The California FAIR Plan paid $2.7 bn after receiving more than 5,000 claims from the Palisades and Eaton fires in Los Angeles in January, resulting in an $800 mn deficit.
Almost half of policyholders reported total losses. At the end of the first quarter, the plan reported $1.58 bn in cash and receivables. It allocated $2.38 bn for outstanding liabilities, which caused the shortfall.
The association explained that its typical surplus balance reflects available cash for catastrophe and non-catastrophe claims and related expenses.
Following the LA fires, a $1 bn assessment was imposed on member insurers. At the time of the fires, the FAIR Plan held $377 mn in cash and reinsurance capacity, according to the California Department of Insurance.
Insurer members can transfer up to 50% of their share of the $1 bn assessment to policyholders through a special charge but are prohibited from including the cost in property rate calculations.
Insurance Commissioner Ricardo Lara approved the FAIR Plan’s assessment request when the association had recorded nearly 4,800 fire-related claims. Carriers had 30 days from the notice date to make payment.
With property insurers reducing coverage availability, the FAIR Plan continues to grow. The number of active policies increased 23% since September to 573,739 in March. Since September 2021, policies have risen 139%, according to the FAIR Plan.
Wildfires across Los Angeles County may become the most expensive in U.S. history, with the California FAIR Plan facing potential losses of up to $24 bn, according to expert estimates.
The FAIR Plan, a privately run but state-mandated insurer of last resort, offers fire coverage to homeowners and businesses unable to obtain policies through the private market. It operates without public funding or government financial backing.
If it exhausts its resources, private insurers — and ultimately their customers — bear the financial burden.
Concerns are growing that a severe financial hit to the FAIR Plan could pressure both insurers and policyholders statewide. This could prompt insurers to reassess their presence in California’s market.
However, several financial steps must occur before that outcome. The FAIR Plan must first deplete its reserves — a scenario that is becoming more plausible as strong winds fuel fire spread.
Despite the scale of the 2024 fires, they largely affected regions where the FAIR Plan held limited exposure.
To meet increased demand, the FAIR Plan has hired over 250 staff in customer service and claims roles.
It also expanded its website to improve access to financial data, governance structure, claims activity, and performance metrics, aiming to provide clearer visibility for homeowners and regulators.
The FAIR Plan provides residential and commercial fire insurance within defined coverage limits.
