California FAIR Plan Expansion and Its Impact

Published Date: 07/26/2024

California’s insurance market remains one of the most volatile in the nation. Homeowners, landlords, and businesses alike are struggling to find — or afford — coverage. As major insurers scale back or exit the state, the California FAIR Plan, once a last-resort safety net, has become the default option for tens of thousands of policyholders.



Now, a new regulatory change from the California Department of Insurance (CDI) is expanding the FAIR Plan’s reach — but not without controversy.

On July 26, 2024, California Insurance Commissioner Ricardo Lara announced a major expansion of the FAIR Plan’s commercial coverage limits along with a provision that could allow insurers to pass certain costs onto consumers.

The Department characterizes this move as part of a broader “sustainable insurance strategy,” while critics warn it could function as an industry bailout that shifts financial risk onto policyholders.

Here’s what this change means for California homeowners and businesses — and why insurance experts say it is both a short-term relief and a long-term warning sign.

What Is the California FAIR Plan?

The California FAIR Plan (Fair Access to Insurance Requirements) was created in 1968, following widespread urban riots and wildfires that made property insurance difficult to obtain.

Although often mistaken for a government insurer, the FAIR Plan is not taxpayer funded. It is a shared risk pool made up of all insurance companies licensed to operate in California. Each insurer contributes financially in proportion to its market share.

When a policyholder buys a FAIR Plan policy, the premium is not subsidized by public funds. Instead, it is part of a collective private insurance arrangement.

Originally, the FAIR Plan was intended as a short-term bridge to provide bare-bones fire coverage to property owners who could not secure insurance elsewhere. Over the last five years, however, it has become a cornerstone of California’s insurance system, now handling more than 300,000 active policies — more than double the number in 2019.

The July 2024 Expansion of Coverage Limits

Prior to July 2024, the FAIR Plan’s maximum coverage limit for commercial properties, including condominium and homeowners’ associations (HOAs), was capped at $20 million.

Under the new rules announced by Commissioner Lara, that limit increases to $100 million — a fivefold jump.

“The upside is there’s more coverage available for organizations like homeowners associations,” said insurance expert Karl Susman. “The downside is, we’re putting even more weight on the FAIR Plan — which is already overburdened with exposure.”

This expansion could provide critical protection to large commercial property owners and HOAs that have been unable to obtain private coverage, particularly in wildfire-prone regions. Many associations have faced severe coverage gaps, putting entire communities and property values at risk.

At the same time, the increased limits dramatically expand the FAIR Plan’s exposure to catastrophic losses, raising concerns about its long-term solvency.

Why Critics Are Calling It a “Bailout”

The most contentious element of the July 2024 announcement is the new recoupment provision.

Under this mechanism, if the FAIR Plan experiences catastrophic losses — such as more than $1 billion in claims in a single year — it can assess its member insurance companies for additional funds. That assessment authority already exists.

What is new is that insurers may now be permitted to recoup part or all of those assessments by adding supplemental charges to policyholders’ bills — even if those customers are not insured through the FAIR Plan.

In practical terms, homeowners across California could end up paying for FAIR Plan losses regardless of who insures them.

Consumer advocates strongly oppose this change.

“We think it’s outrageous to call this a bailout of the insurance industry on the backs of policyholders,” said Carmen Balber, Executive Director of Consumer Watchdog. “If the FAIR Plan finds itself in financial trouble, that’s because the insurance industry dumped policyholders on the FAIR Plan. The industry should be responsible for paying its own bills.”

Legal Questions Surrounding Cost Recovery

Consumer Watchdog and other groups also question whether the new recoupment process is even legal.

“The statute authorizes the FAIR Plan to assess insurance companies,” Balber said. “Nowhere in the law does it say those companies can pass that cost on to consumers.”

The Department of Insurance disagrees, arguing that the provision is an emergency backstop rather than an immediate charge to consumers.

According to the Department’s framework:

• The FAIR Plan’s own reserves would be used first.
• If reserves are exhausted, insurers would be assessed.
• Only if those steps are insufficient would policyholders face a supplemental charge.

A Department official described it as “way down the line before it would trickle down to consumers.”

Even so, critics warn that once such a mechanism exists, it could eventually become a routine cost-recovery tool as wildfire losses continue to escalate.

The FAIR Plan’s Expanding Role in a Broken Market

The July 2024 changes are part of Commissioner Lara’s broader Sustainable Insurance Strategy, launched in September 2023. The strategy includes:

• Faster rate approvals
• Increased use of catastrophe models
• A requirement that insurers write policies in 85% of distressed ZIP codes
• FAIR Plan reforms to expand coverage availability

While modernization is widely viewed as overdue, many experts caution that California is increasingly leaning on the FAIR Plan to perform a role it was never designed to fulfill.

“We’re trying to make a temporary fix do a permanent job,” Susman said. “The FAIR Plan was never designed to handle the level of exposure it’s carrying now.”

With more than $300 billion in insured property now under its umbrella, the FAIR Plan’s financial risk continues to grow alongside climate change, inflation, and escalating rebuilding costs.

The Domino Effect of Insurer Withdrawals

The FAIR Plan’s growth is a direct result of widespread insurer retrenchment across California.

Major carriers such as State Farm, Allstate, and Farmers have paused or severely restricted new homeowners’ policies due to:

• Escalating wildfire losses
• Delays in rate approval
• Rising reinsurance costs

As private carriers withdraw, more homeowners are forced into the FAIR Plan. That increases exposure, which raises the likelihood of future assessments, which may ultimately raise costs statewide.

“It’s a domino effect,” Susman said. “The FAIR Plan gets bigger, the risk gets bigger, and eventually the costs spread to everyone.”

What the Expansion Means for Homeowners and HOAs

The most immediate impact of the July 2024 decision will be felt by large commercial policyholders, especially condominium and homeowners’ associations.

The FAIR Plan has up to eight months to implement the new $100 million coverage limits. Once in place, HOAs that have struggled to secure adequate coverage may finally have access to higher limits.

That access, however, is likely to come with higher premiums and narrower coverage than policies available in the traditional market.

Individual homeowners should also be aware that while the new surcharge mechanism would only activate after a major catastrophe, the risk of billion-dollar wildfire losses is no longer theoretical in California.

Sustainability vs. Affordability

Commissioner Lara’s stated goal is to create a sustainable insurance marketplace for the long term. The FAIR Plan expansion reflects an attempt to stabilize a system under intense pressure.

But sustainability and affordability often move in opposite directions.

Expanding the FAIR Plan offers short-term relief for property owners who have nowhere else to turn. At the same time, it exposes the system to greater financial risk — risk that could eventually flow back to consumers.

In effect, California is betting that by stabilizing the FAIR Plan now, it can buy time for private insurers to return under a modernized regulatory framework.

That bet depends heavily on two factors: how effectively the state manages future catastrophes and how quickly meaningful rate reforms take hold.

The Bottom Line

The expansion of the California FAIR Plan is both a pressure valve and a warning sign. It provides immediate relief in a severely constrained market, but it also highlights the depth of the structural problems facing California’s insurance system.

As Karl Susman put it, “We’ve got to stop treating the FAIR Plan like a permanent solution. It’s supposed to be the last resort — not the only resort.”

For now, consumers, insurers, and regulators are watching closely. If the FAIR Plan can absorb its rising exposure without triggering financial distress and policyholder surcharges, it may buy the market valuable time. If not, the safety net designed to protect Californians could become the next source of systemic risk.

One thing is clear: every Californian now has a direct stake in what happens next.