// Workers AI · dad joke modeIs the California FAIR Plan a good deal? Fair-ly so.
The California FAIR Plan Association (wherein "FAIR" stands for "Fair Access to Insurance Requirements"), or California FAIR Plan is a fire insurance pool created by the state of California in 1968 for property owners who cannot find insurance in the state's price-regulated "admitted" (or "traditional") market.[6] It is an insurer of last resort, for people who cannot find, do not want, or feel they cannot afford, insurance in the "non-admitted," or "surplus line," market.[4][7] FAIR Plan policies provide basic fire, lightning, and smoke damage coverage, but do not include tree damage, water damage, theft, or liability coverage; residential policies are capped at $3 million.[4][8] As a not-for-profit insurer of last resort, the FAIR Plan is required by law to insure a qualified property regardless of the property's exposure to brush or wildfire, serving as a temporary safety net for property owners until coverage becomes available in the "admitted" or "traditional" market.[5]
Starting around 2020, in what has been described as California's home insurance "crisis,"[9][10][11][12] seven of the state's twelve largest insurers, including non-profit USAA, stopped renewing many policies, and stopped issuing new policies out of concern for their financial solvency because the state's insurance regulator was not allowing them to sufficiently raise rates to cover the increasing risks and rebuilding costs from the increasing frequency and severity of wildfires.[11][12] The insurance companies ran computer models in 2017 which predicted that yearly costs would increase by 55%, followed by them paying claims to victims of the 2017 and 2018 wildfires equal to all the profits they had made over the previous 25 years (more than $12 billion).[10][11][13][3] Insurers pulling back from the "admitted" or "traditional" market led many homeowners to move to the FAIR Plan: Since 2020, the number of properties covered by the plan increased from 124,000 in 2019 to 663,000 by March 2026.[10][14] In June 2026, 94% of the Plan's loss exposure was from residential properties, 6% from commercial properties, with its total loss exposure at $768 billion, up from $50 billion in 2018.[15][9][12][16] In an attempt to rectify this situation, by 2026 the state started allowing insurance companies to use predictions of future fire risk (previously they were only allowed to use local fire history) to set rates, to pass their cost of reinsurance on to customers (previously disallowed, though common in other states), and to expedite the approval process for rate increases, all of which are expected to incentivize companies to resume issuing policies, thereby reducing the participation in the FAIR Plan.[17][3]
History
[edit]The FAIR Plan was established in August 1968 by a statutory amendment to the California Insurance Code, and is regulated by the office of the California Insurance Commissioner.[18][5] It was created in response to insurers ceasing to write policies for people in minority neighborhoods destroyed by the 1965 Watts riots.[15]
Funding and operations
[edit]The California FAIR Plan is not a state agency and is not supported by federal, state, or local funds.[5] It is an involuntary syndicated fire insurance pool comprising all insurers licensed to write and engaged in writing basic property insurance in California.[4] All licensed property/casualty insurers which write basic property insurance required by Insurance Code sections 10091(a) and 10095(a) are members of the California FAIR Plan.[19] The California FAIR Plan issues policies on behalf of its member companies. Each member company participates in the profits, losses, and expenses of the California FAIR Plan in direct proportion to its market share of business written in the state.[5]
Risk
[edit]As an insurer of last resort, the California FAIR Plan is required to provide basic fire coverage to California property owners who cannot find insurance in California's price-regulated "admitted," "traditional," or "voluntary" market.[4] (Insurance is still available in the "non-admitted" or "surplus-line" markets, but it is generally more expensive, and California law prohibits insurance brokers from offering this insurance to clients unless the broker can prove that their client has been turned down by three insurers in the "admitted" market.)[4][7] Because of this, the FAIR Plan covers a higher number, and concentration, of properties at high risk of wildfire damage.[4] In 2020, the FAIR Plan covered 2.5 percent of the statewide market share, but 20.4 percent of the market share in ZIP codes at high risk from wildfires.[20]
In July 2024, 95% of the Plan's $400 billion loss exposure was due to residential properties, only 5% was from commercial properties.[2] By March 2026, the plan's exposure increased to $700 billion.[15]
A March 2026 study from the Haas School of Business at UC Berkeley found that the plan's risk is “disproportionately tied to higher-income, high-asset communities.”[15] Academics have suggested that the plan lower its risk by not covering second homes, and by reducing the $3 million cap (which in 2026 is four times the median home value).[15]
Rates
[edit]The California Insurance Commissioner must approve any rate increases the FAIR plan proposes, but because the FAIR plan is exempt from Proposition 103, the public has no say in a rate review.[11][21]
The FAIR Plan has tried to raise its rates in order to be sufficiently funded, and was allowed to increase rates by 20% in 2019, and 16% in 2021.[1][21] In 2023, even though it needed a 70% increase to be acutarially sound, it requested a 49% increase but was only allowed a 16% increase.[1][21][12]
In March 2024, FAIR Plan president Victoria Roach stated: "Our rates are never actuarially sound because all of our expenses are not included in that ratemaking."[12]
In October 2025, it asked for a 36% average residential rate hike, which would be greater for homeowners in fire-prone neighborhoods, and include decreases for residential properties not at risk of wildfire.[21] In 2026, a 29% rate increase was approved.[14]
Assessments
[edit]If the FAIR Plan does not have the money to pay out all claims, it collects money from insurance companies that operate in California via an assessment.[13] The FAIR Plan collected a $150 million assessment in 1993 following fires in Altadena and Malibu, $60 million in 1994, $50 million in 1995 following the Northridge Earthquake, and $1 billion in 2025 for the Plan's $4 billion liability from the Eaton and Palisades fires.[22][14] As part of a 2024 policy change, insurers are now allowed to pass part of their assessment to customers via a surcharge, which in this case (2025 fires) cost the median homeowner $28.[14]
Insurance companies had been concerned that if the FAIR Plan does not have the money to pay out all its claims, it will collect money through an assessment on all insurance companies operating in the state, but that California's regulators may not allow the companies to recoup that expense by raising rates or allowing surcharges, leading companies to stop doing business in California.[1] In a July 2024 agreement with the State Insurance Commissioner, the FAIR Plan is now allowed to require licensed insurers to cover up to $2 billion ($1 billion of residential and $1 billion of commercial) of payments to FAIR Plan policy holders if FAIR Plan payouts exceed its reserves and reinsurance.[2] Under this new agreement, insurance companies could then pass on 50% those assessment amounts as a one-time surcharge to their customers, and for any amounts exceeding the ($1 billion for residential and $1 billion for commercial) thresholds, could pass on 100% of that amount to customers.[2] Residential and commercial customers are separated; residential customers would not be charged for commercial surcharges, and vice versa.[2] The FAIR Plan does not have a role in determining how insurers manage associated costs once an assessment is approved by the California Insurance Commissioner.[23][14]
Recent growth
[edit]Insurance companies were prohibited from passing on the cost of reinsurance to customers, and were not allowed to use predictions of future fires for pricing insurance policies, instead being required to use historical fire information from the previous 20 years at each location.[11][17][10][12] In 2017, high resolution computer models predicted that statewide, rare but devastating wildfires would increase total yearly costs by 55%.[10] With the knowledge of those models, followed by the 2017 and 2018 wildfires, in which California's insurers paid out claims equal to all the profits they made over the previous 25 years (more than $12 billion), insurers started worrying about their future solvency.[11][13][3] After losing $6.7 billion in 2022 and $6.3 billion in 2023, State Farm in March 2024 declined to renew 72,000 policies, stating that it is their "responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws."[9] By March 2024, seven of the state's twelve largest insurers, including Allstate, Chubb, Farmers, Nationwide, Travellers, State Farm, and USAA stopped writing new policies in California.[11][12][17] In December 2024, it was announced that insurance companies will (for the first time in California) be allowed to pass on the costs of their reinsurance to consumers, in an attempt to convince more insurance companies to write policies in California, and thereby reduce the use of the FAIR Plan.[3] In order to do so, they will have to write 5% more policies (for comprehensive coverage) for high fire risk properties every two years, until the percentage of their high fire risk policy holdings reaches 85% of their statewide market share (8.5% of policies issued for a company with 10% market share).[3] Insurance companies will also now be allowed to use computer based "catastrophe modelling" for setting rates.[3]
Between 2023 and 2024, the number of homes in the ZIP code affected by the January 2025 Palisades fire covered by the FAIR Plan almost doubled.[13]
See also
[edit]- 1988 California Proposition 103
- California Department of Insurance
- Citizens Property Insurance Corporation ("Citizens") similar organization to California's FAIR in Florida
References
[edit]- 1 2 3 4 Eaglesham, Jean (October 4, 2023). "Homeowners Flock to Last-Resort Insurance Policies". Wall Street Journal.
Insurers are concerned they will have to pick up the tab if the California Fair Plan can't meet its claims, and may not be allowed to recover that cost through rate increases, Frazier said. That's helping drive the pullback from the state, he added.
- 1 2 3 4 5 Darmiento, Laurence (July 30, 2024). "L.A. consumer group calls FAIR Plan insurance reforms an industry 'bailout'". Los Angeles Times. Archived from the original on January 11, 2025.
- 1 2 3 4 5 6 7 Darmiento, Laurence (December 30, 2024). "State takes final step to fix California's troubled home insurance market". Los Angeles Times.
This will be the first time in California that insurers can include the cost of reinsurance in their premiums, though it is a common practice in other states. Insurers have been pulling back from the state's home insurance market, citing wildfire losses, and the regulation is intended to make the market more attractive for home insurers. ... ...another key element of Lara's reforms, which will allow insurers to use so-called "catastrophe models" in setting premium rates. The models are computer programs that attempt to predict the likelihood and costs of disasters, such as wildfires, using complex variables rather than just past losses.
- 1 2 3 4 5 6 7 Munce, Megan Fan (July 21, 2025). "California FAIR Plan sees fastest ever growth, is now one of biggest insurers". San Francisco Chronicle. Retrieved March 31, 2026.
Drager searched for a replacement, but no private insurer was willing to give a quote for the full value of her home. So she turned to the non-admitted, or surplus line, market — insurance companies that are not subject to California's pricing regulations. Even when she chose a high deductible, none of the quotes were remotely affordable.
- 1 2 3 4 5 "About - The California FAIR Plan". The California FAIR Plan. Archived from the original on February 12, 2025. Retrieved February 24, 2025.
- ↑ Multiple sources:[1][2][3][4][5]
- 1 2 Fan Munce, Megan (May 13, 2025). "Having trouble finding home insurance in California? Try a nontraditional route". San Francisco Chronicle.
"Admitted" insurers are regulated by the California Department of Insurance, which oversees how these companies set their prices and non-renew customers. ... What are the risks of a non-admitted insurer? Also known as "surplus lines" companies, these out-of-state companies must prove their financial stability with the state but do not have to file their rates with the Department of Insurance. ... Under California regulations, a broker cannot offer you a policy with a non-admitted insurer unless they can document that you've been turned down by three traditional insurers.
- ↑ Darmiento, Laurence (December 24, 2025). "Court rejects bid to beef up policies issued by California's home insurer of last resort". Los Angeles Times.
The court ruled earlier this month that the order would have forced the plan to offer liability insurance, which was not the intent of the Legislature when it established the plan in 1968 to offer essential insurance for those who couldn't get it.
- 1 2 3 Vines, Ruben (March 23, 2024). "State Farm won't renew 72,000 insurance policies in California, worsening the state's insurance crisis". Los Angeles Times.
But the enrollment surge is putting a financial strain on the state insurer as it faces a potential loss of $311 billion, up from $50 billion in 2018.
- 1 2 3 4 5 St.John, Paige (December 4, 2025). "The state's top insurance regulator didn't stop a looming crisis. Then the L.A. wildfires hit". Los Angeles Times.
- 1 2 3 4 5 6 7 Darmiento, Laurence (March 29, 2024). "California's home insurance crisis: What went wrong, how it can be fixed and what owners can do". Los Angeles Times.
- 1 2 3 4 5 6 7 Frank, Thomas (March 18, 2024). "California's insurer of last resort is a 'ticking time bomb'". E&E News by POLITICO. Archived from the original on January 14, 2025.
Part of the problem in California and other states is the inability or unwillingness of state-chartered plans to charge rates that accurately reflect the risk of wildfires or hurricanes to individual properties. California insurers including the FAIR Plan are restricted by unusual insurance regulations imposed after state voters approved a ballot measure in 1988 to control insurance premiums. One regulation requires the FAIR Plan to exclude the money it spends to buy reinsurance — a major expense — in its calculations of premiums that are needed. In 2021, the FAIR Plan needed to raise its premiums by 70 percent on average, Roach told lawmakers. Plan officials, trying to minimize rate shock, asked the California Department of Insurance for a 49 percent hike. The department approved a 16 percent increase. "Our rates are never actuarially sound because all of our expenses are not included in that ratemaking," Roach said.
- 1 2 3 4 Flavelle, Christopher (January 8, 2025). "California Wildfires Threaten Insurers Already Teetering From Climate Shocks". The New York Times – via NYTimes.com.
- 1 2 3 4 5 Darmiento, Laurence (July 2, 2026). "Home insurer surcharges for wildfires is legal, judge rules". Los Angeles Times.
Hilary McLean, a spokesperson for the plan, said in a statement it did not have any position on the ruling, given the plan "does not have a role in determining how insurers manage costs associated with assessment."
- 1 2 3 4 5 Woody, Todd (July 22, 2026). "Californians are subsidizing mansion wildfire insurance as FAIR risk explodes". Los Angeles Times.
- ↑ "Key Statistics & Data". The California FAIR Plan. California FAIR Plan Association. Retrieved July 31, 2026.
- 1 2 3 LaMarr LeMee, Gabrielle (July 26, 2024). "Is this the solution to California's soaring insurance prices due to wildfire risk?". Los Angeles Times.
- ↑ California Insurance Code section 10090 et seq.
- ↑ "Codes Display Text". leginfo.legislature.ca.gov. Retrieved March 31, 2026.
- ↑ Boomhower, Judson; Fowlie, Meredith; Gellman, Jacob; Plantinga, Andrew (June 2024). "How Are Insurance Markets Adapting To Climate Change? Risk Selection And Regulation In The Market For Homeowners Insurance". Working Paper Series. National Bureau Of Economic Research. doi:10.3386/w32625. Retrieved January 14, 2025.
- 1 2 3 4 Darmiento, Laurence (October 4, 2025). "California's home insurer of last resort seeks 36% rate hike following January fires". Los Angeles Times.
The rate hike would hit individual homeowners unevenly, with many experiencing greater increases and others seeing decreases if they live in neighborhoods that are not prone to wildfires. The new rates would apply in April, and homeowners can seek discounts of up to 15% if they take steps to reduce the fire risks on their property.
- ↑ "Distribution and Assessment History". California FAIR Plan. Retrieved April 21, 2026.
- ↑ "California FAIR Plan Takes Steps to Access Funds to Pay LA Fire Disaster Claims". The California FAIR Plan. February 11, 2025. Archived from the original on April 23, 2026. Retrieved July 13, 2026.
