Why all California homeowners could be on the hook for LA County wildfire costs

https://www.dailynews.com/2025/01/21/why-all-california-homeowners-could-
be-on-the-hook-for-la-wildfire-costs/

Once debris from the Los Angeles County wildfires is cleared and 
rebuilding begins, attention will likely shift to the financial health of 
a small, but growing California fire insurance provider.

The California FAIR Plan has an outsized share of the state’s riskiest 
policies because it is the insurer of last resort for home and building 
owners who can’t get coverage elsewhere.

If the FAIR Plan is unable to pay all of its claims, virtually every 
insured homeowner in the state could end up paying a portion of the LA 
County fire losses.

The nonprofit “Fair Access to Insurance Requirements” Plan is a private 
insurance pool created by the state, but operated jointly by fully 
licensed property and casualty insurance providers in the state. It 
provides insurance for fire damage only. Homeowners must seek additional 
liability, theft and other homeowner coverage from separate “wraparound” 
policies from private insurers.

See also: Southern California wildfires add to growing worries about 
homeowner insurance

Last week, the FAIR Plan disclosed that it covers about 22% of structures 
in the Palisades Fire zone and 12% of structures in the Eaton Fire area.

Potential exposure in the Palisades fire totals more than $4 billion, the 
FAIR Plan reported in an update Friday, Jan. 17. Its potential exposure in 
the Eaton fire is $775 million.

The FAIR Plan must pay the first $900 million in claims before tapping 
into back-up plans from “re-insurance” companies — essentially insurance 
for insurers. Re-insurance would pay the bulk of the next $4.9 billion in 
claims, leaving the FAIR Plan responsible for all losses over $5.78 
billion.

The plan has just $377 million in reserves, according to a spokesman for 
the California Department of Insurance.

The FAIR Plan’s “financial situation evolves daily,” a spokesperson for 
the FAIR Plan said in an email. “We continually monitor our financial 
position and whether we will need to tap into available payment 
mechanisms.”

See also: LA wildfires’ economic toll: Devastating losses followed by 
burst of building

But if its reserves and re-insurance money are insufficient to cover all 
its claims, the state’s licensed insurance companies must pitch in to 
cover the gap, each paying an amount based on its market share from two 
years ago. Those private insurers, in turn, would seek state approval to 
pass on those costs to their policyholders in the form of a “supplemental 
fee.”

What is the likelihood of that happening?

“We just don’t have the information yet because the FAIR Plan is still 
gathering information,” said Rex Frazier, president of the Personal 
Insurance Federation of California.

It will be months, if not years, before the FAIR Plan must start paying 
claims for reconstruction, during which it will continue collecting 
monthly payments from policyholders, he said.

“So, the question is, how much money will they have when they start having 
significant outflows to pay for rebuilding, and would they run out?” 
Frazier said. “That’s just a complicated calculation.”

Amy Bach, executive director of the insurance consumer group, United 
Policyholders, worries that the need for a bailout, or an “assessment,” 
could slow the FAIR Plan’s payment process to fire victims.

“I am anxiously awaiting an announcement from the FAIR Plan about whether 
they’re going to make an assessment and in what amount?” Bach said.

Another question on everybody’s mind, Bach added, is will the carriers 
request approval to pass on their bailout costs to consumers and will the 
state insurance commissioner grant it.

If so, “what will that mean for their policyholders?” she asked.

Under new insurance regulations implemented last summer, home and building 
owners will be on the hook for half of the first $2 billion in bailout 
money — $500 million for damages to homes and $500 million for damages to 
commercial structures like restaurants, supermarkets and office buildings 
.

Should bailout costs go even higher, consumers would be on the hook for 
“all amounts” private insurers pay over $2 billion.

Such financial rescues are rare. The last time the FAIR Plan ran out of 
money was after the 1994 Northridge earthquake.

See also: ‘Wildfire refugees’ scramble to find housing as rental prices 
soar

Meanwhile, in Sacramento two Southern Californian legislators introduced a 
bill that could avert such a bailout. Assembly Bill 226, introduced two 
days after the fires began, would allow the FAIR Plan to seek bonds to 
increase its “liquidity and claims-paying capacity.”

“The loss in Southern California is inconceivable,” Assemblymember Lisa 
Calderon, D-Whittier, said in a statement. “AB 226 will alleviate some of 
the uncertainty that FAIR Plan policyholders may encounter as a result of 
this tragedy.”

Exposure does not equal loss, the FAIR Plan update said. History shows 
that current claims have averaged about 31% of total exposure.

“Some fires are substantially higher or substantially lower than this 
historical benchmark,” the update said.

But the toll is rising.

On Thursday, Irvine-based data firm CoreLogic upgraded its estimate of 
losses from the Los Angeles wildfires to $35 billion to $45 billion.

“The situation is ongoing and remains fluid,” the FAIR Plan said.

The FAIR Plan accounts for only about 3% of all policies in the state, but 
its share has been mushrooming in the past few years as private insurers 
began limiting their coverage and canceling homeowner policies in 
California.

Also see: State Farm seeks ‘massive’ insurance rate hike for California 
homeowners

Since September 2020, the FAIR Plan’s total exposure tripled to $458 
billion, according to the organization’s website.

In the two main ZIP codes covering the Palisades fire, the FAIR Plan’s 
exposure jumped 74% since September 2020 to 3,416 policies, FAIR Plan 
figures show.

More on insurance: Allstate says it will insure California homes again, 
under one condition

In the ZIP code covering Altadena, the number of policies rose 42% to 963 
policies in the past four years.

CoreLogic’s loss estimates include smoke and fire damage for both 
residential and commercial properties, as well as increased rebuilding 
costs caused by demand surge, debris removal, clean up and temporary 
living expenses, the company said in a statement.

The majority of losses are to residential properties. Many of the 
potentially affected properties are high value homes, CoreLogic’s 
statement said.

“The destruction caused by these fires is anticipated to be the most 
expensive in the state’s history, with effects on the insurance industry 
that will persist into the future,” said Tom Larsen, Senior Director of 
CoreLogic Insurance Solutions.

UPDATE: This post was updated to say that a spokesperson for the 
California Department of Insurance confirmed that the FAIR Plan has just 
$377 million in reserves.


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