All California Insurance Policyholders Could Have to Pay for LA Fire Losses

A firefighter fights the flames from the Palisades Fire while it burns homes at Pacific Coast Highway amid a powerful windstorm in Malibu, Calif., on Jan. 8, 2025. Apu Gomes/Getty Images

New rules enacted in September 2024 for the insurer of last resort in California—the Fair Access to Insurance Requirements (FAIR) plan—could leave homeowners insurance policyholders on the hook for fire losses in the Los Angeles area if totals exceed the plan’s ability to pay.

“The bottom line is, the FAIR plan will have enough money to pay claims, but the way it will make sure it has enough money is by assessing all California policyholders, eventually,” Dave Jones, former commissioner of the California Department of Insurance, told host Siyamak Khorrami during a recent episode on EpochTV’s “California Insider.”

“If it gets there, that’s what will happen. People will get an additional bill ... which will come as a big surprise to Californians.”

AccuWeather estimated the economic impact of the damage could top $150 billion.

Insured losses could approach $20 billion or higher, according to analysts.

“That’s an enormous loss for the insurance industry to sustain,” Jones said.

He said the FAIR plan is an “involuntary association of insurance companies” that pool together to cover the properties deemed most at risk.

The plan holds about $700 million in cash and $200 million in reserves, and carries $2.5 billion in reinsurance that will help cover losses, according to the plan’s most recent data.

Total exposure exceeds $458 billion, a 61 percent spike from September 2023.

The number of homes covered has jumped by 123 percent since 2020, and commercial policies skyrocketed by 161 percent over the same period.

The 1,467 policies covered by the plan in the Pacific Palisades—which has some of the most expensive homes in the nation—equate to $5.89 billion in exposure, the fifth-largest area of risk in the state for the plan, according to its website.

Nearly 24,000 acres have burned in the Palisades fire, which has destroyed or damaged at least 5,000 structures and is 19 percent contained, Cal Fire reported on Jan. 15.

Average home prices are approximately $3.5 million in the city, with some of the coastal residences that burned worth tens of millions of dollars, according to online real estate firm Zillow.

In Altadena, an area impacted by the Eaton fire—which has now burned more than 14,000 acres and destroyed or damaged approximately 7,000 structures—the plan covers just under 1,000 policies. The Eaton fire is approximately 35 percent contained, according to Cal Fire.

Zillow calculates an average home value of about $1.3 million in the area.

Jones said that if a substantial number of burned homes are covered by the FAIR plan, it could jeopardize its solvency.

Rules proposed in July 2024 and issued by the state’s Insurance Department in September 2024 changed how FAIR-plan losses would be covered, by spreading exposure to include all policyholders.

In the event the plan is unable to pay claims, insurers are required to cover the losses at rates determined by their relative market share. The new guidelines allow insurers to recoup costs from policyholders through special assessments, if approved by the insurance commissioner.

Such a procedure is needed to provide stability for the insurer of last resort, according to the state’s Insurance Department.

“The FAIR Plan contains high-risk policies and maintaining its solvency is essential for paying future claims,” the department said in a statement. “While the FAIR Plan hasn’t had a solvency crisis in 30 years, we are taking no chances.”

The changes were meant to improve the plan’s capacity to cover risky properties, the commissioner said in a statement.

“Modernizing the FAIR Plan is a crucial step in our strategy to stabilize California’s insurance market,” California Insurance Commissioner Ricardo Lara said. “By strengthening the FAIR Plan while providing financial stability and solvency protections, we are creating long-term security for consumers, homeowners, and businesses across the state that is long overdue.”

Similar regulations are in place in Florida and Louisiana in so-called shared market environments, where losses are spread to reduce exposure.

With losses mounting due to the fires in Los Angeles County, rates will increase for Californians in the near future, according to Jones.

“It’s going to be very expensive for Californians to access insurance going forward,” the former insurance commissioner said.