California May Face Insurance Crisis as Peak Wildfire Season Looms

California’s insurer of last resort is heading into peak fire season with a dwindling cash balance. The FAIR Plan, which insures California’s highest-risk homes, will only have about $305 million left by June after receiving a $1 billion bailout from major insurers to cover claims from January’s devastating LA fires. 

The $1 billion deal was the plan’s largest bailout in nearly 60 years and the first time the plan needed help paying claims since 1994. 

If another major fire hits California this summer, when fire risks are expected to increase, the FAIR Plan could need another bailout. And major insurers may not be so willing to pay the tab twice in one year. 

A Dangerous Flywheel

California insurance was already in dire straits when January’s fires hit LA. Fires in 2017 and 2018 cost insurers more than two decades’ worth of profits after tens of thousands of structures were destroyed. 

After that fire season, insurers including Allstate and Farmers limited their California policies and pulled out of high-risk areas. 

• Last year, State Farm dropped thousands of policies in areas affected by the recent LA wildfires, including 1,600 homes in the Pacific Palisades. 
• As major insurers left, more homeowners switched to the FAIR plan: from 2020 to 2024, FAIR Plan policies doubled to cover nearly 500,000 homes. 

With the FAIR Plan on the hook for so many policies, major insurers may need to bail it out again when California faces its next crisis. But insurers, who are required to contribute to the FAIR Plan while they operate in the state, may decide to ditch the state instead. 

To keep that from happening, insurers are pushing for higher rates to cover rising costs: State Farm, California’s largest insurer, received provisional approval last month to roll out a 22% emergency rate increase. 

Uninsurable America: Like other disaster-prone states, California is facing an insurance crisis that may continue to spiral. Insurers drop policies as disasters become more expensive, pushing additional homeowners to its FAIR Plan. Then, when the FAIR Plan can’t afford the influx and asks insurers for bailouts, insurers drop more policies. With climate-related disasters widely expected to increase, some experts say regulators need to think further ahead and restrict building in high-risk areas.