California Homeowners Unaffected by Wildfires Could Get New Insurance Bill

California's wildfire crisis is reshaping the home insurance landscape, with significant financial implications even for homeowners far from fire-prone areas. Changes to the state's Fair Access to Insurance Requirements (FAIR) plan could result in additional costs for all policyholders to cover wildfire losses.

Why It Matters

According to the National Association of Insurance Commissioners (NAIC), a Fair Access to Insurance Requirements, or FAIR plan, is a form of state-mandated property insurance that offers an alternative for those unable to secure insurance coverage due to being in a high-risk area or for other factors that make insurability difficult. It's often used as a last resort option, and California's FAIR plan has become a critical safety net as private insurers retreat from the state's high-risk market.

A recent rule change enables losses exceeding the plan's reserves to be distributed across all policyholders in the state, regardless of their proximity to wildfire zones. This change could mean policyholders are saddled with unwelcome increases on their premiums, or an added insurance bill.

What To Know

Realtor.com has the median listing price for a home in the Pacific Palisades set at $4.7 million while the median in Altadena is $1.3 million. These areas have been at the center of one of the largest wildfires, with thousands of homes damaged or destroyed. Despite these regions bearing the brunt of the destruction, policyholders throughout the state could face higher premiums if the FAIR plan runs out of money to cover damages.

Wildfires in early 2025 have inflicted staggering economic losses in California, with insured damages potentially ranging from $20 billion to over $40 billion, according to early estimates. California's FAIR plan holds approximately $700 million in cash reserves, $200 million in additional reserves, and $2.5 billion in reinsurance.

Why All Homeowners Might See Increased Insurance Costs

The changes stem from updated guidelines issued in 2024 by California's Department of Insurance. If FAIR plan losses exceed available resources, insurers must cover the shortfall relative to their market share, with permission to recoup costs through policyholder assessments.

Reliance on California's FAIR Plan

Total exposure for the FAIR plan has surged to $458 billion, reflecting a 61 percent increase since 2023. Dwelling and commercial policies in the state have increased by 123 percent and 161 percent respectively over the last four years, according to recent California Fair Plan Property Insurance data. The total number of FAIR plan policies has increased 41 percent in a single fiscal year.

What People Are Saying

David Tangipa (R), vice chair of the California Assembly's Insurance Committee, said in reporting from E&E News by Politico: "It is inevitable that home insurance for every single homeowner in California will increase. The California FAIR Plan does not have enough funds for the potential liabilities and the payouts that will have to come for this recent fire."

Ricardo Lara, California's insurance commissioner, said in a California Department of Insurance consumer alert: "Modernizing the FAIR Plan is a crucial step in our strategy to stabilize California's insurance market. By strengthening the FAIR Plan while providing financial stability and solvency protections, we are creating long-term security for consumers, homeowners, and businesses across the state that is long overdue."

What's Next

As wildfires grow more frequent and severe, the financial toll on California's insurance system is likely to increase. Homeowners across the state should prepare for rising premiums and potential assessments, even if their properties are not directly affected by fires. Policymakers face mounting pressure to implement additional reforms to stabilize the market and address the challenges posed by climate-driven disasters.