New California Law Could Change Home Insurance Forever | FAIR Plan Shakeup Explained

Published Date: 07/14/2025

How a New California Law Could Transform Home Insurance: The FAIR Plan Shakeup Explained

California’s homeowners insurance market has been in crisis for years—and now, lawmakers may finally be taking decisive action.
A pair of new pro-consumer bills moving through the state legislature could reshape how the California FAIR Plan, the state’s insurer of last resort, operates and pays its claims. Supporters say these changes could make the system more stable, more transparent, and better for both homeowners and the broader insurance market.

But not everyone agrees. Consumer advocates, regulators, and industry professionals are debating whether the proposed reforms truly fix the problem—or risk creating new ones.

Here’s what’s changing, why it matters, and what homeowners, agents, and insurers should watch closely.

The FAIR Plan: From Backup Option to Frontline Provider

The California FAIR Plan (Fair Access to Insurance Requirements) was established in 1968 to ensure that all homeowners—especially those in high-risk fire zones—could get at least basic property coverage. It’s not a government agency; rather, it’s a syndicate made up of all private insurers licensed in the state. Every company participates and shares the FAIR Plan’s financial exposure.

Originally, the FAIR Plan was meant to be temporary—a safety net for people who couldn’t find coverage elsewhere. But after years of wildfires, inflation, and mounting claims, that safety net has become a primary option for hundreds of thousands of Californians.

As of 2023, FAIR Plan policies have more than doubled since 2018, surpassing 340,000 active policies statewide. For many homeowners, especially in wildfire-prone areas, it’s now the only available coverage.

The problem? The FAIR Plan’s financial stability hasn’t kept pace with its growth.

What the New Law Proposes

According to reporting from KTVU’s Tom Vacar, two bills—backed by both industry experts and consumer advocates—aim to strengthen the FAIR Plan’s financial foundation and improve consumer access to private insurance alternatives.

Bill 1: Financial Stability Through Borrowing and Catastrophe Bonds

The first bill would allow the FAIR Plan to:

• Borrow money or
• Issue catastrophe bonds—a financial tool commonly used by global insurers to manage large-scale disaster risk.

This means that in the event of major wildfires or catastrophic losses, the FAIR Plan would have access to capital markets to pay legitimate claims quickly and reliably, rather than relying solely on private insurers or policyholder assessments.

To prevent misuse or excessive risk-taking, the law would require approval from both:

• The California Infrastructure and Economic Development Bank, and
• The Insurance Commissioner.

This oversight is designed to ensure any borrowing is transparent, justified, and responsibly managed.

As Karl Sussman, a multiline independent insurance agent with decades of industry experience, explained:

“In the event that they default on paying back any of these loans, the private insurance companies are on the hook for it anyway.”

In other words, the risk ultimately falls on the same insurers who make up the FAIR Plan. If the Plan mismanages its debt, the financial consequences would ripple through the entire private market—potentially affecting every homeowner’s premium across the state.

The Controversy: Who Really Pays?

While the new borrowing authority sounds promising, Consumer Watchdog, a prominent advocacy group, argues that the Department of Insurance may have given insurers a way to shift costs onto regular policyholders.

According to Carmen Balber, Executive Director of Consumer Watchdog:

“Policyholders of those insurance companies are being asked to foot part of that bill. That is both unfair and illegal.”

Balber’s group has sued the Department of Insurance, claiming that allowing insurers to pass on these costs violates state law. The concern is that even homeowners who have never filed a FAIR Plan claim—or never had a FAIR Plan policy—could see their premiums rise because their insurance company is contributing to the Plan’s debt obligations.

To put it simply, the debate centers on fairness: Should the costs of stabilizing the FAIR Plan be spread among all policyholders statewide, or should they be borne only by the insurers who control it?

Bill 2: Ensuring Consumers Are Truly Shopped in the Private Market

The second bill tackles another growing problem: the overreliance on the FAIR Plan when private coverage might still be available.

Under the proposed law, insurance agents and brokers would be required to:

• “Shop around” the private market for coverage before placing a customer in the FAIR Plan, and
• Certify in writing that they’ve made a genuine effort to find alternatives.

This accountability measure ensures that homeowners aren’t automatically funneled into the FAIR Plan—which generally costs more and offers less coverage—without exploring all other options.

As the bill’s supporters note, the FAIR Plan was never meant to be a first stop. By compelling brokers to document their efforts, lawmakers hope to keep as much business as possible in the private market, maintaining healthy competition and consumer choice.

Why These Changes Matter

If enacted, these bills could have far-reaching implications for California’s insurance market:

1. Financial Stability for the FAIR Plan

By giving the FAIR Plan the ability to borrow responsibly and issue catastrophe bonds, lawmakers hope to prevent insolvency during future wildfire seasons. This would ensure that claims are paid quickly and policyholders aren’t left waiting for relief.

2. Reduced Risk for Taxpayers

Importantly, both bills specify that taxpayer funds will not be used to back the FAIR Plan’s obligations. As Balber clarified,

“This is not money accessed at the California bank that taxpayers or policyholders will have to repay. This is still an obligation of the insurance companies.”

That distinction reassures the public that the state isn’t quietly taking on more liability.

3. Greater Accountability for Agents and Brokers

By requiring documentation that brokers attempted to secure private coverage, the law encourages diligence and transparency in the placement process. It may also protect consumers from being unnecessarily charged higher FAIR Plan premiums when private options exist.

4. Pressure on the Private Market to Re-Engage

If fewer homeowners are automatically sent to the FAIR Plan, and the Plan itself becomes financially stable, private insurers may be more willing to re-enter the market. This, in turn, could increase competition and bring down rates over time.

The Industry’s View: Cautious Optimism

For insurance professionals like Karl Sussman, the reforms are a step in the right direction—but not a silver bullet.

He warns that while financial tools like catastrophe bonds can help manage large-scale risks, they don’t solve the underlying issue: California’s outdated regulatory system and the long delays in rate approvals that drive insurers away in the first place.

Still, by reinforcing the FAIR Plan’s solvency and pushing brokers to use the private market more effectively, these changes may lay the groundwork for a more balanced system.

“If these laws help stabilize the FAIR Plan, it can restore confidence in the entire market,” Sussman notes. “That benefits everyone—from insurers to homeowners.”

What Homeowners Should Do Now

Even as lawmakers debate these bills, homeowners should take proactive steps to protect themselves:

1. Review your current policy. Understand what perils are covered—and which aren’t.
2. If you’re on the FAIR Plan, explore supplemental options. Ask your broker about wraparound “Difference in Conditions” coverage to fill gaps like theft, water damage, and liability.
3. Shop early. The FAIR Plan and private carriers alike are overloaded with applications, so start your renewal process well in advance.
4. Maintain continuous coverage. Never let your policy lapse. A gap in coverage can make it much harder to find new insurance.

The Bottom Line: A Step Toward Stability

California’s home insurance crisis didn’t happen overnight, and it won’t be solved overnight. But these new legislative efforts represent a serious attempt to modernize the FAIR Plan, protect consumers, and restore balance to a strained market.

If they pass, homeowners could see greater stability and more transparent pricing in the years ahead. The key will be ensuring that the reforms are implemented fairly—without burdening consumers who have already been stretched to the limit.

As one industry observer put it:

“This is about rebuilding trust—between the state, the insurers, and the homeowners who just want to protect what’s theirs.”