California Fair Plan orders $1 billion assessment after January wildfires, warns rapid growth threatens solvency

The California Fair Plan asked its member insurers for $1 billion after the January wildfires and warned the state’s residual insurer is growing faster than its financial resources, Fair Plan leaders told the California State Assembly Insurance Committee.

Victoria Roach, president of the California Fair Plan, told the committee the plan ‘‘is not a state agency. We are not state funded, and we are not taxpayer funded. We are a not for profit.’’ She said the plan’s role is to be ‘‘the insurer of last resort’’ — a temporary safety net for policyholders who cannot obtain coverage in the admitted market.

The plan reported that as of March 31 it was insuring about 575,000 policies and had nearly $600 billion in exposure. Armand Feliciano, representing the Fair Plan, described how its accounting committee and board concluded the organization would need to assess member insurers after the January losses. ‘‘The board unanimously agreed we needed to assess. They agreed a billion dollars was the right number,’’ Feliciano said.

Nut graf: The assessment reflects how large, unexpected catastrophic losses — and a shift of policies into the Fair Plan from the admitted market — can exhaust the Fair Plan’s reserves and reinsurance. Fair Plan leaders urged legislative and regulatory options to reduce reliance on member assessments, including access to lines of credit and bonds.

Board action, assessment process and reinsurance

Feliciano explained the Fair Plan’s assessment process is set by statute and by the plan’s governance: finance staff project claim payments and available reinsurance, an accounting committee (including member-company representatives and a Department of Insurance representative) recommends whether to assess, and the plan’s board approves and sends the request to the California Department of Insurance (CDI). Under the plan’s procedures, member companies are billed based on market-share formulas tied to prior pool years and generally have 30 days to remit their assessment.

Roach and Feliciano described a layered risk-transfer approach. The Fair Plan has purchased reinsurance but faces a large first-loss layer: under the plan’s current reinsurance placement, the Fair Plan is responsible for the first roughly $1.25 billion of losses from a single event. Reinsurance capacity and the timing of payments affect how quickly the plan must move to assessment to ensure timely claim payments.

Funding proposals and legislative measures

Fair Plan leaders said they support AB 226 (author names given in testimony) to authorize access to additional funding mechanisms, including a line of credit and possible bond authority, to provide flexibility between claim payments and assessment timing. Roach and Feliciano said a line of credit would not eliminate assessments but would give the plan time and liquidity to manage cash flow and access reinsurance proceeds.

What it means for policyholders and member companies

Roach said the Fair Plan’s statutory mission is to ‘‘assure stability in the market’’ and to encourage the admitted market to serve policyholders. But she said growth into previously low-risk areas and the volume of new business make the Fair Plan more of a permanent insurer for many customers rather than a temporary stopgap. Failing to reach actuarially sound rates for Fair Plan coverages also reduces incentives for policyholders to return to the admitted market, she added.

Quotes and timetables

Roach reported the plan’s average dwelling premium rose from about $1,839 in 2021 to about $2,800 in 2025 and said the Fair Plan is working with CDI on future filings to reach ‘‘actuarially sound rates.’’ Feliciano warned that if wildfire season brings additional large events or a string of smaller events, the Fair Plan could face additional assessment needs quickly.

Ending: Next steps

Committee members pressed Fair Plan staff for further data and asked the plan to provide follow-up numbers on renewals, nonrenewals and closed-denied claims. Fair Plan representatives committed to providing additional information to members after the hearing. The plan and stakeholders urged legislative action to expand liquidity options and to support market reforms aimed at depopulation of the Fair Plan back into the admitted market.