California FAIR Plan on Brink as Wildfire Losses Surge
Published Date: 05/29/2025
The California FAIR Plan, the state’s insurer of last resort, is facing a financial emergency that could affect nearly every homeowner in the state—not just those living in wildfire zones. At a recent oversight hearing before the Assembly Insurance Committee, FAIR Plan President Victoria Roach delivered a stark warning: the Plan is running out of money.
“We don’t have a lot of money,” Roach said. “Our estimate is that we’re going to pay close to $4 billion total when all is said and done.” Those losses stem largely from the Palisades and Eaton Fires, two catastrophic events that struck Southern California earlier this year and pushed the FAIR Plan to the edge of insolvency.
A Safety Net Never Meant to Carry the Market
The California FAIR Plan—short for the Fair Access to Insurance Requirements Plan—was created in 1968 as a temporary solution after private insurers pulled back from inner cities following civil unrest. It was designed to be a last resort, not a dominant force in the property insurance market.
Today, that design has been turned upside down. As private insurers retreat from California due to wildfire exposure, inflation, and regulatory gridlock, the FAIR Plan has rapidly expanded. Its policy count has more than doubled in just a few years, now surpassing 400,000 homeowners.
Each new policy represents a household unable to find coverage in the private market. What was once a narrow emergency backstop has become the default insurer for entire communities.
“They were one catastrophe away from financial crisis,” said insurance expert Karl Susman, host of The Insurance Hour. “Unfortunately, that catastrophe took place on January 7th.”
That catastrophe was the Palisades Fire, followed closely by the Eaton Fire—two disasters that produced more than 5,500 claims, about half of which were total losses. By May 2025, the FAIR Plan had already paid $2.9 billion in claims, with total losses expected to approach $4 billion.
How the FAIR Plan Is Financed
The FAIR Plan is not funded by taxpayers. It operates as an industry pool supported by every admitted property insurer doing business in California. Companies such as State Farm, Travelers, and Farmers are all required participants.
When FAIR Plan reserves are depleted, it has the authority to assess its member insurers and demand additional contributions to cover claims.
That mechanism creates immediate ripple effects across the private insurance market.
“They may very well go back to the private companies that are already paying their own claims,” Susman warned, “and have to contribute more money to keep the FAIR Plan propped up.”
Those added costs don’t stay with the insurers. They are eventually passed on to consumers through higher premiums, tighter underwriting, or reduced availability of coverage.
This creates a destabilizing cycle: private insurers pull back, homeowners flood into the FAIR Plan, losses increase, assessments rise, insurers cut back further, and even more homeowners are pushed into the FAIR Plan. California has now reached the point where this cycle threatens the financial health of the entire system.
Low-Risk Homes Are Being Pushed Into the FAIR Plan
One of the most startling revelations from Roach’s testimony was that the FAIR Plan’s growth is no longer limited to wildfire-prone areas.
“In the low wildfire risk area, we’ve grown about 40% in exposure so far in the first six months of the year,” she told lawmakers.
Homeowners in suburbs, coastal communities, and urban neighborhoods—areas traditionally considered lower risk—are increasingly being forced onto the FAIR Plan. Private insurers are not just retreating from the highest-risk zones anymore; they are pulling back across broad regions of the state.
At first glance, FAIR Plan premiums may appear cheaper. Roach cited an example of a policy costing about $682 annually. However, that price can be misleading.
“What she’s comparing it to is not a standard insurance company,” Susman explained. “Because they’re not offering coverage. And the FAIR Plan only covers fire—it doesn’t include water damage, liability, theft, or loss of use.”
Without a companion Difference in Conditions (DIC) policy, homeowners insured solely by the FAIR Plan are dangerously underinsured.
Emergency Financial Backstop Through Assembly Bill 226
To prevent a potential collapse, lawmakers are advancing Assembly Bill 226, which would grant the FAIR Plan new borrowing authority through the California Infrastructure and Economic Development Bank.
If enacted, AB 226 would allow the FAIR Plan to issue state-backed bonds after major disasters, effectively creating an emergency line of credit to pay claims when reserves are exhausted.
Supporters argue that this authority is essential to prevent disruption in the aftermath of catastrophic fires. Critics caution that bonds are not free money. They must be repaid with interest, and the financial burden is likely to fall on the same insurers—and ultimately the same consumers—already absorbing rising costs.
The bill may stabilize the FAIR Plan in the short term, but it does not address the structural drivers behind its financial distress.
The Long Shadow of Proposition 103
At the root of today’s crisis is Proposition 103, the voter-approved 1988 initiative that reshaped California’s insurance regulatory system. It requires insurers to obtain prior approval from the Department of Insurance before raising rates and permits consumer groups to intervene in those filings.
While designed to protect consumers, the system has increasingly prevented premiums from keeping pace with real-world risks such as wildfire losses, inflation, and global reinsurance costs.
As rate approvals stalled, insurers began to withdraw. The FAIR Plan expanded rapidly to fill the gap, accumulating greater exposure with each fire season. Now even that expanded safety net is under severe financial stress.
Why the FAIR Plan’s Struggles Are a Statewide Risk
When the FAIR Plan weakens, the consequences do not stop at wildfire boundaries. All Californians face potential impact.
FAIR Plan assessments increase costs for private insurers, which then pass those expenses on to policyholders. Bond repayments under AB 226 could create long-term financial obligations across the market. Rapid growth in low-risk areas further concentrates exposure within the Plan.
In effect, when the insurer of last resort becomes the insurer of first resort, the entire market absorbs the risk.
“It’s not just a policy problem—it’s a systemic problem,” Susman said. “And the longer we rely on the FAIR Plan as a fix, the harder it becomes to unwind.”
What Homeowners Should Understand Right Now
Homeowners need to clearly understand what FAIR Plan coverage includes and what it does not. The FAIR Plan covers only fire and smoke damage. Theft, water damage, liability, and loss of use require a separate DIC or companion policy.
Lower premiums can be misleading if they reflect stripped-down protection rather than real savings. Total protection—not just price—must be compared.
Risk mitigation matters. Home hardening, defensible space, and fire-resistant upgrades can improve insurability and may qualify for discounts. These improvements should be thoroughly documented.
Working with an independent broker is critical. Brokers can access admitted carriers, surplus lines insurers, and blended coverage combinations that are not visible through direct online searches.
Finally, homeowners must stay engaged in the policy process. Long-term market stability will require modernization of rate approval rules and reduction of regulatory gridlock.
California as a National Warning Sign
California’s insurance crisis is being closely watched across the country. As climate-driven catastrophes become more frequent, other states may soon face similar pressures: rising loss severity, tightening reinsurance capacity, and outdated regulatory frameworks.
If the FAIR Plan falters—or fails entirely—it will send shockwaves through the national insurance and reinsurance markets. Policymakers and investors at every level will take notice.
California has long been a bellwether for national trends. The reforms it adopts now may shape the future of insurance regulation far beyond its borders.
A System in Urgent Need of Structural Reform
When the FAIR Plan’s president told lawmakers, “We don’t have a lot of money,” she was not exaggerating. The Plan is overexposed, underfunded, and carrying far more risk than it was ever designed to handle.
The solution is not endless assessments or temporary borrowing authority. It is structural reform—modernizing Proposition 103, streamlining rate approvals, and restoring balance between consumer protection and market sustainability.
Until that happens, California’s insurance safety net will remain one major disaster away from financial collapse.
As Susman warned, “If the FAIR Plan fails, it won’t just be a headline—it’ll be a wake-up call.”
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