California FAIR Plan Crisis and the Future of Home Insurance

Published Date: 09/03/2024

California’s home insurance system is under growing strain, and the warning signs are flashing from its last line of defense: the California FAIR Plan. Once designed as a temporary safety net for homeowners unable to secure private coverage, the FAIR Plan has rapidly expanded into a primary insurer for hundreds of thousands of Californians.



Its explosive growth now raises urgent questions about solvency, consumer protection, and the long-term sustainability of the state’s entire insurance framework. In a recent To The Point segment on ABC10, host Becca Habegger examined the escalating crisis with insurance expert Karl Susman, unpacking what the Department of Insurance’s latest actions mean for homeowners, insurers, and California’s financial stability.

The FAIR Plan’s Rapid Growth and Rising Exposure

The California FAIR Plan Association was created in 1968 after riots and urban fires left many properties uninsurable. Despite its official-sounding name, the FAIR Plan is not state-funded. It is a pool of private insurers required by law to participate, collectively providing basic fire insurance to property owners who cannot obtain coverage in the traditional market.

For decades, the FAIR Plan remained relatively small. That changed as climate-driven disasters intensified and regulatory pressures pushed carriers out of wildfire-prone regions. Enrollment surged dramatically:

• In 2019, about 155,000 homeowners were covered.
• By mid-2024, enrollment exceeded 408,000, a 160% increase in five years.
• Total exposure jumped from roughly $50 billion in 2018 to nearly $393 billion in 2024.

Today, the FAIR Plan is carrying nearly eight times more financial risk than it did just a few years ago—without a matching increase in reserves.

The Financial Reality Behind the Risk

At a recent California Assembly Insurance Committee hearing, FAIR Plan President Victoria Roach outlined the program’s current financial position:

• Cash on hand: approximately $700 million
• Surplus: about $200 million
• Reinsurance coverage: roughly $2.5 billion

While those figures appear significant, they pale in comparison to potential losses.

“If a wildfire similar to the Camp Fire of 2018 occurred just 45 miles south of that same area,” Roach warned, “it could generate over $6 billion in claims.”

A single major wildfire could overwhelm the FAIR Plan’s liquid resources almost instantly, leaving a massive funding gap.

What Happens If the FAIR Plan Runs Out of Money

The California Department of Insurance (CDI) recently clarified what would happen if the FAIR Plan becomes insolvent. Under current guidance, private insurers operating in California would be required to cover the shortfall if FAIR Plan funds are depleted by wildfire losses.

In practical terms, insurers such as State Farm, Allstate, and Farmers—even those no longer writing new homeowners business—could be assessed to replenish FAIR Plan losses. With CDI approval, those companies would then be allowed to recover the costs from policyholders statewide.

As Habegger noted in her report, this means that homeowners across California could indirectly help finance a FAIR Plan bailout, even if they are not enrolled in the program. The upside is that FAIR Plan policyholders can be confident claims will be paid. The downside is broader systemic financial pressure.

Why the FAIR Plan Model Is No Longer Sustainable

Karl Susman emphasized that the FAIR Plan was never designed to carry this level of exposure.

“The FAIR Plan was supposed to be a short-term safety net,” he said, “not the main source of homeowners insurance for nearly half a million Californians.”

The CDI’s backstop assurance highlights a troubling interdependence between the FAIR Plan and the private market. The same insurers being asked to fund FAIR Plan losses are the ones already reducing exposure because they cannot operate profitably under current regulations.

“You can’t have a system where the backup plan becomes the only plan,” Susman warned.

The Human Cost of Escalating Insurance Prices

Behind the policy and financial data are real homeowners facing steep and often unmanageable costs. Charity Jackson, owner of the historic Washington Hotel in Nevada County, told ABC10 that her insurance expenses surged after being moved to the FAIR Plan following a non-renewal.

Her premium jumped from about $1,300 annually to nearly $5,000 for FAIR Plan fire coverage alone—before adding liability coverage.

For many families and small property owners, these costs are becoming unsustainable.

“People can’t afford to live,” Susman said. “We’re seeing rural homeowners being priced out of their communities—not because of taxes or mortgages, but because of insurance.”

Reinsurance and the Hidden Cost Pressures

Reinsurance—insurance purchased by insurers to protect themselves from massive losses—is a major but often overlooked force behind California’s insurance crisis.

The FAIR Plan currently carries approximately $2.5 billion in reinsurance. However, global reinsurers have sharply raised prices as wildfire, flood, and storm losses increase worldwide.

Private insurers face the same reinsurance pressure. Yet California’s strict rate-approval rules prevent carriers from fully passing those rising costs into premiums. The result is a financial bottleneck affecting every layer of the insurance market.

The Department of Insurance and the Sustainable Insurance Strategy

To stabilize the system, Insurance Commissioner Ricardo Lara introduced the Sustainable Insurance Strategy (SIS), a broad reform package aimed at modernizing regulation and drawing private insurers back into the market.

Key elements of the strategy include:

• Allowing forward-looking catastrophe models in rate filings so insurers can price future wildfire and climate risks accurately.
• Requiring insurers to write in high-risk areas in proportion to their statewide market share.
• Encouraging mitigation discounts for homeowners who harden their properties against wildfire.
• Modernizing FAIR Plan funding and improving transparency in its financial reporting.

Susman described the plan as “a necessary reset for a system that’s been frozen since 1988.”

“These reforms should start taking effect by the end of the year,” he said. “When carriers re-enter the market, FAIR Plan business will be the first they start taking.”

He expects measurable improvement in availability by mid-2025, though he cautioned that pricing pressures will remain.

“We won’t see 2018 premiums again,” he said. “But we should see availability come back—and that’s the first step toward long-term stability.”

Why the FAIR Plan’s Stability Affects Every Homeowner

The FAIR Plan’s financial health is not just a concern for the 400,000-plus policyholders enrolled today. Its vulnerability has statewide implications.

If a major wildfire triggered FAIR Plan insolvency:

• Private insurers would face large financial assessments.
• Homeowners statewide could see premium increases.
• Reinsurance markets could tighten even further, pushing costs higher.

In short, the FAIR Plan’s expanding exposure creates systemic risk for everyone in California’s insurance market.

Who Ultimately Bears the Risk in a High-Risk State

At the heart of California’s insurance crisis is a fundamental question: who should bear the cost of living in a high-risk environment?

For decades, affordability was maintained through strict rate controls and suppressed premium growth. But as climate-driven losses accelerate, the balance between affordability and solvency is breaking down.

“The goal isn’t to make insurance cheap,” Susman said. “The goal is to make it fair, transparent, and available. Right now, we don’t have any of those three.”

The Next 12 Months Will Be Critical

The CDI plans to finalize new modeling, reinsurance, and rate-approval guidelines by late 2024, with insurers able to submit updated filings in early 2025. If successful, those changes could encourage major carriers to re-enter the market and reduce FAIR Plan dependence.

Much depends on how quickly reforms are implemented and whether the FAIR Plan can manage its escalating risk in the meantime.

“If we don’t fix this now,” Susman warned, “we’re heading toward a full-scale insurance collapse. The FAIR Plan can’t keep absorbing this much exposure. At some point, something has to give.”

Stability Through Shared Responsibility

California’s insurance crisis is the result of decades of well-intentioned but outdated regulation combined with accelerating climate risk. The FAIR Plan’s financial stress has exposed the fragility and interdependence of the entire system.

Yet it is also driving long-overdue reform. If regulators, insurers, and consumers can align around transparency, modern risk modeling, and shared responsibility, California has an opportunity to restore stability—and potentially set a national example.

As Susman concluded, “Insurance only works when everyone participates—and when the system itself can weather the storm.”