Shafaq News/ California’sstate-backed insurance program requires an additional $1 billion to coverclaims from the Los Angeles wildfires, the Insurance Department revealed onWednesday.
The FAIR Plan, a last-resort insurance pool funded bymajor private insurers, provides coverage for homeowners unable to securepolicies due to wildfire risks. The program, originally designed as a temporarymeasure, now serves over 452,000 policyholders—more than double the 2020figure—as private insurers scale back coverage in the state.
The Eaton and Palisadeswildfires, which ignited on January 7, destroyed nearly 17,000 structures andkilled at least 29 people. The FAIR Plan expects losses from the fires to reach$4 billion, with 4,700 claims already filed and payouts exceeding $914 million.
Under a plan approved Tuesday,insurers operating in California will cover half the costs, while policyholdersface a one-time surcharge to fund the remainder. The exact amount of the feehas not been disclosed, but insurers must remit payments within 30 days.
This marks the first timesince the 1994 Northridge earthquake that the FAIR Plan has sought emergencyfunding. California Insurance Commissioner Ricardo Lara defended the move,emphasizing the need for stability. “The FAIR Plan must pay claims just likeany other insurance company,” Lara said in a statement. “Wildfire survivorscan’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Planchecks.”
The plan also anticipates$1.45 billion in reinsurance to help with payouts but expects to hold only $400million in reserves by July.
As climate change intensifieswildfire risks, insurers have struggled to price policies accurately. Fifteenof California’s 20 most destructive wildfires have occurred since 2015,according to state data. Major providers, including State Farm and Allstate,have already reduced coverage or exited the market entirely.
Industry leaders warned thatfurther strain could accelerate insurer departures from California. “This is essential to prevent even greater instabilityin the insurance market and avoid widespread policy cancellations,” MarkSektnan of the American Property Casualty Insurance Association noted in astatement.
To address the crisis,California regulators have loosened restrictions on premium increases andallowed insurers to factor climate change risks into pricing. Lara alsoproposed granting the FAIR Plan authority to issue bonds or secure credit linesto prevent future emergency assessments.
“The responsibility now is onlocal governments to build better,” California Insurance Commissioner stated.
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