California’s ‘Last Resort’ Property Insurance Is on the Brink

The California Fair Access to Insurance Requirements Plan was never meant to carry the weight of the state’s property insurance market. Conceived more than 50 years ago as a stopgap measure for high-risk properties that couldn’t secure traditional coverage, it has swelled into the third-largest property insurer in California.

This explosive growth poses a systemic risk not just to the insurance sector, but to the state’s broader housing and economic stability.

The FAIR Plan covers more than 573,000 properties, a 139% increase since 2021, and represents $599 billion in exposure, a 259% increase from that year. Designed as a market of last resort, the plan has become the insurer of first resort in many wildfire-prone areas, defying its mandate and dangerously distorting the market.

Its growth is accelerating, with a 23% increase in policies since September 2024 alone. This represents a staggering transformation from a limited safety net to California’s third-largest property insurer by written premium volume. Following the Palisades and Eaton fires, the FAIR Plan now insures 22% of the structures destroyed, an alarming concentration in areas it was never intended to dominate.

This creates a vicious cycle: as voluntary insurers retreat, homeowners are forced onto the FAIR Plan, which increases its exposure. But the plan’s financial structure depends on assessing those same voluntary carriers to pay for major losses. As the private market shrinks, so too does the assessment pool, hollowing out the very mechanism meant to keep the FAIR plan solvent.

The recent Los Angeles wildfires have laid bare the unsustainable contradictions in California’s property insurance regime. With more than $1.2 billion already paid out in claims and total projected losses exceeding $4.1 billion, the plan in February issued its first assessment in 30 years, seeking $1 billion from private insurers.

This underscores what many in the industry privately acknowledge: California is trapped in a political impossibility triangle. Significant rate increases are necessary to draw insurers back to the voluntary market, yet affordability mandates and public backlash render such hikes politically toxic.

Meanwhile, the FAIR plan can’t remain viable without a strong voluntary market to backstop losses. No side of this triangle can be reinforced without weakening the others.

Design Flaws

The FAIR Plan was never built to shoulder the risks of more than half a million properties. Its financial structure was designed for managing isolated risks. It currently has less than $1.6 billion in cash on hand and receivables. Under its current reinsurance tower that started in March, the plan must absorb the first $1.25 billion in losses before reinsurance coverage kicks in, followed by co-insurance obligations for the next $4.85 billion. These are capital exposures appropriate for a niche residual market, not the third-largest property insurer in the state.

At the same time, the plan can’t charge actuarially sound rates without making coverage prohibitively expensive. That leaves the plan politically constrained, financially fragile, and structurally overburdened. If the voluntary market continues to erode, the plan’s funding model may collapse, forcing the state to consider taxpayer subsidies that lawmakers are unlikely to support.

The FAIR Plan Stabilization Act, offers a short-term fix. But without deep structural reform, it can’t resolve the underlying issue—the FAIR plan was never built to be California’s main insurer.

Its $3 million cap on residential property coverage poses a grave underinsurance risk in high-value coastal areas such as Malibu, Montecito, and San Francisco, where homeowners may have to seek expensive excess fire policies that are hard to find. The limited coverage in FAIR plan policies, including gaps for liability and water damage coverage, also forces policyholders to purchase expensive companion policies.

The proposed increase in commercial coverage to $20 million per building and $100 million per location will help businesses and homeowner associations, but it can’t solve the core problem—the FAIR Plan was never meant to be a substitute for comprehensive insurance.

The Department of Insurance historically has failed to mandate FAIR Plan training for agents and brokers. While this is set to change later this year, untrained brokers have caused widespread policy errors and consumer frustration.

Compounding this, brokers earn limited commissions, creating little incentive to service existing customers or help them file claims. This structure reflects the plan’s original conception as a last resort rather than a long-term insurance relationship. It might have worked when the plan served 50,000 policyholders. But at over half a million, it’s a recipe for chronic mismanagement and policyholder dissatisfaction.

Stabilization Measures

While long-term reform may depend on rate-setting and risk rebalancing, several immediate actions could ease the FAIR plan’s burden:

• Mandatory agent training, anticipated to start later this year, can reduce policy errors and help consumers understand their coverage.
• Service-based commission models would encourage brokers to support policyholders over time, not just at the point of sale.
• Regular reporting on policy counts, wildfire risk profiles, and financial metrics, also anticipated to start later this year, would give regulators and the public a clearer view of the plan’s condition, in addition to the information already available.

Absent voluntary market revitalization, California faces hard choices: allow major rate hikes, create state subsidies, or consider a full-scale reimagining of how wildfire risk is insured.

The FAIR Plan has become a dangerously overloaded cornerstone of California’s insurance market. If it fails, the consequences will extend beyond policyholders. Mortgage lending could dry up, property values may plummet, and local governments could lose critical tax revenue needed for schools, infrastructure, and emergency services.

This is no longer just an insurance problem—it’s a systemic risk to the state’s economic foundation.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Daniel J. Veroff is an insurance attorney at Merlin Law Group in San Francisco.

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