- California’s insurer of last resort will get a $1 billion bailout to cover LA wildfire damages.
- The bailout will likely lead to higher insurance premiums for California homeowners.
- This situation could escalate the state’s insurance crisis and convince more insurers to leave.
Property owners across California will likely pay higher insurance premiums to help cover the damages of the Los Angeles wildfires after the state’s insurance plan of last resort said it doesn’t have enough funds to pay out its claims.
State regulators on Tuesday approved a $1 billion bailout of California’s insurer of last resort, the FAIR Plan, which covers those who can’t find insurance on the private market. The bailout will be funded by private insurers licensed to operate in the state — and under a new rule enacted last year, they can pass up to half of the cost on to their customers.
The FAIR Plan said it was set to run out of money by the end of March as losses piled up from the Palisades and Eaton fires. It would be the first time in 30 years that it had been unable to pay its claims.
The bailout comes after California’s largest home insurer, State Farm, this month asked state regulators for emergency permission to raise homeowners’ rates by an average of 22%, starting May 1, to avert a “dire situation” for the company’s finances. As of February 3, State Farm had paid out $1 billion and said it expected to spend far more.
It’s all part of a worsening home insurance crisis in California that was already underway before the LA blazes destroyed more than 12,000 buildings. Back-to-back fires in 2017 and 2018 decimated insurers’ profits, prompting companies including State Farm, Allstate, and Farmers Insurance to either stop writing new policies, pull back coverage, or, in some cases, drop tens of thousands of property owners in the state. Insurers cited growing losses from wildfires and other disasters coupled with inflation and more expensive home repairs.
Most recently, beginning in July, State Farm dropped nearly 70% of its policyholders in the affluent Pacific Palisades neighborhood.
All of this has forced hundreds of thousands of homeowners into the FAIR plan, designed to be a backstop for those who can’t find insurance on the traditional market. Participation more than doubled between 2020 and 2024 to nearly half a million homes — many of which were in areas devastated by the Palisades and Eaton fires.
Measures to keep home insurers from fleeing California
The bill for the bailout will be divided among private insurers based on their market share in the state. As of 2023, State Farm, Farmers Insurance, and CSAA Insurance held the largest percentage of policies in California, according to S&P Global data. They have 30 days to pay the FAIR plan and — under a rule change made by California Insurance Commissioner Ricardo Lara last year — insurers can request approval to pass up to half those costs onto residential and commercial policyholders.
The change was part of Lara’s broader strategy to lure private insurers back to California to help stabilize the market. The rules also should make it easier for companies to raise premiums and factor in the costs of reinsurance and risks of future disasters. In exchange, insurers will have to expand coverage in communities most at risk of wildfires.
Lara said he approved the FAIR Plan bailout to protect consumers and blamed 30 years of stagnant regulations for putting more people at risk.
“The FAIR Plan must pay claims just like any other insurance company,” he said in a statement. “I reject those who are hoping for the failure of our insurance market by spreading fear and doubt. Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks.”
Some consumer advocates on Tuesday threatened legal action to stop private insurers from surcharging customers.
“This gift to insurance companies rewards bad behavior and will only incentivize insurers to drop even more homeowners and force them onto the FAIR Plan in the future because there’s no consequence for abandoning these families,” said Carmen Balber, executive director of Consumer Watchdog in Los Angeles.
Are you a homeowner with a story to share? Reach out to these reporters at cboudreau@businessinsider.com and erelman@businessinsider.com.
