California property and casualty insurers may recover up to half of the $1 billion California FAIR PLAN assessment through a temporary supplemental fee on policyholders, according to a report from AM Best.
The measure is intended to help maintain market stability and coverage availability, according to Insurance Commissioner Ricardo Lara.
If the FAIR Plan seeks an additional assessment to cover losses from the January wildfires in Los Angeles, insurers could fully recoup the additional charge from policyholders in the same line. Any reinsurance or other reimbursements would take priority, Lara stated in a bulletin.
Lara approved the FAIR Plan’s request for the assessment on Feb. 11. Member carriers will have 30 days to pay once they receive notice, according to the report.
Mark Sektnan, vice president for State Government Relations at the American Property Casualty Insurance Association, said spreading the assessment across a broader pool of insureds is necessary to reduce pressure on California’s insurance market and prevent widespread policy cancellations.
Meanwhile, Paul Martin, vice president of State Affairs at the National Association of Mutual Insurance Companies, called the assessment an “unfortunate but critical step to meet urgent consumer needs.” He said insurers are prepared to meet their obligations but emphasized that the long-term health of California’s insurance market depends on state and local government action.
Martin and Sektnan pointed to the need for regulatory reform under Lara’s Sustainable Insurance Strategy. Sektnan also called for expanded funding options for the FAIR Plan, including catastrophe bonds and lines of credit, as well as actuarially sound rates to support its financial stability.
FAIR Plan assessments are based on an insurer’s market share of dwelling and commercial policies from two years prior. The assessment amount is allocated between the 2024 and 2025 pool years and by line of business.
The FAIR Plan reported $914 million in paid claims and $3.25 billion in reserves for outstanding claims from the Palisades and Eaton fires. Lara’s order approving the assessment noted that the FAIR Plan had $510 million in total retained earnings at the end of 2024, which have been exhausted.
The FAIR Plan triggered the first three layers of its reinsurance tower in January and additional layers through April, resulting in a net reinsurance recovery of $1.45 billion for wildfire claims. Estimated total losses from the Palisades and Eaton fires stand at $4 billion. The FAIR Plan anticipates paying 75% of its reserved $3.2 billion in unpaid losses through May, in addition to other claims outside its reinsurance coverage, according to the report.
