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California’s FAIR insurance plan, the state’s insurer of last resort, could face a nearly $5 billion bailout as wildfires deal with catastrophic losses. The plan covers about 20% of homes in high-risk areas like the Palisades and Eaton fires. Its projected losses exceed historical averages, with potential impacts reaching up to $45 billion. The organization holds just $377 million in reserves, raising concerns about its ability to meet obligations.
**Potential Bailout Scenarios:**
The FAIR Plan’s exposure includes both residential and commercial properties, with high-value homes particularly vulnerable. Current losses already account for 31% of total exposure, but the situation is fluid and expected to worsen as rebuilding efforts and cleanup operations intensify.
**Bailout Concerns and Solutions:**
With $458 billion in total coverage since 2020, the FAIR Plan’s financial health has been declining as private insurers limit coverage and cancel homeowner policies. The organization’s tripled its exposure in two key areas alone.
**Expert Opinions:**
Rex Frazier of the California Department of Insurance noted that the FAIR Plan’s role as a last-resort provider means it could be called upon to absorb significant losses, potentially leading to a massive financial strain.
**Legislative Proposal:**
To prevent such a scenario, Assembly Bill 226 has been introduced, allowing the FAIR Plan to seek bonds to increase its capacity to handle claims. Assemblymember Lisa Calderon emphasized that the loss from the fires could be inconceivable, but legislative action aims to alleviate some uncertainty for policyholders and the insurance industry.
The situation highlights the urgent need for robust financial planning in California’s insurance landscape as it navigates the aftermath of one of its most significant natural disasters in decades.
Source: https://www.dailynews.com/2025/01/21/why-all-california-homeowners-could-be-on-the-hook-for-la-wildfire-costs