California’s home insurance plan of last resort, the FAIR Plan, has received a $1 billion bailout from private insurers to pay claims from the Los Angeles wildfires. The move is expected to drive up insurance costs for households across the state and push more insurers out, exacerbating the already dire home insurance crisis in California.
The FAIR Plan, which covers people who can’t get coverage on the private market, is facing financial strain due to growing losses from climate-related wildfires. To address this, regulators have allowed the plan to collect $1 billion from private insurers doing business in California, with each insurer contributing based on their market share.
This development marks a perilous new stage for California’s home insurance market, which has already been impacted by more frequent and intense wildfires. The FAIR Plan faces growing pressure to leave, as major insurers like State Farm reduce their presence in the state, making it harder for homeowners to find coverage.
The $1 billion assessment is the largest since the FAIR Plan was created in 1968 and will be divided among insurers based on their market share. Insurers can pass along up to half the cost to customers, with the other half absorbed by profits.
State regulators aim to break a vicious cycle where more insurers leave, pushing homeowners toward the FAIR Plan, which is less able to cover claims after the next disaster. To address this, officials plan to introduce changes allowing insurers to charge higher premiums in exchange for covering more homes in high-risk areas and explore funding solutions for the FAIR Plan.
However, experts emphasize that local governments must also play a role in building better infrastructure to reduce damage from future fires. “The responsibility now is on local governments to build better,” said California Insurance Commissioner Ricardo Lara.
Source: https://www.nytimes.com/2025/02/11/climate/california-fairplan-insurance-bailout.html