By Mark Anderson, SACRAMENTO BUSINESS JOURNAL
https://www.bizjournals.com/sacramento/news/2025/10/11/fair-insurance-plan-seeks-rate-increase.html
The California FAIR Plan, the homeowners insurance of last resort, is seeking an average 35.8% rate increase that would take effect in April if approved by the California Department of Insurance.
While it is the “last resort” policy, the FAIR Plan has also been the fastest-growing insurer in the past three years as many standard insurers stopped or limited writing new policies in California for fear of risk exposure to wildfires.
The California insurance commissioner’s office said that by implementing its Sustainable Insurance Strategy incentives to insurers this year, it kept the FAIR Plan from seeking an 80% rate increase.
Part of the way the sustainable strategy works is by enticing major insurance companies to reenter higher-risk areas to offer homeowners options other than the FAIR Plan.
The way the state is enticing insurers to write more policies in riskier locations is by allowing insurers to set rates using their own catastrophe modeling in high-risk areas. The California Department of Insurance said the FAIR Plan proposal is under review, and it could be modified. If approved, it would take effect in April, or at policy renewal following April.
The state defined high-risk areas in Placer, El Dorado and Nevada counties, as well as 26 other counties around the state. Sacramento and Yolo counties didn’t make that list.
Because of the state’s insurance emergency, the insurance department is allowing insurers who write new policies in high-risk areas to use their own private models to set policy prices.
By allowing catastrophe modeling, the Department of Insurance is using a statewide emergency to sidestep one of the primary tenets of Proposition 103, the California Insurance Rate Reduction and Reform Act, which was approved in 1988. Under Proposition 103, insurance companies must use actual losses and gains over the past 20 years to set new rates.
Insurers have been concerned that past experience is not a viable model for the current era where wildfires are more destructive and expensive, potentially due to the effects of climate change.
“How they decide who pays more and who pays less is not transparent,” said Carmen Balber, executive director with Consumer Watchdog, whose predecessor organization wrote Proposition 103 language 37 years ago. “You and I don’t have access to those models,” she said, and a call for transparency was the whole point of Proposition 103 and current state law.
Because of the unavailability of homeowners insurance across the state, a lot of the growth of the FAIR Plan earlier this year was happening in areas of low wildfire risk. That was because mainline insurers had pulled out of the state, said Victoria Roach, president of the FAIR Plan, during a California Assembly Committee on Insurance oversight hearing in May. “We are seeing normal suburban tract homes. That is not what we have seen in the past,” she said. “We don’t want to be the affordable choice. We want to be the place for people who cannot find insurance.”
The FAIR Plan this spring had 575,000 policies in the state. That’s more than double three years ago.
The Department of Insurance issued its Sustainable Insurance Strategy in July to entice insurers back into the state.
The FAIR Plan, which is not regulated like insurance companies, is also using proprietary catastrophe models, Balber said.
The FAIR Plan rate increase is outlined in 132 pages of rate tables, which delineate risk and expenses for various cities and counties, and they also take into consideration whether the residence is wood frame or masonry. Masonry homes are a lower risk. The risk matrices also take into account how far a residence is from a fire hydrant and how far the residence is from a “credible water source.”
Other risk variables include whether the residence is vacant, owner occupied, short-term or long-term rental. Owner-occupied is the lowest risk. There are also incentives for hardening a home and its property from igniting during fire.
Always meant to be the insurer of last resort, the nonprofit California FAIR Plan Association was set up in 1968, following the Watts riots in Los Angeles. FAIR stands for Fair Access to Insurance Requirements, and it was meant to be an interim and limited program to support insurance needs when the private sector pulls back.
The FAIR Plan is not a company. It’s an involuntary association of all the insurance companies that do business in the state. If the FAIR Plan runs into problems, all the insurers in the state take a pro-rata share of filling the gap. That is a scary prospect for insurers, as FAIR Plan policies are concentrated in California’s most fire-prone geographies.