(The Center Square) – California’s state-supervised fire insurance provider of last resort received approval to levy a $1 billion assessment on private insurers to ensure it can continue paying claims from the devastating January 2025 wildfires.
The assessment, which must be paid by all admitted insurers writing property insurance in California, comes as the California FAIR Plan faces $4 billion in wildfire losses that exceed its available cash and reinsurance it can access at this time.
“I took this necessary consumer protection action with one goal in mind: The FAIR Plan must pay claims just like any other insurance company,” said California Insurance Commissioner Ricardo Lara in a statement. “I strongly support legislation this session — just as I did last session — that would allow the FAIR Plan to access credit lines and catastrophe bonds to help pay claims in worst-case scenarios.”
With the assessment, FAIR says it will have positive cash of $305.6 million by June 30.
However, for any new catastrophic events after that date, FAIR would need to pay the first $1.25 billion in losses before its reinsurance coverage would begin to help, suggesting that even with the assessment, FAIR’s financial woes are far from over.
Existing FAIR regulations prevent FAIR from passing the costs of reinsurance to consumers. The plan has only $5.78 billion in wildfire reinsurance against $458 billion in protected property.
State regulations were updated in September to allow FAIR to ask the California Department of Insurance to pass up to $2 billion in costs to other insurers, which they can pay, or pass on up to half of those costs to their customers.
If the legislation Lara referenced passes, FAIR would be able to issue catastrophe bonds to make ends meet, which would reduce the need for assessments on non-FAIR insurers and consumers.