February 11, 2025
LOS ANGELES – The California FAIR Plan, an independent, not-for-profit catastrophe insurer of last resort, has asked the California Insurance Commissioner to approve an assessment of admitted market insurers to ensure all covered claims stemming from the Southern California wildfires are paid promptly. The FAIR Plan continues to receive, manage and pay claims.
Managing Covered Claims
The FAIR Plan operates on a cash-in, cash-out basis, meaning its financial situation evolves daily. The FAIR Plan has been responsibly prioritizing available funding to pay claims and related expenses. Each day, the FAIR Plan monitors its financial position, evaluating cash on hand, which includes surplus funds as well as other funds typically reserved for liabilities, such as loss reserves and expenses.
The FAIR Plan has paid more than $914 million to policyholders, including advance payments, to cover claims related to the Palisades and Eaton fires.
As of February 9, the FAIR Plan has received approximately 3,469 claims for damage caused by the Palisades Fire and approximately 1,325 claims for damage caused by the Eaton Fire. The claims vary according to the type and amount of coverage and loss. In addition, the FAIR Plan has received over 500 claims apart from these wildfires during the same period, including windstorm and fire claims unrelated to the wildfires. New claims, including total loss claims, continue to be reported daily.
Approximately 45% of the wildfire claims are reported as total losses, 45% reported as partial losses, and 10% as Fair Rental Value only, which covers lost rental income due to a covered peril, like fire. It is important to note these approximations may shift as new claims are submitted and confirmed, including claims made before policyholders were able to return to their properties and determine the extent of damage.
Assessment
To maintain the FAIR Plan’s ability to pay ongoing claims from policyholders impacted by the recent Southern California wildfires as quickly as it can, the FAIR Plan’s Accounting Subcommittee and Governing Committee each recommended an assessment of $1 billion.
The assessment would allow the FAIR Plan to access additional available layers of reinsurance and maintain operations, such as continuing elevated staffing levels and other ongoing expenses. The FAIR Plan submitted the assessment request to the California Insurance Commissioner on February 11. More information about the FAIR Plan’s request is available HERE.
By statute, the FAIR Plan, with the approval of the California Insurance Commissioner, has the right to assess all admitted insurers licensed to sell and selling property insurance in the state to help pay for FAIR Plan losses.
If the California Insurance Commissioner approves the request, the FAIR Plan will notify each admitted market insurer of their assessment responsibility. Generally, assessments are based on an insurer’s market share of dwelling and commercial policies in place from two years ago. Member companies would receive their share of the assessment amount broken down between the 2024 and 2025 pool years and by line of business. Once the FAIR Plan issues an assessment to a member company, the insurer would have up to 30 days to remit payment to the FAIR Plan.
It is important to note the FAIR Plan does not have a role in determining how insurers manage costs associated once an assessment is approved by the California Insurance Commissioner.
California Insurance Code section 10094(c) provides, in pertinent part, “The program may provide, with the approval of the commissioner for assessment of all members in an amount sufficient to operate the facility ….”
California Insurance Code section 10095(c) provides, in pertinent part, “Under the plan, an insurer shall participate in the writings, expenses, profits and losses of the association in the proportion that its premiums written during the second preceding calendar year bear to the aggregate premiums written by all insurers in the program, excluding that portion of the premiums written attributable to the operation of the association.”
The FAIR Plan’s Plan of Operation also permits assessments with the California Insurance Commissioner’s approval.
The FAIR Plan issued assessments in the past to help cover losses. In 1993, the FAIR Plan assessed admitted market insurers following fires in Altadena and Malibu. The FAIR Plan assessed again in 1994 and 1995 following the Northridge Earthquake. In total, the FAIR Plan assessed $260 million.
Reinsurance
The FAIR Plan is accessing reinsurance, a payment mechanism to help pay claims.
To date, the FAIR Plan has met its $900 million deductible and has accessed $350 million in reinsurance. The FAIR Plan can access additional layers of reinsurance based on losses incurred and outstanding reserves up to a $5.78 billion limit, which includes varying percentages of co-reinsurance, similar to co-pays, subject to certain conditions. To access all layers of available reinsurance, the FAIR Plan is responsible for paying up to approximately $3.5 billion, including the $900 million deductible, and copays.
The trigger for each reinsurance layer is based on the projected losses the FAIR Plan expects to pay within the next 30 days. The FAIR Plan has triggered recoveries on the first three layers of its reinsurance contract and has already started receiving funds.
Reinsurance, which is akin to “insurance for insurance companies,” is a common and prudent business practice that helps insurers responsibly manage their financial risk by sharing it with other insurers. Insurance Code Section 10095 (b) authorizes the FAIR Plan to purchase reinsurance.
Line of Credit
The FAIR Plan continues to work with lenders and the California Department of Insurance to procure a line of credit so the FAIR Plan can be prepared pay claims that may result from future catastrophes. The FAIR Plan further supports Assembly Bill 226, which would provide possible future funding opportunities through catastrophe bonds.
The FAIR Plan appreciates the collaboration with the Governor’s Office, California Legislature, California Department of Insurance and stakeholders in helping to ensure the stability of the insurance market.
FAIR Plan Growth
The FAIR Plan’s risk exposure has significantly increased in recent years. As of September 2024, the FAIR Plan’s risk exposure is $458 billion; in 2018, it was $50 billion. Over the past four fiscal years, since September 2020, dwelling policies have increased by 123% and commercial policies have increased by 161%.
The FAIR Plan covers a significantly higher concentration of high-fire risk properties than admitted market insurers and typically has higher rates than those set by voluntary insurers due to statutes governing how the FAIR Plan sets rates and the elevated risk exposure.
The FAIR Plan offers both dwelling (up to $3 million) and commercial policies (up to $20 million per location) for customers that are unable to purchase coverage with a traditional insurance company. The FAIR Plan is collaborating with the California Department of insurance to further increase the commercial coverage limit to $20 million per building, up to $100 million per location. Optional additional coverages are available at an additional cost, such as coverage for vandalism and malicious mischief. The FAIR Plan offers discounts for homeowners who take steps to harden their homes and properties against wildfire risk.
The above information can be attributed to the California FAIR Plan.
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About the FAIR Plan
The FAIR Plan is a private association comprised of all insurers licensed to write property insurance in California and is funded primarily through the policies it sells to customers. The FAIR Plan is not a state agency and is not funded by the state or other public agencies.
The FAIR Plan offers basic property insurance for all Californians who cannot access coverage in the voluntary insurance marketplace. As an insurer of “last resort,” the FAIR Plan was established by statute to provide a temporary safety net for consumers who need fire insurance until coverage through the voluntary market is available. For more information, visit www.CFPnet.com.
For media questions, contact:
media@cfpnet.com