As leading insurers have retreated from California, one carrier has stepped in to fill the gap.
The state’s insurer of last resort, known as the FAIR Plan, has ballooned in size since 2019, after a series of devastating wildfires and escalating reinsurance costs led to mass cancellations of insurance policies across the state. The FAIR Plan provides only basic fire coverage — without the theft, liability or water damage protection that comes under conventional property insurance.
As of June 30, the association insured 696,000 properties, with potential losses of $788 billion.
The state risk pool was never intended to bear such risk. It was created by the California Legislature in 1968 after the 1965 Watts riots in Los Angeles, ostensibly to curb redlining by banks, home sellers and insurers in minority neighborhoods.
But news accounts show the seeds for the FAIR Plan were planted years before in the 1961 Bel-Air fire that destroyed nearly 500 homes in the Santa Monica Mountains, including those of several Hollywood celebrities. By July 1968, as 2,300 homeowners in the area stood to lose their brush fire coverage, the state Legislature rushed emergency legislation to create the California FAIR Plan Assn.
The measure was pushed through so quickly that legislative committees voted only on a skeletal outline. Details of how to run the syndicate were left to its members — insurers licensed to operate in California who would share in the plan’s profits and losses.
Within a year of creating the plan, lawmakers were confronted by allegations the insurance industry was using it as a dumping ground for its risky policies to maximize profit.
Still, for decades, the FAIR Plan insurance pool was too small to influence the overall market. That changed in early 2022, when California’s major insurers — State Farm, Allstate, Farmers and others — simultaneously began to shed thousands of policies because of their exposure to wildfire risk and other hazards.
Many of these homes landed in the FAIR Plan.
But as insurers funneled more policyholders into the state plan, they increased its exposure and the likelihood they would have to bail it out if it went bankrupt — what building industry and former insurance lobbyist Dan Dunmoyer called a “death spiral.”
California Insurance Commissioner Ricardo Lara furthered the plan’s growth when he required it to raise the policy limit on homes to $3 million and to insure condominium developments valued at $100 million. That substantially increased the financial exposure of the plan and jeopardy to its member companies, experts said.
“You could see that the potential for a $4- or $5-billion industry assessment was not remote any longer,” said Cedric Snow, a retired CSAA executive and former member of the FAIR Plan’s executive committee.
“What was once a 1-in-500 or 1-in-1,000 chance, it was now a 1-in-100 or a 1-in-75 chance,” Snow said.
After the disastrous Los Angeles firestorm in January 2025, Lara made a concession to the industry that faced potentially huge losses: to cap the amount of wildfire-related claims the FAIR Plan would be responsible for. Policyholders would be on the hook to pay for anything above $500 million.
The sheer size of potential losses within the FAIR Plan means it can no longer rely on the state’s insurance industry alone to cover losses, Snow said. Even buying sufficient reinsurance on the international market is a challenge, he said. Nor is the FAIR Plan likely to ever shrink enough to avoid triggering future bailouts.
In a study of the FAIR Plan published this year, Nancy Wallace, who directs the real estate and financial markets laboratory at UC Berkeley, surmised that political pressures such as capped rate hikes have unbalanced the risk pool and created disparities.
Her data showed that people in low-risk areas were essentially subsidizing high-risk homes in California’s wealth enclaves such as the Pacific Palisades devastated by the January 2025 firestorm.
“We have no risk and we’re the ones paying,” Nathan Vosburg, mayor of Coalinga, told an insurance department representative at a City Council meeting in spring.
Other disparities have emerged. Six years after the devastating Camp fire in 2018, regulated carriers continued to leave Paradise even as the community rebuilt, state data show.
Yet, under new state insurance department rules, those 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 catering to urbanites from San Francisco and Sacramento.
The development pocket landed on California’s distressed insurance market list because it falls within Placer County, which stretches 65 miles east into the severe fire zones of the rugged Sierra Nevada.
But since 2019, insurers have written more than 6,500 new policies in the 95747 ZIP Code. Only 76 homeowners were forced into the FAIR Plan. According to agency data, that makes the ZIP Code the fastest growing insurance market in all of California.
