California FAIR Plan gains approval for $1bn assessment from member firms

The California FAIR Plan Association, a consortium of all insurers licensed to provide property insurance in the state, has received approval for an additional $1 billion in funds from its member companies from Insurance Commissioner, Ricardo Lara, enabling the Plan to continue paying claims after the Los Angeles wildfires.

In a letter to Insurance Commissioner Lara seeking approval for an assessment of all member property insurers to the tune of $1 billion, the FAIR Plan emphasised that the claims from the Los Angeles wildfires have presented a significant financial challenge, further stressing its commitment to helping affected customers.

As of February 9th, 2025, the FAIR Plan had received approximately 3,469 claims for damage caused by the Palisades Fire, and around 1,325 claims for the Eaton Fire, with approximately 97% of these claims for damage to residential dwellings, and less than 3% on commercial structures.

To project its cash flow, the FAIR Plan has estimated ultimate losses from the Palisades, Eaton, and Hurst fires of a little over $4 billion. As of February 9th, the Plan had paid out roughly $914 million in losses and loss adjustment expenses (LAE) for the three fires, leaving outstanding loss and LAE reserves of around $3.125 billion, including IBNR (incurred but not reported).

The Plan explained that around 45% of the wildfire claims are reported as total losses, 45% as partial (including smoke) losses, and 10% reported as Fair Value Rent only.

In its letter to Commissioner Lara, the Plan said: “To meet the collective goal of paying covered claims as quickly as we can, we write to respectfully ask you to approve an assessment of all member companies pursuant to California Insurance Code section 10094(c) and the Plan of Operation as approved by your Order 2024-2, dated August 27, 2024. As set forth below, our Accounting Committee and, subsequently, our Governing Committee have approved an assessment in the amount of $1 billion, and this assessment is needed immediately to enable us to continue to pay claims of our policyholders and maintain our operations.”

Importantly for the Plan and its claims paying ability for the California wildfires, Commissioner Lara has approved the Plan’s request for the additional $1 billion funding from its member companies.

“I took this necessary consumer protection action with one goal in mind: the FAIR Plan must pay claims just like any other insurance company. 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,” said Commissioner Lara.

“The fact that we are once again facing this issue 30 years after wildfires devastated these same communities highlights the need for change. Thirty years of stagnant regulations have placed more people at risk. We will move people away from the FAIR Plan, and insurance companies will write more policies under the Sustainable Insurance Strategy I finalised last year.

“We must rebuild stronger and be better prepared for future wildfires through common-sense mitigation. My Safer from Wildfires regulation provides a pathway for insurance discounts. We must take action to improve the financial standing of the FAIR Plan and prevent this situation from recurring. I strongly support legislation this session — just as I did last session — that would allow the FAIR Plan to access credit lines and catastrophe bonds to help pay claims in worst-case scenarios. I urge the Legislature to act quickly and send it to the Governor’s desk,” he added.

As explained by the Plan in its letter, a $1 billion assessment puts it at an estimated cash position of just shy of $400 million by July 2025. Currently, the Plan expects its 2025-2026 treaty year reinsurance retention to be $1.25 billion.

The Plan has reinsurance to cover a portion of its wildfire losses up to $5.78 billion.

“There are varying layers of reinsurance,” the Plan explained in its letter. “The first three layers available require the FAIR Plan to meet a deductible for losses up to $900 million and then reinsurance would provide $350 million for additional losses above the deductible. After this initial $1.25 billion, the FAIR Plan can access additional layers of reinsurance based on incurred losses and outstanding reserves up to the tower limit of $5.78 billion.”

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