California Insurance Commissioner Ricardo Lara has requested a $1 billion assessment on private insurers to stabilize the FAIR Plan, the state’s home insurance program of last resort, after wildfire claims exceeded its financial capacity.
Established in 1968, the California Fair Access to Insurance Requirements (FAIR) Plan provides coverage to homeowners in high-risk areas, including fire zones and earthquake fault lines, when private insurers refuse coverage.
The assessment will be divided among insurers based on market share, with companies such as State Farm, Farmers Insurance Group, and CSAA Insurance facing multi-million-dollar contributions. State regulations allow insurers to pass half the cost to policyholders, while the remaining half must be absorbed through profits.
Insurers must pay the assessment within 30 days, increasing financial strain on companies already reconsidering their presence in California.
The Palisades and Eaton Fires, which burned from January 7 until full containment, destroyed an area nearly the size of Washington, D.C., killed 29 people, and damaged or destroyed over 16,000 structures, according to officials. As of February 9, the FAIR Plan had received 3,469 claims for the Palisades Fire and 1,325 claims for the Eaton Fire, with payouts exceeding $914 million, its website showed.
Between 2020 and 2024, the number of FAIR Plan policies doubled to nearly 500,000 properties, valued at approximately $500 billion, as major insurers scaled back coverage in high-risk areas. The FAIR Plan is now under severe financial strain, triggering calls for reforms to prevent future emergency assessments.
Amid rising losses, State Farm has requested a 22% rate hike, calling it necessary to avert a “dire situation” for the state’s insurance market. Lara’s office is reviewing the request while also proposing changes such as borrowing options and premium adjustments to improve the FAIR Plan’s financial stability. Policymakers and insurers agree that higher premiums and stricter building regulations are necessary to mitigate financial risks and wildfire damage in California.
