California Insurers Seek to Recover Wildfire Costs from Homeowners
Insurers in California are seeking to charge homeowners across the state for some of the costs associated with the catastrophic Los Angeles County fires that occurred earlier this year. The insurers were burdened with a significant financial load when the state’s insurer of last resort, the California FAIR Plan Association, needed a bailout.
The California FAIR Plan Association, with the approval of state Insurance Commissioner Ricardo Lara, assessed its member carriers $1 billion on February 11 after the plan was overwhelmed with thousands of claims following the January 7 fires in Pacific Palisades, Altadena, and Sylmar. As of the latest update, the plan has made $2.75 billion in claims payments and expects its total costs for the fires to reach $4 billion.
Under a policy implemented by Lara last year, insurers are now.
At least 10 home insurers and their affiliates have filed applications with the state Department of Insurance seeking to surcharge their policyholders statewide for half the costs of the assessment. The annual fees range from about $6 or less for some rental policyholders to $40 to $60 for a standard homeowners policy, although some are less or somewhat more.
The insurers are seeking to apply the charges starting this year, with some spreading the charges over two annual billing cycles. Among the insurers that have filed applications are affiliates of AAA and Mercury, two of the largest home insurers in the state, as well as carriers with smaller market share such as Amica and Western Mutual.
Lara has the final say on whether to allow the surcharges to go through. Denni Ritter, vice president for state government relations for the American Property Casualty Insurance Association trade group, said, “This modest, temporary cost recovery — just a few dollars a month for most policyholders — is critical to preventing a catastrophic collapse of California’s insurance market.”
Potential Impact on Homeowners
While many of the state’s licensed home insurers have yet to file applications, most future surcharges are expected to be in a similar range because the FAIR Plan assessed its member carriers based on their share of California’s home insurance market. However, Carmen Balber, executive director of Consumer Watchdog, a Los Angeles-based group that filed a lawsuit to stop the surcharges, warned that homeowners with larger policies could end up paying surcharges totaling hundreds of dollars.
“The average doesn’t fully represent the impact on many homeowners, and $50 is not negligible for Californians who have already seen massive home insurance premium increases,” Balber said. She added that this could be the “tip of the iceberg” if the FAIR Plan further assesses its member carriers.
Regulatory Oversight
Michael Soller, a spokesperson for Lara, said regulators are reviewing the applications to ensure they follow the rules established by the department regarding which policyholders are being charged, for how much, and for what duration. Insurers must break down the charges by their different lines of insurance.
“We also want to understand each insurer’s process to prevent overcollection. It’s about fairness, transparency, and holding insurance companies within legal bounds,” Soller said.
The FAIR Plan got into financial trouble as insurers fled the state’s home insurance market, which was hit with a series of devastating fires even before this year. A Times analysis found that in the Palisades and Eaton fire zones, the FAIR Plan’s rolls shot up last year by a combined 47%. From 2020 to 2024, the number of homes in both areas on the plan nearly doubled from 14,272 to 28,440.
Legal Challenges
Consumer Watchdog, which called Lara’s decision last year to provide for insurer surcharges an “industry bailout,” sued Lara in April in Los Angeles County Superior Court, claiming that nothing in the 1968 statute that created the Fair Plan contemplated such an assessment on policyholders. The group also alleged that Lara violated state law by approving the assessment policy via “administrative fiat” rather than through the proper rulemaking procedure.
The American Property Casualty Insurance Association called the lawsuit “reckless and self-serving stunt.” The state’s 10 largest home insurers were also sued last month by a group of January 7 fire victims who allege the companies colluded to drop policyholders and force them into the FAIR Plan, where they would pay more for less coverage.
