New California law aims to stabilize insurance for people who can't get private coverage

SACRAMENTO, Calif. (AP) — California Gov. Gavin Newsom signed a bipartisan bill Thursday that aims to prevent the state's home insurer of last resort from running out of money following a natural disaster.

The FAIR Plan is an insurance pool that provides policies to people who can’t get private insurance because their properties are deemed too risky to insure. The number of homeowners forced onto the FAIR Plan has skyrocketed. With high premiums and basic coverage, the plan is designed as a temporary option until homeowners can find permanent coverage.

But more Californians are relying on it than ever as increasingly devastating and destructive fires spark across the state, including in densely populated areas. There were nearly 600,000 home policies on the FAIR Plan as of June. Leaders of the plan last year warned state lawmakers that it could go insolvent after a major wildfire or disaster.

That reality came true earlier this year after wildfires swept through Los Angeles and destroyed more than 17,000 structures. The plan faced a loss of roughly $4 billion and needed a $1 billion bailout from private insurers to pay out claims. Half of that cost is expected to be passed onto all policyholders.

The law Newsom signed allows the FAIR Plan to request state-backed loans and bonds and spread out claims payments over multiple years after a disaster. Insurance companies were previously required to pay the full bailout within 30 days. Supporters of the new law said it will prevent the need for future bailouts that raise rates for everyone.

“The kinds of climate-fueled firestorms like we saw in January will only continue to worsen over time. That’s why we’re taking action now to continue strengthening California’s insurance market to be more resilient in the face of the climate crisis," Newsom said in a statement.

Republican state Sen. Marie Alvarado-Gil said the measure was a good step to help stabilize the FAIR Plan.

“This bill doesn't solve everything. But it does help to ensure that the FAIR Plan customers can rely on coverage in their time of greatest need,” she said in September during a floor debate.

Newsom also signed another bill to expand the FAIR Plan board, which currently consists of nine voting insurers and four nonvoting members appointed by the governor. The new law adds two representatives from the Legislature to serve as non-voting members on the board.

Supporters, including the state’s top insurance regulator, said the law adds a new layer of oversight and transparency. Opponents said it wouldn't make a difference because the new members don't have any voting power.

California is undergoing a yearslong effort to stabilize its insurance market after several major insurance companies either paused or restricted new business in the state in 2023, which pushed hundreds of thousands of homeowners onto the FAIR Plan. Wildfires are becoming more common and destructive in California because of climate change, and insurers say that is making it difficult to truly price the risk on properties.

Of the top 20 most destructive wildfires in state history, 15 have occurred since 2015, according to the California Department of Forestry and Fire Protection.

The state now gives insurers more latitude to raise premiums in exchange for issuing more policies in high-risk areas. That includes regulations allowing insurers to consider climate change when setting their prices and allowing them pass on the costs of reinsurance to California consumers.