The FAIR Plan has already received more than 3,600 claims from fire-impacted policyholders. (Credit: Amanda Bronstad/ALM)

The LA wildfires are putting California’s FAIR Plan to the test. Whether it can pass is still up in the air.

The California FAIR Plan is the state’s insurer of last resort for homeowners who live in hard-to-insure areas, but it has increasingly become residents' only insurance option as traditional insurers pull back in the state.

More than 450,000 California homeowners now get their insurance through the FAIR Plan, a number that has doubled since 2020. As of last September, the FAIR Plan had a total insurance exposure of $458 billion, up 61% from the year before.

Many of the homeowners impacted by this month’s wildfires are FAIR Plan policyholders. In an update issued on Fri., Jan. 17, 2025, FAIR Plan administrators said that so far, the program has total potential exposure of more than $4 billion for the Pacific Palisades Fire and $775 million for the Eaton Fire. The Plan has already received more than 3,600 claims from fire-impacted policyholders.

While those numbers are large, the statement noted that exposure and loss are not the same thing. “While each fire is unique, actual claims following a fire have historically represented, on average, about 31% of the total exposure in that area,” the update said.

Can the Plan cover those costs? As of Jan. 10, the state’s Department of Insurance said the FAIR Plan had just $377 million to pay claims. Last year, the Plan’s president, Victoria Roach, told the California legislature the program was just one large event away from insolvency.

But the most recent FAIR Plan statement said the program, “has the payment mechanisms in place to ensure all covered claims will be paid.”

Those payment mechanisms include:

  • Available funding. The plan said its cash on hand includes surplus funds and loss reserves.
  • Reinsurance. After it has paid $900 million in claims, the plan has access to $350 million in reinsurance.
  • Co-insurance. After the plan pays $900 million and reinsurance pays $350 million, the plan says there are various levels and percentages of co-insurance available, between reinsurance and the FAIR Plan or admitted market insurers. Up to $5.78 billion could be shared between reinsurers and the FAIR Plan.
  • Market assessment. With approval from the California Insurance Commissioner, the plan can ask all admitted insurers in the state to help pay for FAIR Plan losses. The amount each insurer owes would be based on their California market share from two years ago. There hasn’t been a market assessment since 1994, and the FAIR Plan says it has not yet asked for one in response to the wildfires.
In addition to those mechanisms, state assemblymembers Lisa Calderon and David Alvarez introduced a bill on Jan. 9 that would allow the FAIR plan to access loans, bonds and lines of credit if liquidity becomes an issue. The FAIR Plan says it’s in support of the bill.

Today, David Sampson, the president of the American Property Casualty Insurance Association (APCIA), called on the state legislature to issue catastrophe bonds to “recapitalize and restabilize” the FAIR Plan.

“The Department of Insurance has already taken a necessary first step to preserving the immediate solvency of the plan by allowing it to obtain a line of credit, but additional long-term funding is needed to spread its catastrophic losses out over time,” he said in a statement. “We look forward to working with the department and elected officials to ensure the viability and availability of the FAIR Plan and the insurance market in the state.”

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