California homeowners will pay part of FAIR Plan’s $1 billion assessment

Pat Maio, Los Angeles Daily NewsDaily News

California’s insurance commissioner approved a plan Tuesday, Feb. 11, to keep the state’s insurance of last resort solvent by collecting an additional $1 billion from all private insurance members after a record number of claims were filed following January wildfires in Los Angeles County.

In the announcement, Insurance Commissioner Ricardo Lara said the FAIR Plan can continue paying consumer claims by permitting its member insurance companies to collect an “assessment” from consumers — even those who are not directly affected by the fires. This is likely to drive up insurance costs for homeowners across the state as private insurers try to plug the financial hole in the FAIR Plan.

Also see: Why all California homeowners could be on the hook for LA County wildfire costs

The announcement from Lara did not include what that assessment would cost individual property owners, but did note that it will be calculated off the market share of private insurance members.

A spokesman for the California Department of Insurance was not immediately available for comment on how big the assessments might be for private insurance members of the FAIR plan, or the costs passed along to consumers.

Virginia Roach, president of the Los Angeles-based insurance pool, wrote Lara on Tuesday indicating that a special assessment was needed in order to “maintain our operations” and “continue to pay claims of policyholders.”

Lara said he approved the assessment with one goal in mind: The FAIR Plan must pay claims just like any other insurance company. “I reject those who are hoping for the failure of our insurance market by spreading fear and doubt. Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks.”

As of Feb. 9, the plan received 3,469 claims for damage caused by the Palisades fire in the Malibu and Pacific Palisades area and 1,325 claims for damage caused by the Eaton fire in Altadena, according to Roach’s letter to Lara.

Roughly 97% of the nearly 4,800 claims received are for damage to residential structures, with fewer than 3% of the claims on commercial structures, she wrote.

A chart included in that letter says the FAIR Plan has paid more than $914 million in losses on claims, triggering “reinsurance” payments from back-up providers.

In earlier statements, the FAIR Plan said it can only tap into reinsurance — essentially insurance for insurance companies — once it pays its first $900 million in claims.

Also see: State Farm seeks ‘massive’ insurance rate hike for California homeowners

As of Jan. 1, the FAIR plan reported cash on hand of $1.5 billion, which includes unallocated funds of $510 million — essentially reserves for liabilities incurred but not yet paid. The FAIR plan has since exhausted these unallocated funds and has cash on hand of roughly $1.2 billion, according to Roach. It has triggered recoveries on some of the reinsurance and has started receiving funds, she said.

Looking forward, Roach writes that the financial condition of the FAIR Plan worsens.

She’s estimating losses for last month’s fires totaling about $4 billion, making it difficult to pay out the claims. The $1 billion assessment puts the FAIR Plan at an estimated cash position of just under $400 million by July 2025, and enough to ensure that the FAIR Plan continues to have sufficient funds to “pay for losses and operating expenses, including maintaining elevated staffing levels needed to respond to policyholders impacted by the disaster.”

The FAIR Plan is an insurance pool that all the major private insurers pay into, and the plan then issues policies to people who can’t get private insurance because their properties are deemed too risky to insure. It provides high premiums and basic coverage for fire damage only. There were more than 452,000 policies on the Fair Plan in 2024, more than double the number in 2020.

Not everyone agrees with Lara’s approach to solving the FAIR Plan’s woes.

“The FAIR Plan is in trouble because insurance companies dumped too many homeowners,” said Carmen Balber, executive director of Consumer Watchdog. “That’s why insurers are on the hook for FAIR Plan losses. Homeowners across California should not have to pay a penalty to repair the damage from home insurance companies’ predatory behavior.”

“The move is contrary to the law … because the statute enacting the FAIR Plan explicitly put insurance companies, not consumers, on the hook for these losses. The statute requires insurers to participate proportionally in the “writings, expenses, profits, and losses” of the Fair Plan,” Balber said in a statement.

However, Roach wrote to Lara that an assessment request was first sought over 30 years ago.

The funding mechanism was triggered when assessments were levied against the insurance industry following the Kinneola fire in Altadena and Old Topanga fire in Malibu in 1993, according to Roach. Other assessments were made in 1994 and 1995 following the Northridge earthquake. In total, said Roach, the FAIR Plan assessed the industry $260 million.

The Eaton and Palisades fires on Jan. 7 destroyed nearly 17,000 structures and killed at least 29 people.Related Articles