State Approves $1 Billion Charge Amid Growing Insurance Crisis
California homeowners will soon face added costs on their insurance bills as part of a $1 billion assessment approved by the state’s Insurance Department. The charge, imposed on insurance companies by the state’s last-resort fire insurance provider, the FAIR Plan, comes as the provider struggles to cover claims from the recent devastating wildfires in Los Angeles County.
Insurance Commissioner Ricardo Lara approved the assessment to keep the FAIR Plan financially stable. This move marks the first time in over 30 years that insurance companies will pass such an assessment directly to their customers. Most homeowners with fire insurance policies in California are expected to see temporary surcharges on their premiums as a result. The FAIR Plan, which is legally required to provide fire insurance to property owners unable to secure coverage from private insurers, has seen a sharp rise in policyholders, now exceeding 451,000.
The surge in demand follows an increasing number of insurance providers refusing to offer or renew policies in wildfire-prone regions, citing heightened risks. Many residents affected by the Pacific Palisades fires, which destroyed thousands of structures, had FAIR Plan coverage, with policy numbers increasing by 85% compared to the previous year.
Impact on Homeowners and Insurance Market
The assessment comes amid broader upheaval in California’s property insurance market. State Farm, the largest property insurer in the state, recently requested a 22% average premium increase to offset the costs of wildfire-related claims. The Insurance Department is currently reviewing this request.
Victoria Roach, president of the FAIR Plan, had previously warned lawmakers about the plan’s precarious financial position. In testimony before a state Assembly committee, she cautioned that the plan was “one event away from a large assessment.” As of February 9, the FAIR Plan had already paid out more than $900 million in claims. The $1 billion assessment is expected to leave the plan with approximately $400 million in available funds by July 2025—just as the next wildfire season begins.
Insurance companies must submit filings with the state before collecting the one-time fees from policyholders. However, it remains unclear how these fees will be calculated or what percentage of a policyholder’s premium they will represent. The FAIR Plan has stated that it does not dictate how insurers manage the costs associated with the assessment once approved.
Regulatory Changes and Consumer Backlash
A new regulation, introduced this year under Commissioner Lara’s efforts to address the state’s insurance challenges, now requires policyholders to cover 50% of any FAIR Plan assessment through temporary fees. Previously, the full cost would have been absorbed by member insurance companies, which in turn could have raised premiums to recover their expenses.
While the insurance industry supports the new regulation, arguing that it prevents further market instability and policy cancellations, consumer advocacy groups have pushed back. Consumer Watchdog, a nonprofit watchdog organization, is considering legal action to challenge the additional financial burden placed on homeowners.
Executive Director Carmen Balber expressed concerns that some insurance companies, such as Mercury General Corp., had already anticipated additional contributions to the FAIR Plan and had secured reinsurance to cover potential shortfalls. She questioned whether insurers would be allowed to “double dip” by charging consumers despite having reinsurance funds available.
This marks the first major assessment of the FAIR Plan since 1993 when additional funds were allocated following the Kinneloa and Old Topanga fires. Some of the same areas impacted then were once again affected by recent wildfires. Commissioner Lara has described the new regulatory changes as a necessary consumer protection measure, emphasizing the need for long-term solutions as climate-related disasters continue to strain California’s insurance market.
