California’s State Insurance Gets $1 Billion Infusion as Wildfire Claims Overwhelm Providers

In the wake of the devastating Los Angeles wildfires last month, California approved a $1 billion cash infusion for the FAIR Plan, the state-backed insurer of last resort that Californians can turn to if they can’t get insurance on the private market.

The FAIR Plan is funded by pooled money from insurers in the state in exchange for covering properties that the insurance companies consider too high risk. The $1 billion is a one-time charge—known as an assessment—that will help the FAIR Plan pay for the losses from the Los Angeles fires, the largest of which destroyed over 16,000 structures in the Pacific Palisades and Altadena neighborhoods. 

The assessment, which was approved by Insurance Commissioner Ricardo Lara on Tuesday, is intended to cover those losses as well as leave something in the coffers for the next wildfire season, which typically begins in July.

Consumers will be on the hook for funding the infusion of cash into the FAIR Plan.

Reforms passed last year allow insurance companies to pass half of the assessment, or $500 million, to policyholders, which means the majority of California homeowners will be helping cover the losses from the fires. If all insurance companies are approved to pass half of their assessed portion to policy holders, it will work out to $60 per policyholder, according to Axios. The insurance companies have 30 days to pay their portion of the amount. 

The FAIR Plan was created in 1968, and this is the first time in more than 30 years that it has not been able to cover incurred losses on its own. In recent years, participation in California’s FAIR Plan has drastically increased as insurance companies left the state due in part to increased wildfire risk. Between 2020 and 2024, the number of FAIR residential policies more than doubled to 451,800, while the value of insured homes and businesses tripled to $458 million, according to the latest FAIR Plan data. 

As of Sunday, the FAIR Plan had received more than 4,700 claims for damage caused by the Palisades and Eaton fires and paid out almost $914 million, the agency said. 

In Pacific Palisades, one in five homeowners was covered by a FAIR Plan policy as of September 2024, a share that rapidly increased after State Farm dropped tens of thousands of policies in the state, including 1,600 in the coastal enclave, according to CalMatters. The state insurer covers up to $3 million in replacement costs per policy, which may fall short for Palisades homeowners, who live in one of the priciest neighborhoods in the country. 

The concern is that the sizable assessment, along with the perception of higher wildfire risk, will further destabilize the California insurance market. Commissioner Lara had introduced last year’s reforms, which also allow for more flexible risk-based pricing, in order to bring insurers back to the state, but they came too late for these wildfires, according to reinsurance firm Howden.

In the short-term, the state’s Department of Insurance has instituted a one-year moratorium in the areas affected by the fires, barring insurers from dropping or not renewing policies in tens of ZIP codes. 

Looking ahead, it will be on governments to find a way to keep costs in check for consumers without alienating insurers. One avenue is to update building codes and zoning laws to avoid damage of the scale of the Palisades and Eaton fires, according to insurance companies.

California instituted stricter fire-resistant building codes in 2008, but the vast majority of homes in Palisades and Altadena were built prior to that. More than 80% of homes in both neighborhoods were built prior to 1990, and around 90% were built prior to 2000, according to a report from Howden. In a hurry to rebuild, however, California has relaxed many of its environmental regulations. 

It’s not only the FAIR Plan that’s overwhelmed. Last week, State Farm requested an emergency rate increase averaging 22% to help cover its own payouts. The rate hike would apply across the state and would range from 15% for renters to 38% for rental unit owners. If approved, the rate hikes would go into effect during the next round of renewals on May 1.