Southern California homeowners are increasingly finding their property insurance options narrowing, often leaving them with the state’s FAIR Plan as their only choice. This “insurer of last resort” has seen its policy numbers soar since 2019, following a wave of devastating wildfires and rising reinsurance costs that led major carriers to cancel thousands of policies across California.
The FAIR Plan, designed to offer only basic fire coverage, now insures 696,000 properties with potential losses totaling $788 billion as of June 30. This expansion means it lacks the comprehensive protections for theft, liability, or water damage that come with conventional property insurance.
The plan’s origins trace back to 1968, created by the California Legislature in the wake of the 1965 Watts riots in Los Angeles, ostensibly to combat redlining in minority neighborhoods. However, reports also indicate its true impetus came years earlier from the catastrophic 1961 Bel-Air fire, which incinerated nearly 500 homes in the Santa Monica Mountains, including those of several celebrities. By July 1968, with 2,300 local homeowners facing the loss of brush fire coverage, emergency legislation swiftly established the California FAIR Plan Association. This measure was pushed through so rapidly that legislative committees only approved a skeletal outline, leaving the operational specifics to its member insurers.
Within a year, lawmakers were already facing allegations that the insurance industry was using the FAIR Plan as a convenient “dumping ground” for its riskier policies to maximize profits. For decades, the plan’s size remained too modest to significantly sway the overall market. That changed dramatically in early 2022 when major insurers like State Farm, Allstate, and Farmers began shedding thousands of policies due to wildfire risks and other hazards, with many of those properties landing in the FAIR Plan.
Dan Dunmoyer, a building industry and former insurance lobbyist, described this dynamic as a “death spiral,” where insurers funneling more policyholders into the state plan simultaneously increased its exposure and the likelihood they would need to bail it out. California Insurance Commissioner Ricardo Lara further amplified the plan’s exposure by mandating it to raise policy limits to $3 million for homes and to insure condominium developments valued at $100 million. Cedric Snow, a retired CSAA executive and former member of the FAIR Plan’s executive committee, noted that the potential for a “$4- or $5-billion industry assessment was not remote any longer,” seeing the chance increase from a 1-in-500 or 1-in-1,000 possibility to a 1-in-100 or 1-in-75 chance.
The strain is already visible. Victims of the January 2025 L.A. County wildfires are reportedly battling the state’s insurer of last resort for compensation. A California judge recently denied a petition to halt surcharges that home insurers have been levying on policyholders statewide to cover costs related to these same fires. Following the disastrous January 2025 Los Angeles firestorm, Commissioner Lara made a concession to the industry: he capped the FAIR Plan's responsibility for wildfire-related claims at $500 million, leaving policyholders on the hook for anything beyond that amount.
The sheer scale of potential losses means the FAIR Plan can no longer solely depend on the state’s insurance industry to cover its liabilities, and even securing sufficient reinsurance on the international market poses a significant challenge, Snow said. He believes the plan is unlikely to shrink enough to avoid future bailouts.
Disparities have also emerged. A study published this year by Nancy Wallace, who directs the real estate and financial markets laboratory at UC Berkeley, suggests that political pressures, such as capped rate hikes, have unbalanced the risk pool. Her data indicates that residents in low-risk areas are essentially subsidizing high-risk homes in California’s wealthier enclaves, such as the Pacific Palisades, which was devastated by the January 2025 firestorm. Nathan Vosburg, mayor of Coalinga, plainly stated at a City Council meeting, “We have no risk and we’re the ones paying.”
Further demonstrating this imbalance, six years after the devastating Camp fire in 2018, regulated carriers continue to exit Paradise even as the community rebuilds. Yet, under new state insurance department rules, these same exiting insurers still qualify for expedited rate hikes because they are writing policies in another area designated as distressed: the new luxury housing developments outside Roseville. This area, located in the 95747 ZIP Code, landed on California’s distressed insurance market list because it falls within Placer County, which stretches into the severe fire zones of the rugged Sierra Nevada. However, since 2019, insurers have written over 6,500 new policies in this low-risk ZIP Code, forcing only 76 homeowners into the FAIR Plan. Agency data indicates this makes it the fastest-growing insurance market in all of California.