California’s Insurer of Last Resort Runs out of Money to Pay L.A. Fire Claims

The Washington Post

16:32 JST, February 12, 2025

California’s home insurance plan of last resort has run out of money to pay the wave of claims stemming from the Los Angeles fires and will receive a bailout of $1 billion, state regulators announced Tuesday.

The decision to grant the plan’s request for a cash infusion comes in the aftermath of two of the most destructive fires in the state’s history, which destroyed roughly 6,800 structures in the Pacific Palisades neighborhood and about 9,400 in the suburb of Altadena last month. Since then, the FAIR plan has been inundated with claims for damage by homeowners who lost everything – and who had not been able to get coverage on the private market. To date, the plan has paid out $914 million to policyholders, a figure that is expected to grow.

To continue to pay claims, the plan asked California Insurance Commissioner Ricardo Lara to approve a $1 billion assessment of its membership, which is made up of the insurance companies that do business in the state. Insurers, in turn, are allowed to pass on a portion of that cost to their policyholders, potentially raising the cost of home insurance across the state.

In a statement, Lara defended the assessment as necessary to protect the FAIR plan’s ability to pay out claims.

“Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks,” he said.

The FAIR plan’s bailout is the latest indication that California’s home insurance market is on shaky footing. In recent years, as climate change has fueled droughts and baked vegetation bone-dry, increasingly destructive fires have torn through cities and towns across the state, racking up growing losses for insurance companies. State Farm, the largest insurance company in California, has fled wildfire-prone areas. Last year, it did not renew nearly 70 percent of policies in the Palisades Zip code, leaving residents increasingly reliant on the FAIR plan.

Lara expressed confidence that new rules enacted by the state to prevent more insurance carriers from leaving California would help stabilize the state’s market. “We will move people away from the FAIR Plan,” he said.

The $1 billion assessment is the largest in the history of the plan, which was created in 1968 as an insurance safety net. The last time the plan had to levy an assessment was after the 1994 Northridge earthquake, when state regulators approved a $260 million bailout (about $563 million in today’s dollars) for the fires that followed the earthquake as well as two fires in Los Angeles County in 1993.

As of Feb. 9, the FAIR plan said it has received more than 4,700 claims for damage caused by the Palisades and Eaton fires. About 45 percent of the claims are reported as total losses.