According to recent data, market shifts and the ongoing natural disasters hitting California have led to a 276% increase in policies written by the FAIR Plan from 2018 to 2024. Thanks to wildfires and property insurance challenges, more and more people are turning to the FAIR Plan as the only option out there – something that’s having a knock-on effect on the sector as a whole.
John Norwood (pictured), managing partner at Norwood Associates and CIWA lobbyist, didn’t sugarcoat the precarious state of California’s insurance ecosystem.
“The FAIR Plan is suitable as the insurer of last resort,” he said, adding that while it provides coverage, it comes with significant limitations. Its maximum cap of $3 million forces many homeowners – particularly those with high-value properties – to turn to the non-admitted market for supplemental policies.
“The FAIR Plan only writes fire insurance,” Norwood said. “The other coverages you would normally get in your homeowner’s policy, you have to go out and get a wraparound policy. The question is, did people get a wraparound policy?”
And the numbers are stark; the FAIR Plan has $460 billion in statewide exposure.
“In Pacific Palisades, for example, they hold $6 billion of exposure,” Norwood said. Yet only about $3.8 billion is within the fire map – around 22% of properties in that area.
“They’re not an insurance company,” Norwood said. “They’re cash in, cash out.” And, unlike traditional insurers with mandated reserves, the FAIR Plan operates on cash, reinsurance and the ability to assess the broader industry.
The industry-wide implications of this setup are hard to ignore. Norwood didn’t shy away from addressing the risks: “If you’re one of the big companies exposed, and all of a sudden between their claims and the assessment that causes a solvency issue for them, then we got a whole other thing.”
Underinsurance, particularly in disaster-prone areas, is another significant problem – one that inflation has only made worse.
“The main driver of underinsurance is inflation, the surge in cost of materials, the surge in cost of labor to rebuild,” Norwood said. He described how these economic pressures have intersected with natural disasters to create long-lasting impacts, pointing to the aftermath of the 2018 Camp Fire in Paradise, Calif.
“Two years to do cleanup, only 20% of the homes are rebuilt right now, five years in,” he said.
Norwood also highlighted the cascading effects on communities. Rebuilding delays and soaring costs often lead to gentrification, pricing out long-time residents. “The time it takes leads to a re-gentrification of those areas,” he said. “Prices have doubled or gone up. People can’t afford those anymore. They’ll sell the property and move on.”
Investors like BlackRock, he noted, often capitalize on this disruption, reshaping neighborhoods entirely. “These investors come in making offers to people. Residents make the decision to sell and off they go to another part of LA to live.”
The FAIR Plan’s structure – entirely reliant on reinsurance and industry assessments – amplifies the challenges of disaster recovery.
“We’ll see where that goes to the extent that their reserves are essentially their ability to access reinsurance and assess all the other member companies,” Norwood said. He stressed the strain this model could place on already-taxed insurers and questioned its sustainability in the face of compounding risks.
Adding to the strain is the rising cost of rebuilding homes after disasters, a burden that disproportionately affects communities in fire-prone areas.
“Every contractor in the state is going to come down here to set up, and whatever they’re charging you, double it,” Norwood said. He made it clear that these rising costs and delayed timelines don’t just impact individual homeowners – they also reshape entire regions.
“It’s a massive cleanup effort,” he said. The FAIR Plan may stabilize in the short term, but the long-term challenges of underinsurance, gentrification, and strained industry resources demand more robust solutions.
“It’s not coming tomorrow,” Norwood said. “It’s going to come over a period of time.”
