By Mary-Justine Lanyon
California Insurance Commissioner Ricardo Lara took action on Feb. 11 to make sure the FAIR Plan can pay claims made by those policyholders who lost their homes or suffered damage in the recent wildfires in the Los Angeles area.
What action did he take? He granted approval to the FAIR Plan’s request for $1 billion in additional funds from its member companies to cover those claims.
Where will that money come from?
“Protecting consumers from bearing the full cost of an assessment” (as stated in the commissioner’s press release), the insurance companies will be responsible for half the assessment with the policyholders being assessed the other half.
Currently, more than 451,000 policies have been written under the FAIR Plan.
As of Feb. 11, the FAIR Plan had received 4,794 claims from the Palisades and Eaton fires, with more claims being submitted every day. According to the commissioner’s Bulletin 2025-4, the FAIR Plan has estimated its total loss from the two fires at about $4 billion.
According to Gabriel Sanchez, the press secretary for the Department of Insurance, Bulletin 2025-4 provides guidance for insurance companies seeking the commissioner’s approval to charge a temporary supplemental fee to recover a portion of any FAIR Plan assessment.
“Insurance companies must submit a rule filing under Proposition 103 and do so within six months of receiving the assessment notice from the FAIR Plan. Before any insurance company may impose a temporary supplemental fee on policyholders, it must first submit a rule-change application to the Department of Insurance and obtain the commissioner’s approval. Insurance companies cannot submit these applications until after they have paid their portion of the FAIR Plan assessment.
“The FAIR Plan is currently issuing assessments to its individual member companies, which will have 30 days to remit payment,” Sanchez said.
In other words, an insurance company must first pay its portion of the assessment and then request approval from the commissioner to pass on the other 50 percent to its policyholders.
Crestline resident Rick Dinon, who retired as a senior vice president of a personal lines insurance company in 2001, gave his take on this assessment at the Feb. 12 Crestline Connect meeting:
The California FAIR Plan insures properties for fire damage when other insurers will not provide coverage. There is a provision in regulations governing the Plan which provides for a means to continue to pay claims when the Plan runs out of funds to do so. Following the disastrous recent fires this year, that’s the situation now. The Plan has about $4 billion in funds and reinsurance available but claims already exceed that.
To cover the shortage, regulations provide that there will be an assessment to the other insurers in the state to make up the shortage. The insurance commissioner has established that an additional $1 billion will be needed. That will be assessed soon. However, half of that, $500 million, will be billed to us, insurance consumers, as a recovery against the assessment which the insurers paid. It will be included within your insurance bill and will be identified as an assessment. (One source estimates that it will average about $60.)
While annoying, and also on top of rate increases we can expect, there is little alternative short of not paying fire victims their losses and shutting down the FAIR Plan, leaving most of us with no source for fire insurance. The state could issue bonds, but timing is poor and state finances are already stressed. Ultimately, we would bear the cost of those bonds anyway. So, the best we can do is to be aware, mitigate our fire risk and take a deep breath.
Jordan Zarate, one of the directors of the Running Springs Area Chamber of Commerce, had brought up the assessment at the chamber’s Feb. 11 meeting. He noted this is the first time an assessment is being made directly to homeowners.
Zarate’s estimate of the policyholder assessment was $1,000 after doing what he called some “simple math.” He also noted there is some question about the legality of the assessment and said the nonprofit Consumer Watchdog is considering suing over it.
“I took this necessary consumer protection action with one goal in mind,” Commissioner Lara said in his press release. “The FAIR Plan must pay claims just like any other insurance company. I reject those who are hoping for the failure of our insurance market by spreading fear and doubt. Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks.”
Commissioner Lara referenced his Sustainable Insurance Strategy, which he issued in 2024. It has the goal of increasing the number of regular insurance policies in higher-risk areas and reducing reliance on the FAIR Plan.
“We must rebuild stronger and be better prepared for future wildfires through common sense mitigation,” the commissioner said. “We must take action to improve the financial standing of the FAIR Plan and prevent this situation from recurring.”
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