'We don't have a lot of money:' California FAIR Plan provides updates to Assembly lawmakers
Published Date: 05/29/2025
California’s FAIR Plan Is Running Out of Money — What It Means for Homeowners and the Future of the Insurance Market
California’s insurance safety net is fraying.
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 gave lawmakers a sobering update: the Plan is running out of money.
“We don’t have a lot of money,” Roach said bluntly, summarizing a crisis that’s been building for years. “Our estimate is that we’re going to pay close to $4 billion total when all is said and done.”
Those payouts stem primarily from the Palisades and Eaton Fires, two disasters that hit Southern California earlier this year and have now pushed the FAIR Plan to the edge of insolvency.
A System Under Strain
The California FAIR Plan (short for Fair Access to Insurance Requirements Plan) was never meant to be a major player in the state’s property insurance market. Established in 1968 after a wave of urban unrest made private insurers reluctant to write fire coverage in inner cities, it was designed as a temporary last resort—a safety valve for people who truly couldn’t find insurance anywhere else.
But as private carriers retreat from California due to wildfire losses, inflation, and regulatory gridlock, the FAIR Plan has quietly ballooned. In just the last few years, its policy count has more than doubled, surpassing 400,000 homeowners.
Each new policy represents a household that couldn’t find coverage elsewhere. And now, the system built for rare emergencies has become the default 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 “one catastrophe” was the Palisades Fire, followed closely by the Eaton Fire—two events that generated more than 5,500 insurance claims, half of which were total losses.
As of May 2025, the FAIR Plan had already paid $2.9 billion in claims and expects the final total to approach $4 billion.
And because the FAIR Plan isn’t backed by taxpayer dollars, the money has to come from somewhere else.
How the FAIR Plan Really Works
The FAIR Plan isn’t a state agency—it’s an industry pool funded by all property insurers that do business in California. Every admitted carrier (from State Farm to Travelers to Farmers) is a member of the Plan and shares its financial obligations.
When FAIR Plan reserves run dry, it can assess its member insurers, requiring them to contribute more money to cover claims.
That’s where the ripple effects begin.
“They may very well go back to the private companies that are already paying their own claims for the fire,” Susman warned, “and have to contribute more money to keep the FAIR Plan propped up.”
In other words, when the FAIR Plan loses money, every insurer in California pays the price. Those costs inevitably get passed on to consumers through higher premiums or reduced availability of coverage.
It’s a vicious cycle:
- Private insurers leave or pause new business.
- Homeowners flock to the FAIR Plan.
- FAIR Plan exposure increases, and losses rise.
- FAIR Plan assesses the remaining private insurers.
- Those insurers pull back even further to control costs.
- More homeowners get pushed into the FAIR Plan.
California has now reached the tipping point where this cycle threatens the financial health of the entire system.
The Unexpected Expansion: Low-Risk Homes Now on the FAIR Plan
Perhaps the most surprising revelation from Roach’s testimony wasn’t about fire-prone mountain homes—it was about the low-risk ones.
“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.
That’s right: even homeowners in low wildfire hazard areas—suburbs, coastal zones, even urban neighborhoods—are increasingly being forced onto the FAIR Plan.
Why? Because private insurers aren’t just avoiding high-risk regions anymore; they’re pulling back everywhere.
And there’s another twist: price.
FAIR Plan premiums, especially for basic fire-only coverage, often appear cheaper at first glance. Roach gave one example of a policy costing about $682 per year—a fraction of what many standard policies now cost.
But that number is misleading, Susman explained.
“What she’s comparing it to is not a standard insurance company,” he said. “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. It’s basic fire insurance, nothing more.”
Homeowners who don’t pair their FAIR Plan policy with a Difference in Conditions (DIC) policy—which covers those missing perils—are dangerously underinsured.
The Financial Lifeline: Assembly Bill 226
To prevent a collapse, lawmakers are moving forward with Assembly Bill 226, which would give the FAIR Plan new borrowing authority through the California Infrastructure and Economic Development Bank (IBank).
If passed, AB 226 would allow the Plan to issue state-backed bonds in the aftermath of major disasters—effectively creating a line of credit to pay claims when reserves are depleted.
Supporters say it’s a necessary emergency measure to keep the FAIR Plan solvent and prevent widespread disruption. But critics warn that it’s a bandage, not a cure.
Bonds, after all, must be repaid—with interest. The likely payers? The same insurers (and eventually, consumers) already shouldering the burden.
How We Got Here: The Long Shadow of Proposition 103
Behind today’s crisis lies a decades-old piece of legislation: Proposition 103, passed by California voters in 1988.
Prop 103 transformed how the state regulates insurance, requiring companies to obtain prior approval from the Department of Insurance before raising rates. It also allowed consumer groups to intervene in rate filings, often delaying or blocking increases.
In theory, this system was designed to protect consumers. In practice, it’s trapped insurers in a time warp where premiums don’t keep pace with real-world risks—wildfire losses, inflation, or global reinsurance costs.
Unable to adjust rates fast enough, insurers began to withdraw. The FAIR Plan filled the vacuum, growing larger and more exposed with each passing year.
Now, even that safety net is stretched to the breaking point.
A Systemic Risk for All Californians
When the FAIR Plan falters, it’s not just a “wildfire problem.” Every homeowner, even in low-risk areas, could feel the impact.
Here’s why:
- FAIR Plan assessments raise costs for private insurers, who pass them to consumers.
- Bond repayments (under AB 226) could create long-term financial obligations across the market.
- Increased exposure in low-risk areas puts the Plan’s solvency at further risk.
In short, when the state’s insurer of last resort becomes the insurer of first resort, everyone pays the price.
“It’s not just a policy problem—it’s a systemic problem,” Susman cautioned. “And the longer we rely on the FAIR Plan as a fix, the harder it becomes to unwind.”
What Homeowners Should Know
- Understand What FAIR Plan Coverage Really Is.
The FAIR Plan only covers fire and smoke damage. You need a separate DIC or companion policy for theft, water, and liability coverage. - Don’t Be Fooled by “Lower Premiums.”
FAIR Plan policies may seem cheaper because they’re less comprehensive. Compare total protection, not just price. - Mitigate and Document.
Take advantage of home hardening and defensible space programs. Discounts are available, and mitigation reduces risk. - Work with an Independent Broker.
A licensed broker can access both admitted and surplus lines carriers, finding creative coverage combinations that might not appear online. - Stay Engaged.
Contact legislators and support policies that modernize rate approval processes and reduce regulatory gridlock. Sustainable reform—not emergency bailouts—will ultimately stabilize the market.
The Bigger Picture: A Warning for the Nation
California’s insurance crisis is being watched closely across the country. As climate-driven disasters increase, other states could face similar pressures: rising catastrophe losses, tightening reinsurance markets, and outdated regulatory frameworks.
If the FAIR Plan collapses—or even falters significantly—it will send shockwaves through the national insurance system. Investors, reinsurers, and policymakers will all take note.
California has long been a bellwether. How it reforms its system now could shape the future of insurance regulation nationwide.
Conclusion: A System in Need of Reinvention
The FAIR Plan’s president wasn’t exaggerating when she told lawmakers, “We don’t have a lot of money.” The Plan is stretched thin, overexposed, and underfunded—and it’s being asked to shoulder a burden it was never designed to bear.
The solution isn’t just more funding or temporary relief. It’s structural reform—modernizing Proposition 103, streamlining rate approvals, and restoring balance between public protection and market sustainability.
Until that happens, California’s insurance safety net will remain one major disaster away from financial collapse.
As Susman put it, “If the FAIR Plan fails, it won’t just be a headline—it’ll be a wake-up call.”
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