California’s home insurance plan for those unable to secure coverage on the private market is facing a financial deficit. The plan, known as the FAIR Plan, needs an influx of funds to settle claims related to the recent Los Angeles wildfires.
State regulators announced Tuesday that the FAIR Plan will collect $1 billion from private insurance companies operating in California to cover its claims. This action is expected to cause an increase in homeowner insurance costs throughout the state.
This development represents a critical point for California’s home insurance market. The market has already been strained by wildfires, which have become more frequent and severe due to climate change. Facing growing losses, major insurers, such as State Farm, had already begun to reduce their presence in the state, making it more challenging for homeowners to secure coverage. This new assessment is likely to exacerbate the pressure on these insurers.
The $1 billion assessment is the largest since the FAIR Plan’s inception in 1968. It’s also the first time since the 1994 Northridge earthquake near Los Angeles that the FAIR Plan has been unable to cover claims independently. The fee will be distributed among insurers based on their market share, as mandated by state law.
“The primary focus is to ensure that the FAIR Plan can fulfill its claims,” stated Ricardo Lara, California’s insurance commissioner, in an interview. “The FAIR Plan is operating as intended, given the current circumstances.”
According to data from AM Best, a company that assesses the financial strength of insurers, the largest insurers in the state by market share in 2023 were State Farm, Farmers Insurance Group, and CSAA Insurance. Other prominent insurers in the top 10 included Liberty Mutual, Allstate, and Travelers.
