(Airdate: 2024-03-25) CBS - KPIX - HOME INSURANCE CRISIS WARNING FROM CALIFORNIA FAIR PLAN
Published Date: 03/25/2024
California’s FAIR Plan Faces Insolvency Warnings: What It Means for Homeowners and the State’s Insurance Future
California’s fragile insurance market may be reaching a breaking point. As more insurers retreat from high-risk areas, tens of thousands of homeowners are being forced into the state’s “insurer of last resort” — the California FAIR Plan.
But that system, designed as a safety net, is now buckling under its own weight. Officials are warning that the FAIR Plan may soon become financially unsustainable — potentially leaving policyholders, insurers, and even taxpayers exposed to billions in losses.
A March 2024 CBS KPIX investigation titled “Home Insurance Crisis Warning from California FAIR Plan” revealed sobering details about the program’s growing instability and the urgent need for reform.
1. The FAIR Plan: From Safety Net to Primary Lifeline
The California FAIR Plan Association was created in 1968 to ensure basic fire insurance for homeowners who couldn’t get coverage in the traditional market. It was never meant to be a long-term solution — just a last resort.
But as climate change drives more intense wildfires and insurers retreat from high-risk zones, the FAIR Plan has ballooned into a massive, quasi-public insurer.
“The FAIR Plan continues to grow in size as consumers find themselves without coverage,” said FAIR Plan President Victoria Roach during a recent public hearing. “As a result, we have doubled in size in the last three years.”
That growth, she warned, comes at a steep cost.
“As those numbers climb, our financial stability comes more into question.”
The FAIR Plan now carries roughly $300 billion in total exposure — the total value of property it insures — yet has only around $200 million in the bank.
As insurance broker Karl Susman explained to CBS News Bay Area:
“It’s not hard to see that in the event of a large, catastrophic event, they’re not going to have the funds to be able to pay for it.”
2. How the FAIR Plan Works — and Why It’s Under Pressure
By law, every insurance company operating in California must participate in the FAIR Plan, sharing in its profits and losses.
When the FAIR Plan’s reserves are depleted by claims — say, after a major wildfire — the shortfall is covered by assessments on those participating insurers. The problem? Those companies then pass those costs on to consumers through surcharges or future rate hikes.
In effect, when the FAIR Plan loses money, everyone in California eventually pays.
That financial risk is now larger than ever.
“For many companies, this financial burden will be too great,” Roach cautioned lawmakers. “And it may result in them pulling out and no longer writing insurance in the state.”
It’s a vicious cycle: as insurers withdraw, more homeowners are pushed into the FAIR Plan, further straining its resources — which in turn drives even more insurers away.
3. The Catalyst: Insurers Fleeing the Market
The FAIR Plan’s growth is directly tied to the exodus of private insurers from California’s property market.
In the past year alone:
- State Farm announced it would not renew over 72,000 property policies statewide.
- Allstate, Farmers, and Nationwide have all scaled back new business.
- USAA and Liberty Mutual have restricted coverage in wildfire-prone ZIP codes.
These exits have left hundreds of thousands of homeowners with few options besides the FAIR Plan.
As CBS KPIX noted, “Catastrophic wildfires have turned areas that were never seen as high risk into places where fire insurance isn’t even available.”
4. The Risk of Insolvency
The math is stark. The FAIR Plan’s $200 million reserve might sound like a lot — but compared to its $300 billion exposure, it’s alarmingly small.
“FAIR Plan has about $300 billion in total exposure and about $200 million in the bank,” said Susman. “So, in the event of a large, catastrophic event, they’re not going to have the funds to pay for it.”
One major fire — on the scale of the Camp Fire (2018) or Tubbs Fire (2017) — could wipe out those reserves many times over.
If that happens, participating insurers would have to shoulder billions in losses through FAIR Plan assessments.
And that’s the domino effect experts fear most: those companies, already losing money in California, might simply decide to leave the market entirely.
5. Consumer Advocates Warn of a “Hidden Bailout”
Not everyone agrees on how to fix the problem.
Consumer Watchdog founder Harvey Rosenfield, who authored the landmark Proposition 103 in 1988, says insurers are using the FAIR Plan’s troubles as leverage to push for higher rates.
“From our point of view, we see this as creating a scare tactic,” Rosenfield told CBS KPIX. “To create an opportunity for the Legislature to bail the insurance industry out by forcing every homeowner in the state to pay off the debts of the FAIR Plan.”
Rosenfield warned that under current proposals, even homeowners outside high-risk zones — such as those in downtown San Francisco or coastal suburbs — could end up paying thousands of dollars in FAIR Plan surcharges.
“So even if you’re in a low-risk area and not a FAIR Plan policyholder,” he said, “you could still pay thousands to bail out the FAIR Plan.”
6. The State’s Response: The “Sustainable Insurance Strategy”
Recognizing the crisis, California’s Department of Insurance has launched a major regulatory reform effort known as the Sustainable Insurance Strategy.
This initiative, led by Insurance Commissioner Ricardo Lara, aims to stabilize the market by:
- Allowing insurers to use forward-looking catastrophe modeling,
- Factoring reinsurance costs into rate filings, and
- Speeding up regulatory approvals to make pricing more responsive to risk.
As Susman explained:
“What this is going to do is it’s going to allow carriers to come back into the market. Right now, we have rates that are extremely high — and this is what happens when you don’t have competition.”
By letting insurers accurately price individual property risks, Lara’s strategy seeks to bring private carriers back — reducing the FAIR Plan’s burden and ultimately restoring competition.
“Once the carriers all come back and start competing again,” Susman said, “we’ll see rates come down.”
7. A Market Out of Balance
The crisis illustrates the delicate balance California must strike: protecting consumers from price gouging while ensuring insurers can charge sustainable rates.
Proposition 103, passed more than 35 years ago, gave the Department of Insurance strong authority to review and approve rate increases. But that framework was built in a different era — before climate-driven megafires and the $100-billion-per-year global reinsurance crisis.
Now, those same consumer protections have become an obstacle to solvency.
Without modernization, insurers can’t charge enough to cover rising catastrophe losses. But without oversight, they could overcharge vulnerable homeowners.
The Sustainable Insurance Strategy is California’s attempt to find the middle ground.
8. What Happens If the FAIR Plan Fails?
If the FAIR Plan’s funding is exhausted after a major disaster, the financial shock would ripple across the entire market:
- Private insurers would be assessed billions in losses.
- Many could exit California altogether, shrinking capacity further.
- Remaining companies would pass costs on to policyholders statewide through surcharges.
- Homeowners and renters — even those in low-risk regions — could see dramatic rate hikes.
Ultimately, taxpayers could end up footing part of the bill if state intervention becomes necessary.
“It’s not just a problem for those living in fire zones,” one analyst warned. “It’s a systemic risk for the state’s entire economy.”
9. What Homeowners Can Do Right Now
While systemic reform will take time, there are steps homeowners can take to protect themselves:
✅ Maintain Existing Coverage
If you still have private insurance, do not let it lapse. Once canceled, finding a new policy can be extremely difficult.
✅ Review Your FAIR Plan Coverage
FAIR Plan policies are bare-bones fire policies. To get full protection, purchase a “Difference in Conditions” (DIC) wrap-around policy for liability, water damage, and theft.
✅ Invest in Mitigation
Home-hardening measures — such as defensible space, fire-resistant roofing, and ember-resistant vents — can make properties more insurable and potentially eligible for discounts.
✅ Stay Informed
The Department of Insurance frequently updates its consumer guides and regulatory bulletins at insurance.ca.gov.
10. The Bottom Line: A System in Urgent Need of Reform
California’s insurance safety net — the FAIR Plan — is stretched to its limits. With $300 billion in exposure and just $200 million in reserves, even a single catastrophic fire season could destabilize the entire system.
Without reform, the FAIR Plan could become insolvent — triggering cascading losses across insurers, homeowners, and even taxpayers.
But there is hope. The Sustainable Insurance Strategy represents the most ambitious reform effort in decades. If implemented successfully, it could restore balance, attract private insurers back to the market, and protect homeowners from the next crisis.
As the CBS KPIX segment concluded, one thing is clear:
“As wildfires grow in size, so does the cost of recovery. It’s a cost that will eventually be borne by everyone — which means no one will be very happy about it.”
The challenge now is to ensure that cost doesn’t break the very system meant to protect Californians in the first place.
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