California’s high-risk insurer gets $1 billion bailout after L.A. fires

California’s home insurance plan of last resort, designed for people who can’t get coverage on the private market, does not have enough money to pay claims from the Los Angeles wildfires and is getting an infusion of cash from regular insurers.

State regulators said Tuesday that they will allow the program, known as the FAIR Plan, to collect $1 billion from private insurance companies doing business in California to pay its claims. That is likely to drive up insurance costs for homeowners across the state.

The situation marks a perilous new stage for California’s home insurance market, which had already been reeling from wildfires made more frequent and intense by climate change. Facing growing losses, major insurers like State Farm were pulling back from the state, making it harder for homeowners to find coverage.

Now the pressure to leave will be even greater.

The $1 billion assessment is the largest since the FAIR Plan was created in 1968, and the first time since the 1994 Northridge earthquake near Los Angeles that the FAIR Plan has faced claims it can’t pay on its own. The fee will be divided among insurers based on their market share, as required by state law.

“The number one priority right now is that the FAIR Plan pay out its claims,” Ricardo Lara, California’s insurance commissioner, said in an interview. “The FAIR Plan, the way we’ve set it up, is doing what it’s supposed to.”

As of 2023, the state’s largest insurers by market share were State Farm, Farmers Insurance Group and CSAA Insurance, according to data from AM Best, a company that rates the financial strength of insurers. Other major insurers in the top 10 included Liberty Mutual, Allstate and Travelers.

State regulations allow insurers to pass along as much as half the cost of the assessment to customers, in the former of higher charges. Insurers must absorb the other half.

Those companies could face bills from the FAIR Plan assessment in the tens of millions of dollars or more – and by state law, they must pay within 30 days. Leaving California would not relieve insurers of their share of the assessment for the FAIR Plan. But they might conclude that continuing to write home insurance policies in the state has become too risky.

This article originally appeared in The New York Times.