California FAIR Insurance Plan Stretched by LA Wildfires
Insurance expert Karl Sussmann is an industry expert whose home and office are both in one of the evacuation zones. He notes that the insurance industry may change the way it is regulated, and that people may be paying a significant premium for being in the L.A. area, due to the L.A. fires.
- The State's Fair Plan may become the insurer of last resort, leading to increased premiums
- The new state rules require insurance companies to pay for $1 billion out of pocket before they can start adding surcharges to the bills of all customers.
- Insurance rules can influence the cost of insurance premiums.
FAIR Plan Struggles with Wildfire Claims -California Property Owners Face Insurance Hikes
In an unprecedented move, California's insurer of last resort, the FAIR Plan, is turning to private insurers and homeowners to help cover billions in claims from the devastating Los Angeles wildfires. The California Department of Insurance has approved a $1 billion emergency funding request, marking the first such action in over three decades.The financial impact will be felt across the state, as half of the burden - $500 million - will be passed directly to California homeowners through one-time fees on their insurance bills. This translates to approximately $60 per household for the state's 8.3 million insured households.
The FAIR Plan's financial crisis stems from the recent Los Angeles wildfires, which have generated nearly 4,800 claims totaling $914 million in payments as of February 9th - more than double the insurer's pre-fire reserves. The total losses are expected to reach around $4 billion, making these fires potentially California's costliest natural disaster.
The situation is particularly critical in fire-affected areas, where FAIR Plan coverage represents about 16% of homes in and around the fire footprints, compared to just 5% statewide. The insurer has been seeing dramatic growth in recent years, with policies increasing from 202,800 in September 2020 to nearly 452,000 by September 2024, as major insurers like Allstate and State Farm have pulled back from the California market.
The ripple effects are already visible in the broader insurance market. State Farm has cited the FAIR Plan assessment as one reason for requesting an emergency rate hike. Other major insurers are also feeling the impact, with Travelers Group expecting to pay about $1.7 billion total due to the wildfires, including its share of FAIR Plan losses, while Allstate anticipates paying approximately $1.1 billion.
Consumer advocacy groups are pushing back against the decision to pass costs to policyholders. Consumer Watchdog announced it would explore legal options to prevent insurance companies from passing along these costs, arguing that state law requires insurers, not policyholders, to participate in FAIR Plan losses.
Insurance Commissioner Ricardo Lara acknowledged the severity of the situation, noting, "The fact that we are once again facing this issue 30 years after wildfires devastated these same communities highlights the need for change." The last time the FAIR Plan required such an assessment was in the early 1990s, following destructive fires in Los Angeles County and the Northridge earthquake.
For California property owners, this development signals potentially higher insurance costs ahead, as the one-time assessment comes amid an already challenging insurance market characterized by rising rates and decreasing availability of coverage. The situation underscores the growing challenges of providing affordable property insurance in a state increasingly affected by climate-related disasters.
California FAIR Plan insurer running out of money due to LA fires
Megan Fan Munce
Destroyed homes are seen in the Pacific Palisades community, as seen on Feb. 3. The FAIR Plan, California's insurer of last resort, has run out of funds to pay claims due to the Los Angeles fires.
Brontë Wittpenn/The Chronicle
The California FAIR Plan does not have enough money to weather the impact of the record-breaking Los Angeles wildfires on its own. Instead, it will turn to private insurers for help — triggering a process where insured California homeowners across the state will end up paying part of the bill.
The California Department of Insurance approved the FAIR Plan’s request to collectively charge private insurance companies $1 billion in order to help pay claims, the department announced Tuesday. Without it, the FAIR Plan would have run out of money by March, according to the official order. It’s the first time in just over three decades that the FAIR Plan has turned to private insurers for money.
A new agreement, brokered last year by Insurance Commissioner Ricardo Lara and the FAIR Plan, means insurers will be able to pass along half of such extra charges — in this case $500 million — to their policyholders.
When divided up, the payment to individual policyholders is likely to be small. Without factoring in businesses, $500 million split up amongst the 8.3 million California households insured by the private market is roughly $60 per policyholder.
Each insurer will be charged according to their market share of residential and commercial policies. The charge will appear on policyholder’s bills as a one-time fee, rather than a rate hike. Homeowners who get their insurance through non-admitted, also known as surplus line, insurers will not be charged, but that is a minority of the state — just 41,500 policyholders as of 2023. The Department of Insurance plans to issue guidelines on how insurers can calculate the divvying up of the costs to individual customers, according to Michael Soller, deputy commissioner with the department.
As of Feb. 9, the FAIR Plan received just under 4,800 claims from wildfire survivors and had paid $914 million — more than double what it had in reserves prior to the fire, according to the insurer. Roughly 97% of those claims so far have been residential, and the other 3% are commercial, according to Soller. The insurer estimates its total losses will be around $4 billion. A Chronicle analysis of FAIR Plan data found the insurer represented roughly 16% of all homes in the ZIP codes in and around the fire footprints, compared to just 5% of homes statewide.
This $1 billion payment, known as an assessment, will supplement the funds the FAIR Plan’s reserves and what it expects to recover from its reinsurance contracts — insurance for insurance companies. To tap into reinsurance, the FAIR Plan must first pay out $900 million to meet its deductible, according to the insurer. After that, it can begin collecting in part from its reinsurance and in part through industry assessments.
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Soller said the department expects this assessment will allow the FAIR Plan to pay all of its claims from the Los Angeles wildfires while leaving enough funds available for the coming summer wildfire season.
As of Jan. 30, insurers, including the FAIR Plan, have paid more than $4.2 billion to Los Angeles wildfire survivors. State Farm General alone has paid more than $1 billion, according to the company.
Several insurers had indicated they were expecting to be hit by a FAIR Plan assessment. Last week, State Farm General cited losses from a FAIR Plan assessment as a reason why it was asking regulators for an emergency rate hike. Travelers Group, the ninth largest insurer in California, said Tuesday it expects to pay about $1.7 billion total due to the wildfires, including its share of FAIR Plan losses. Executives from Allstate, the state’s seventh largest insurer, said at a Feb. 6 earnings call they expect to pay about $1.1 billion between its own claims and what it will pay to the FAIR Plan after reinsurance.
The last time the FAIR Plan charged private insurers was more than 30 years ago. At that time, a series of destructive fires hit Los Angeles County, most notably two fires in 1993 that burned hundreds of buildings in Altadena, Malibu and Topanga. The following year a major earthquake in Northridge, which sparked fires of its own, became California’s most expensive natural disaster on record, causing another assessment.
In total, the FAIR Plan assessed private insurers for $563 million, adjusted for inflation, to help pay out claims to homeowners impacted by the early 1990s disasters. Preliminary estimates from risk modelers including CoreLogic and Verisk suggest that this year’s Los Angeles wildfires will break the record for California’s costliest disaster.
“The fact that we are once again facing this issue 30 years after wildfires devastated these same communities highlights the need for change. Thirty years of stagnant regulations have placed more people at risk. We will move people away from the FAIR Plan, and insurance companies will write more policies under the Sustainable Insurance Strategy I finalized last year,” Lara said in a statement.
Following the Northridge quake, many insurers decided to stop offering coverage for earthquakes — a parallel, in some ways, to what has been happening in the past few years in California, when Allstate and State Farm ceased offering new policies and a handful of small insurers withdrew from the state altogether, many citing wildfire risk.
Those cutbacks by traditional insurers, in turn, put more pressure on the FAIR Plan’s limited finances. From September 2020 to September 2024, the FAIR Plan’s residential policies increased from more than 202,800 to just under 451,800.
Consumer advocacy group Consumer Watchdog said Tuesday it would be “exploring every legal option” to stop insurance companies from passing along costs to consumers. The group argued that state law requires insurers, but not their policyholders, to participate in FAIR Plan losses.
“This gift to insurance companies rewards bad behavior and will only incentivize insurers to drop even more homeowners and force them onto the FAIR Plan in future, because there’s no consequence for abandoning these families,” the group’s Executive Director Carmen Balber said in a statement.
Some industry experts have worried that an assessment on top of already heavy losses from insurers’ own customers might cause insurance companies to further reduce their presence in the state or delay plans to begin writing new policies.
But Mike Zukerman, CEO of CSAA, California’s third largest home insurer, told the Chronicle in January he believed the industry was well prepared for an assessment.
“When we pay claims, whether they’re FAIR Plan assessments, or whether they’re to our customers directly, that’s why we exist. So we’re happy to do it,” Zukerman said. “It’s our business.”
Feb 11, 2025|Updated Feb 11, 2025 3:33 p.m.
Megan Fan Munce is a reporter on the climate team covering California’s home insurance crisis. She writes about the California FAIR Plan; State Farm non-renewals; pullbacks by other insurers such as Allstate and Farmers; policy initiatives from the California Department of Insurance; and how homeowners in the Bay Area and elsewhere are navigating the challenges.
Munce first joined the San Francisco Chronicle as part of the two-year Hearst Journalism Fellowship, spending her first year of the program at the Houston Chronicle. She grew up in San Jose before attending Northwestern University’s Medill School of Journalism.
California seeks $1 billion from insurers to shore up FAIR Plan after LA fires
A palm tree burns at Sunset Beach during a wildfire in the Pacific Palisades neighborhood of west Los Angeles, California, January 7, 2025. REUTERS/Mike Blake/File Photo Purchase Licensing Rights, opens new tab
Feb 11 (Reuters) - California Insurance Commissioner Ricardo Lara has requested $1 billion in additional funds from the commission's member insurers to shore up the state-backed FAIR Plan after wildfires ravaged swathes of land in and around Los Angeles last month.
Lara also directed those responsible for implementing the FAIR Plan - an insurance program designed to help property owners who cannot find private market coverage - to hire more staff and utilize all available funds, including reserves and reinsurance funds.
Two fires on either side of Los Angeles burned an area nearly the size of Washington, D.C., from January 7 until they were fully contained, killing 29 people and damaging or destroying more than 16,000 structures, officials have said.
As of February 9, the FAIR Plan has received around 3,469 claims for damage caused by the Palisades Fire and around 1,325 claims for damage in the Eaton Fire, its website showed. The program has paid out more than $914 million to policyholders.
"The FAIR Plan must pay claims just like any other insurance company," Lara said in a statement on Tuesday.
The funding request is necessary for the FAIR Plan to continue meeting its obligations to Californians, the Department of Insurance said in the statement.
The funds request could exacerbate financial strain on insurers who have been hit hard by rising catastrophe claims following several wildfires and other natural disasters over the past couple of years.
Catastrophe risk modeling firm KCC last month estimated insured loss of about $28 billion from the Los Angeles wildfires, making them the costliest in U.S. history.
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Reporting by Kanjyik Ghosh in Bengaluru; Editing by Christopher Cushing
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California homeowners will have to fund half of high-risk insurer's $1 billion ‘bailout’
6–7 minutes
The remains of a smoldering home in an Altadena neighborhood affected by the Eaton Fire on Jan. 8, 2025. California's insurer of last resort is facing $1 billion in losses from Southern California wildfires. Photo by Jules Hotz for CalMatters
After saying it would run out of funds by March, California’s last-resort fire
insurance provider will impose a special charge of $1 billion on homeowners and
insurance companies, the first such move in more than three decades.
The state Insurance Department today approved a request from the provider, the FAIR Plan, to impose the charge and ensure it stays solvent as it covers claims from victims of the Los Angeles County fires, the department said in an order by Commissioner Ricardo Lara.
Most California home and fire insurance customers will likely see temporary fees added to their insurance bills as part of the charge, known as an assessment — marking the first time an assessment has been imposed directly on customers rather than just insurance companies.
The FAIR Plan is a pool of insurers required by law to provide fire insurance to property owners who can’t find insurance elsewhere. Its customer base has grown dramatically in the past several years as insurance companies have increasingly refused to write or renew policies in the state, citing increased risk of wildfires. It now has more than 451,000 policies.
Many LA fire victims have insurance through the FAIR Plan. Residents of the Pacific Palisades, where thousands of structures burned last month, held 85% more FAIR Plan policies in September than they had a year prior.
More on the LA Fires
The FAIR Plan assessment is the latest insurance fallout from the LA fires. State Farm, California’s largest property insurance provider, recently asked for permission to temporarily raise its premiums an average of 22% because of the claims it is facing from the fires. The insurance department is still considering that request.
The FAIR Plan’s president, Victoria Roach, had been warning about its ability to pay claims in case of catastrophe, telling a state Assembly committee last year that the plan “one event away from a large assessment.”
As of Feb. 9, the plan had paid more than $900 million in claims, the commissioner’s order said. “A $1 billion assessment puts the FAIR Plan at an estimated cash position of just under $400 million by July 2025, as the 2025 wildfire season is just beginning,” Roach told the insurance department in the plan’s request for the assessment.
Insurance companies will need to submit filings with the insurance department before they can collect the one-time fees from their customers, said Michael Soller, department spokesperson.
It is unclear on what percentage of policyholders’ premiums the fees will be based.
“The FAIR Plan does not have a role in determining how insurers manage costs associated once an assessment is approved,” the plan said in a press release.
Under new regulations that took effect this year as part of Insurance Commissioner Ricardo Lara’s effort to address the growing difficulty of finding property insurance in California, insurance customers will now have to shoulder 50% of any assessment through a temporary fee added to their premiums. Before the new rules went into effect, the plan would have gotten all the additional funds directly from its member companies, which would have then tried to recoup that money by raising premiums.
The insurance industry supports the change. “This is essential to prevent even greater strain on California’s already unbalanced insurance market and avoiding widespread policy cancellations that would jeopardize coverage for millions of Californians,” said Mark Sektnan, vice president for state government relations for the American Property Casualty Insurance Association, in a written statement.
But Consumer Watchdog, a consumer advocacy group, is considering suing over the fact that consumers are now on the hook for the additional funding for the FAIR Plan, which its executive director calls a “bailout.”
“We’ll be exploring every legal option to protect (consumers) from those surcharges,” Carmen Balber told CalMatters.
Balber added that some insurers, such as Mercury General Corp., said shortly after the L.A. fires began in early January that they expected to have adequate reinsurance to cover any possible increased contributions they would have to make to the FAIR Plan. In that case, “are they going to let insurers double dip and charge consumers (anyway)?” Balber asked.
The insurance department said the last time the state approved additional funds for the FAIR Plan was in 1993, after the Kinneloa Fire in Altadena and the Old Topanga Fire in Malibu and Topanga. Some of those areas were also affected by the fires this year. The additional funds approved then are equivalent to $563 million today, the department said.
In a statement, Lara characterized the new regulation as a “necessary consumer protection action.” The commissioner added: “The fact that we are once again facing this issue 30 years after wildfires devastated these same communities highlights the need for change.”
More on Fire Insurance in California
Levi Sumagaysay covers the California economy for CalMatters with an eye on accountability and equity. She reports on the insurance market, taxes and anything that affects the state’s residents, labor...
Update from the California FAIR Plan - The California FAIR Plan
aperez@cfpnet.com
5–6 minutes
February 7, 2025
The California FAIR Plan – an independent, not-for-profit catastrophe insurer of last resort – continues to receive, manage and pay claims related to the Southern California wildfires. We remain focused on helping customers and ensuring all covered claims are paid as soon as possible.
Managing Covered Claims
As of February 4, the FAIR Plan has received approximately 3,485 claims for
damage caused by the Palisades Fire and approximately 1,314 claims for damage
caused by the Eaton Fire. The claims vary according to the type and amount of
coverage and loss. New claims, including total loss claims, continue to be
reported daily.
The FAIR Plan has paid more than $700 million to policyholders, including advance payments, to cover claims related to the Palisades and Eaton fires.
Approximately 45% of the wildfire claims are reported as total losses, 45% reported as partial losses, and 10% as Fair Rental Value only, which covers lost rental income due to a covered peril, like fire. It is important to note these approximations may shift as new claims are submitted and confirmed, including claims made before policyholders were able to return to their properties and determine the extent of damage.
All Covered Claims Will be Paid
The FAIR Plan is responsibly prioritizing claim payments, and we continually
monitor our financial position, which evolves daily, to ensure that all covered
claims can be paid promptly.
Reinsurance
The FAIR Plan is accessing reinsurance, a payment mechanism to help pay claims.
The FAIR Plan can access the first $350 million in available reinsurance for anticipated claims payments and related expenses above the $900 million deductible. The FAIR Plan can access additional layers of reinsurance based on losses incurred and outstanding reserves up to a $5.78 billion limit, which includes varying percentages of co-reinsurance, similar to co-pays, subject to certain conditions. To access all layers of available reinsurance, the FAIR Plan is responsible for paying up to approximately $3.5 billion, including the $900 million deductible, and copays.
Assessment
The FAIR Plan has not yet asked the California Insurance Commissioner for an
assessment in response to the Southern California fires. By statute, the FAIR
Plan, with the approval of the
California Insurance Commissioner, has the right to assess all admitted
insurers licensed to sell and selling property insurance in California to help
pay for FAIR Plan losses.
The FAIR Plan does not have a role in determining how insurers manage costs associated with an assessment.
LA Wildfire Exposure
The latest estimates approximate the FAIR Plan has a total potential exposure
of over $4 billion for the Palisades Fire and $775 million for the Eaton Fire,
according to the CAL FIRE incident maps.
It is important to note that “exposure” does not equal “loss.” Exposure means the total amount of insurance for a particular property or group of properties. It does not equate to the number of claims made or the anticipated claims and expense payments related to those claims.
Submitting a Claim
We encourage affected customers to submit a claim anytime on our website at www.CFPnet.com If customers have questions and/or difficulty submitting a
claim online, they can call 800-339-4099. Customers can also work with their
broker to submit a claim on their behalf.
More information about submitting a claim and what to expect after doing so is available at https://www.cfpnet.com/claims/.
Additional information about submitting claims, including responses to frequently asked claims questions, and key statistics and data is available at www.cfpnet.com.
###
About the FAIR Plan
The FAIR Plan is a private association comprised of all insurers licensed to
write property insurance in California and is funded primarily through the
policies it sells to customers. The FAIR Plan is not a state agency and is not
funded by the state or other public agencies.
The FAIR Plan offers basic property insurance for all Californians who cannot access coverage in the voluntary insurance marketplace. As an insurer of “last resort,” the FAIR Plan was established by statute to provide a temporary safety net for consumers who need fire insurance until coverage through the voluntary market is available. For more information, visit www.CFPnet.com.
For media questions, contact:
media@cfpnet.com
The above information can be attributed to the California FAIR Plan.
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