By Mia MacGregor

Feb 12 - (The Insurer) - California insurance commissioner Ricardo Lara has approved the Fair Plan’s request for a $1bn assessment from its member companies to help pay consumer claims after the Southern California wildfires.

This move aligns with Lara’s Sustainable Insurance Strategy and the Fair Plan modernisation order issued last summer, which aims to protect policyholders and maintain the integrity of the state’s insurance market.

Key measures include hiring additional staff, utilising all available funds (including reserves and reinsurance), ensuring insurers share the cost of the assessment, maintaining a healthy reserve fund, and enforcing compliance with all laws applicable to other insurance companies.

Finalised in 2024, Lara's Sustainable Insurance Strategy is the largest insurance reform in the state in 30 years.

The initiative is designed to expand regular insurance coverage in high-risk areas while reducing dependence on the Fair Plan.

The commissioner also expects to release findings from an ongoing financial examination of the Fair Plan in the coming months, according to the California Department of Insurance.

“Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash Fair Plan checks,” Lara stated.

He reiterated his support for legislation that would allow the Fair Plan to access credit lines and catastrophe bonds, ensuring its ability to pay claims in worst-case scenarios.

The Fair Plan announced late last week that it has paid more than $700mn to policyholders from the Palisades and Eaton wildfires so far, moving it closer to the $900mn deductible on its reinsurance cover.

As of 4 February, the Fair Plan had received 3,485 claims for damage caused by the Palisades Fire and approximately 1,314 claims for damage caused by the Eaton Fire.

The total loss figure is expected to increase greatly, with the Fair Plan having a total potential exposure of more than $4bn for the Palisades Fire and $775mn for the Eaton Fire, according to California Department of Forestry and Fire Protection incident maps.

By statute, the Fair Plan, with the approval of the California insurance commissioner, has the right to assess all admitted insurers licensed to sell and selling property insurance in California to help pay for its losses.

Rating agency Moody’s last month highlighted uncertainty around the Fair Plan’s financial capacity to handle claims.

It said public financial disclosures suggest the plan likely lacks sufficient funds to cover large claims through its surplus and reinsurance alone, making insurer assessments likely.

Also last month, Fitch said that the then expected assessment on carriers would “likely lead to increased premiums or reduced coverage availability in the private market as insurers adjust to offset their increased liabilities from Fair Plan contributions”.

The American Property Casualty Insurance Association (APCIA) responded to Tuesday's approval of the assessment by highlighting the urgent need for reforms to stabilise California’s insurance market.

“As wildfires grow in frequency and intensity, rebuilding the Fair Plan’s reserves is critical for long-term stability. To achieve this, the state must explore a diverse range of funding solutions — including catastrophic bonds, lines of credit, and other financial tools — to equitably spread risk and strengthen the Fair Plan," said Mark Sektnan, APCIA vice president for state government relations.

"For the Fair Plan to recapitalise, they must be allowed to charge actuarially sound rates," he added.