California Governor Gavin Newsom has signed a bipartisan bill aimed at stabilizing the state’s FAIR Plan, which provides insurance coverage for homeowners unable to secure private policies due to high risk. The new law is designed to prevent the plan from running out of funds after major disasters.
The FAIR Plan acts as California’s insurer of last resort and has seen a significant increase in enrollment. As of June, nearly 600,000 homeowners relied on the plan because their properties were considered too risky by private insurers. This shift follows several major insurance companies restricting or pausing new business in California in 2023, which led hundreds of thousands more residents to seek coverage through the FAIR Plan.
Earlier this year, wildfires in Los Angeles destroyed over 17,000 structures and resulted in losses of about $4 billion for the FAIR Plan. To cover claims, the plan required a $1 billion bailout from private insurers. Half of that cost is expected to be passed on to all policyholders.
Under previous rules, insurance companies had to pay bailouts within 30 days. The newly signed law allows the FAIR Plan to request state-backed loans and bonds and spread claim payments over several years following a disaster. Supporters say this change will reduce the need for large immediate bailouts that could drive up rates statewide.
“The kinds of climate-fueled firestorms like we saw in January will only continue to worsen over time. That’s why we’re taking action now to continue strengthening California’s insurance market to be more resilient in the face of the climate crisis,” Newsom said in a statement.
Republican state Senator Marie Alvarado-Gil described the measure as an important step: “This bill doesn’t solve everything. But it does help to ensure that the FAIR Plan customers can rely on coverage in their time of greatest need,” she said during a floor debate in September.
Newsom also approved legislation expanding the FAIR Plan board by adding two non-voting legislative representatives. The board currently includes nine voting members from insurance companies and four non-voting members appointed by the governor. Supporters believe this change increases oversight and transparency, though critics argue it may have little effect since new members lack voting power.
Wildfires are becoming increasingly frequent and destructive across California, with 15 of the top 20 most damaging fires occurring since 2015 according to data from Cal Fire (https://www.fire.ca.gov/media/4jandlhh/top20_destruction.pdf). Climate change is cited as a key factor behind these trends, making it harder for insurers to accurately price risk for properties across much of the state.
