Earlier this month, the California Department of Insurance announced that insurance companies have paid out $4.2 billion in claims so far to victims of the LA wildfires – with 31,210 claims filed and 14,417 claims already partially paid. It paints a grim picture heading into 2025. And that’s not to say there are no more natural disasters to come.
The state’s FAIR Plan, initially designed as a last-resort option, now dominates the market, covering up to two-thirds of the private insurance space in some areas. According to research from the California Department of Insurance, the FAIR Plan has seen a 70% increase in policyholders over the past five years, as traditional insurers withdraw. And, as of mid-2023, the FAIR Plan insured over 272,000 homes and businesses, up from 127,000 in 2018.
“We have seen new products evolve in the last couple years, [such as] FAIR plan wraparound and excess products come into the marketplace to respond to the growing FAIR Plan,” Jeff Case (pictured), vice president of Bridge Specialty Insurance, told Insurance Business. “[It’s] going to be very interesting to see how that unfolds post-LA fires. Will the FAIR Plan go on to be the mechanism of choice?”
The uncertainty surrounding the FAIR Plan’s role raises questions about long-term market stability. Case added that historically, the excess and surplus (E&S) market has stepped in to fill gaps in coverage.
“The E&S market – into cyber, into environmental pollution insurance, into AI – has always been the leader to kind of fill the market,” he said. “But in some cases, this might be more than what the insurance industry is willing to absorb.
“[Prior to] these wildfires, the FAIR Plan was [approximately] 50% or two-thirds of the private insurance market. Is [there] going to be a moment of reckoning? Is it going to stabilize and bring the FAIR Plan up into where the rest of the market is playing? Those are good questions [that I] don’t really have the answer to. We’re going to see how they unfold – and it’ll make for an interesting couple of years.”
Infrastructure restoration will be another major factor in recovery. As Case told IB, there’s going to be a lot of infrastructure work out there to restore water systems and delivery issues that were cited. And this rebuilding process will bring its own financial complexities, with homeowners facing increasingly tough choices.
“Because of co-insurance [and other issues], will those people take ACV payouts?” Case said. “If they take their money and run, they would typically get an ACV payout from homeowners’ insurance. Or will people choose to rebuild? I think we’re going to see some of all the above. Some percentage of those people are going to take the money and run, get out of state, or relocate because they’re not going to want to hang out and wait for five years.”
Another unknown is how regulators will handle claims-related issues.
“Is the insurance commissioner going to step in and extend business income and loss-of-use provisions in these policies long enough for these people to rebuild?” Case said. “In some cases, people are going to take the money.”
Beyond catastrophic risk, Bridge Specialty is preparing for broader industry shifts, with Case remaining bright about the wholesale market’s trajectory.
“We’re looking at building and road-changing within our organization. We’re very optimistic about the E&S market,” he said. “We were seeing signs of things levelling out in 2025. I think we’re still pretty optimistic about growth this year – and just working to take care of our customers one deal at a time.”
Innovation will also remain a priority, with Case adding that insurers will need to adapt to changing market risks in order to really help their customers. The road ahead may be fraught with hurdles, but Case was clear on one point: the industry cannot afford to take a reactive stance.
“We’re at a point where insurers have to ask tougher questions about what’s viable long-term,” he said. “This isn’t just about making up for what’s lost. It’s about rethinking how we approach risk and ensuring the solutions we create today don’t just solve the problems of tomorrow but anticipate the challenges of the next decade.”
As California’s insurance landscape continues to shift, one thing is clear: the wholesale market’s role in creating innovative solutions will be critical.
“The next few years are going to bring a lot of hurdles,” Case told IB. “But this is the moment for the industry to prove its resilience and lead the way.”
