.
A temporary moratorium prevents insurers from dropping or not renewing policies in affected areas for one year. Future strategies may involve updating building codes and zoning laws to prevent extensive damage like that seen in recent fires.
Most homes in Palisades and Altadena were built before stricter fire-resistant building codes were enacted in 2008; more than 80% were built before 1990 according to Howden’s report. To expedite rebuilding efforts, some environmental regulations have been relaxed.
State Farm also seeks an emergency rate increase averaging 22% across California due to its own payout needs. This hike would vary by type of coverage if approved during upcoming renewals on May 1.
