California Bolsters home Insurer of Last Resort Amid Rising Wildfire Risk
SACRAMENTO (AP) – California Governor Gavin Newsom signed legislation Thursday designed to stabilize the state’s FAIR Plan, the insurance pool for homeowners unable to secure private coverage due to high wildfire risk. The move comes as the number of Californians relying on the FAIR Plan has surged, and the plan faced a recent near-collapse following devastating wildfires.
The FAIR Plan, intended as a temporary solution, has seen enrollment balloon to nearly 600,000 policies as major insurers have limited or paused new business in California, citing the increasing difficulty of accurately pricing risk in a climate change-fueled surroundings. Earlier this year, wildfires in Los Angeles resulted in roughly $4 billion in losses for the FAIR Plan, requiring a $1 billion bailout from private insurers – half of which will be passed on to all policyholders.
The new law aims to prevent future bailouts by allowing the FAIR plan to request state-backed loans and bonds, and to spread out claims payments over multiple years following a disaster, easing the immediate financial burden on insurers. Previously, insurers were required to cover the full bailout amount within 30 days.
“The kinds of climate-fueled firestorms like we saw in January will only continue to worsen over time. That’s why we’re taking action now to continue strengthening California’s insurance market to be more resilient in the face of the climate crisis,” Newsom stated.
A second bill signed by Newsom expands the FAIR Plan board to include two non-voting representatives from the state Legislature, adding a layer of oversight and transparency, according to supporters.
California has been working to stabilize its insurance market as wildfires become more frequent and destructive – 15 of the 20 most destructive wildfires in state history have occurred since 2015, according to the California Department of Forestry and Fire Protection. The state is now allowing insurers greater versatility to raise premiums in exchange for offering coverage in high-risk areas, and to factor climate change into their pricing models.
