The California FAIR Plan’s exposure rose 42% to $650 bn during the nine months ending in June, as more insurers declined to renew or offer policies.
Increasing risks from climate-driven wildfires and insufficient insurance rates have reduced the coverage options available to consumers in the voluntary market.
Enrollment grew 31% to 610,179 dwelling and commercial policies in force since the end of the association’s fiscal year in September. Written premium increased 33% since September to $1.84 bn, including $1.64 bn for dwellings and $201.2 mn for commercial properties.
The catastrophic Palisades and Eaton wildfires in Los Angeles in January mainly affected the Pacific Palisades and Altadena areas.
The FAIR Plan reported it paid $2.7 bn after processing more than 5,000 claims from the two fires, 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.
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.
The association is unlikely to appeal a Los Angeles Superior Court ruling that it violated the state’s insurance code by offering less smoke damage coverage than required.
The FAIR Plan is reviewing Judge Stuart Rice’s decision and is also updating its policy language to reflect how claims have been adjusted since last year, said Hilary McLean.
