California’s home insurer of last resort sees enrollment surge, raising concerns over its finances

A firefighter works to contain the 2019 Saddleridge fire in the Porter Ranch neighborhood of Los Angeles, CA.
A firefighter battles the 2019 Saddleridge fire in the Porter Ranch neighborhood of Los Angeles.
(Patrick T. Fallon / For The Times)

With home insurers scaling back coverage in the state, enrollment is surging in California’s backstop insurance plan — as is the plan’s risk of sustaining losses that it can’t cover.

Victoria Roach, president of the FAIR Plan Assn., told lawmakers this week that property owners even in areas with low wildfire risk were finding it difficult to keep their homes insured as companies increased rates, limit coverage or left areas susceptible to natural disasters amid climate change.

That has prompted thousands of Californians to purchase coverage through the state insurer as a last resort. Funded by the insurers doing business in California, the Fair Access to Insurance Requirement plan provides a limited policy as a fallback for property owners unable to find conventional coverage they can afford.


Roach said the Fair Plan set a new record last month when it added 15,000 new policyholders.

The FAIR plan has about 375,000 policyholders, and the insurer’s total risk exposure was $311 billion as of December 2023; it was $50 billion in 2018.

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“We’re one of the largest writers in the state right now in terms of new business coming in,” Roach said. “As those numbers climb, our financial stability comes more into question.”

Roach said homeowners and businesses are typically insured by any of the state’s 118 standard insurers or 132 surplus line insurers, which specialize in high-risk insurance.

“Unfortunately, as you know with the current state of the market, I think this is often reversed because there’s not a lot of options out there for people,” Roach told lawmakers during Wednesday’s Assembly Insurance Committee. “Instead, the FAIR plan is quickly moving to be the first resort for a lot of people.”

She said consumers who would never have sought insurance through the FAIR plan in years past were now among the new policyholders, many of whom were not living in wildfire areas.


The insurer’s expansion is the latest wrinkle in California’s ongoing insurance crisis, and it mirrors a similar trend across the country of major companies dropping customers in areas prone to wildfires, flooding and hurricanes.

Florida’s state insurance of last resort, known as the Citizens Property Insurance Corp., has become the largest property insurer there, adding about 11,000 new policies in the last two weeks, according to local reports.

In Louisiana, state officials have been trying to address an insurance crisis following a series of hurricanes in 2020 and 2021 that caused insurance companies to stop renewing policies or leave the state.

Insurers agreed to return to the high-risk fire zones in the hills and canyons of California in exchange for concessions that will make it easier for them to get rate increases approved.

Sept. 22, 2023

Since 2022, at least eight insurers, led by State Farm and Allstate, have announced plans to stop offering home insurance to new customers or withdraw from the state entirely. Some blamed a spike in the cost of reinsurance — insurance policies that insurance companies buy to cover their big losses — and financial strains caused by inflation that have made materials and labor for home repair and rebuilding costly.

The potential loss of insurers prompted Gov. Gavin Newsom to issue an executive order commanding the insurance commissioner to take action to address issues with the insurance market and expand coverage options for consumers.

Insurance Commissioner Ricardo Lara’s response to the crisis is a set of new rules still being implemented that would allow insurers to raise rates to cover reinsurance costs and projected losses from catastrophic fires, but also require them to provide coverage for more homes in the canyons and hills. The proposals, which aim to move people off the FAIR plan and slow the increase in premiums, have won support from insurance industry trade groups and some consumer groups, but criticism from other consumer advocates.


Under the existing system, insurers need to apply to the Department of Insurance to raise their average rates across the state and prove that the price hike is justified. The process allows consumer advocates to intervene to contest the insurer’s claims.

This system was created when California voters approved Proposition 103 in 1988, but the insurance department went a couple of steps further than the ballot measure. Its rules barred insurance companies from including the cost of reinsurance in their rates and allowed the use only of historical loss data, rather than forward-looking simulations, to support a hike in premiums.

Insurance industry representatives have been trying to lift both of those restrictions for years, but their calls have intensified as insurers have pulled back coverage in California.

On Thursday, Lara proposed a regulation that would allow insurers to use catastrophe modeling that takes into account the projected impacts of climate change and other shifting factors when asking to raise rates.

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Aug. 28, 2023

“We can no longer look solely to the past as a guide to the future,” Lara said in a statement. “My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law.”

The proposed regulation comes a week after the Los Angeles County Board of Supervisors approved a motion demanding that Lara investigate the compliance measures that insurance companies require from homeowners to keep their coverage.


“It’s no secret that insurance providers have become more conservative due to increased wildfire threats statewide,” said Supervisor Kathryn Barger, who introduced the motion, in a statement. “As a result, homeowners are increasingly being put in a very tough position: pay higher premiums and comply with varied, costly, and inconsistent mitigation requirements or lose your insurance.”

She added: “I’ve heard from many of my constituents district wide who are facing steep cost increases or being dropped altogether by their insurance carriers and left to fend for themselves. That’s simply unacceptable.”

In response to proposed expansion of catastrophe models, Consumer Watchdog, a consumer advocacy group that often intervenes in proposed rate hikes, said Lara’s proposed regulation limits transparency.

“Black box catastrophe models are notoriously contradictory and unreliable, which is why public review and transparency are key before insurance companies are allowed to use them to raise rates,” the group wrote in a statement. “Commissioner Lara’s proposed rule appears drafted to limit the information available to the public about the impact of models on rates in violation of Proposition 103.”

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The group contends that the rule fails to spell out how the Department of Insurance would assess a model’s bias or accuracy and instead creates “a pre-review process that appears primarily focused on determining what information companies must disclose and what they may conceal from public view.”

“California needs a public catastrophe model to ensure climate data is transparent and to prevent insurance price-gouging and bias.”


Staff writer Sam Dean contributed to this report.