$1 billion needed for California wildfire claims

Shafaq News/ California’s state-backed insurance program requires an additional $1 billion to cover claims from the Los Angeles wildfires, the Insurance Department revealed on Wednesday.

The FAIR Plan, a last-resort insurance pool funded by major private insurers, provides coverage for homeowners unable to secure policies due to wildfire risks. The program, originally designed as a temporary measure, now serves over 452,000 policyholders—more than double the 2020 figure—as private insurers scale back coverage in the state.

The Eaton and Palisades wildfires, which ignited on January 7, destroyed nearly 17,000 structures and killed at least 29 people. The FAIR Plan expects losses from the fires to reach $4 billion, with 4,700 claims already filed and payouts exceeding $914 million.

Under a plan approved Tuesday, insurers operating in California will cover half the costs, while policyholders face a one-time surcharge to fund the remainder. The exact amount of the fee has not been disclosed, but insurers must remit payments within 30 days.

This marks the first time since the 1994 Northridge earthquake that the FAIR Plan has sought emergency funding. California Insurance Commissioner Ricardo Lara defended the move, emphasizing the need for stability. “The FAIR Plan must pay claims just like any other insurance company,” Lara said in a statement. “Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks.”

The plan also anticipates $1.45 billion in reinsurance to help with payouts but expects to hold only $400 million in reserves by July.

As climate change intensifies wildfire risks, insurers have struggled to price policies accurately. Fifteen of California’s 20 most destructive wildfires have occurred since 2015, according to state data. Major providers, including State Farm and Allstate, have already reduced coverage or exited the market entirely.

Industry leaders warned that further strain could accelerate insurer departures from California. “This is essential to prevent even greater instability in the insurance market and avoid widespread policy cancellations,” Mark Sektnan of the American Property Casualty Insurance Association noted in a statement.

To address the crisis, California regulators have loosened restrictions on premium increases and allowed insurers to factor climate change risks into pricing. Lara also proposed granting the FAIR Plan authority to issue bonds or secure credit lines to prevent future emergency assessments.

“The responsibility now is on local governments to build better,” California Insurance Commissioner stated.