Insurers seek to surcharge California homeowners for fire costs

Insurers are seeking to charge homeowners across California for some of the costs of the catastrophic Los Angeles County fires the companies were burdened with when the state's insurer of last resort needed a bailout.

The California FAIR Plan Association, with the approval of state Insurance Commissioner Ricardo Lara, assessed its member carriers $1 billion on Feb. 11 when the plan was swamped with thousands of claims after the Jan. 7 fires in Pacific Palisades, Altadena and Sylmar.

The plan, operated and backstopped by the state's licensed home insurers, said it has made $2.75 billion in claims payments as of Friday and expects its costs for the fires will total $4 billion, which it could not cover with its limited surplus and reinsurance funds.

Now, under a policy Lara put in place last year that is being challenged in court, insurers are filing applications with the state Department of Insurance seeking to surcharge their policyholders statewide for half the costs of that assessment.

That means even if a person lives hundreds of miles away from the fires, they could be forced to help pay their insurers' costs of the assessment — on top of annual premiums that have risen hundreds or even thousands of dollars for some homeowners as many insurers have sharply raised rates.

So far at least 10 home insurers and their affiliates have filed applications for surcharges, with the fees ranging from about $6 or less for some rental policyholders, $20 or $30 for condo owners and typically $40 to $60 for a standard homeowners policy, though 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, and carriers with smaller market share such as Amica and Western Mutual. Lara has final say about whether to allow the surcharges to go through.

"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," said Denni Ritter, vice president for state government relations for the American Property Casualty Insurance Association trade group.

Hilary McLean, a spokesperson for the FAIR Plan, said it has no role in determining how its member carriers decide to pay for assessments.

While many of the state's licensed home insurers have yet to file applications, most future surcharges could be in a similar range because the FAIR Plan assessed its member carriers based on their share of California's home insurance market.

"That was the ballpark estimate," said Rex Frazier, president of the Personal Insurance Federation of California, which represents major property and casualty insurers.

But Carmen Balber, executive director of Consumer Watchdog, a Los Angeles-based group that filed the suit to stop the surcharges, said that because the application figures are only averages, 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," she said, adding that this could be the "tip of the iceberg" if the FAIR Plan further assesses its member carriers.

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," he 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, including the 2018 blaze that nearly wiped out the town of Paradise in Northern California.

A Times analysis found that in the Palisades and Eaton fire zones, the FAIR Plan's rolls shot up last year 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.

Lara's surcharge policy was instituted as part of his Sustainable Insurance Strategy to make the troubled homeowners market more attractive to insurers. It allows insurers to recoup from their policyholders up to half of any FAIR Plan assessment that totals up to $1 billion for residential losses and $1 billion for commercial losses. Any assessments that exceed those limits can be completely passed on to policyholders. Residential customers are not responsible for commercial losses.

However, an additional assessment may not be necessary, according to a Feb. 11 letter sent by the plan to Lara seeking permission for the current assessment on its member carriers.

The plan said it was running out of money to pay claims after using up $510 million in unallocated funds and drawing money from its $5.78-billion reinsurance program, acquired by the insurer to spread its risk from fires and other catastrophic events. However, it estimated it would have $306 million in cash after the assessments of its members as of June 30.

Frazier said that he had "no reason to believe" there would be another FAIR Plan assessment related to the Jan. 7 fires, but that another major blaze this year could change the calculus. "I think the worry is what happens next November or December," he said.

McLean said the FAIR Plan "cannot speculate on losses associated with future disasters."

A bill working its way through the Legislature would authorize the California Infrastructure and Economic Development Bank to issue bonds on behalf of the FAIR Plan to help pay its claims and increase its liquidity.

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. It also alleged Lara violated state law by approving the assessment policy via "administrative fiat" rather through the proper rulemaking procedure.

A spokesman for Lara at the time said the lawsuit "serves to undermine our efforts to restore competition to all areas of our state, so people can get off the Fair Plan and back to the regular market." The American Property Casualty Insurance Association called it a "reckless and self-serving stunt."

The state's 10 largest home insurers also were sued last month by a group of Jan. 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. That had the effect of reducing the insurers' liabilities after the fires due to the plan's losses.

The American Property Casualty Insurance Association called the lawsuit "meritless."