The California FAIR Plan has submitted a proposal to increase home insurance rates by an average of 35.8% beginning next spring.
If approved, this would be the largest rate hike for the program in at least seven years.
The proposed changes would affect policyholders differently. About half of customers would see increases between 40% and 55%. Some could see rates decrease by as much as 78%, while four policyholders could face increases exceeding 300%. The new rates would take effect at the next renewal date, after April 1.
A FAIR Plan spokesperson said wildfire risk was the primary factor determining rate changes. Homeowners in low-risk regions, such as the Central Valley, may see lower rates, while those in high-risk areas like Sonoma County and the Sierra Nevada foothills could experience significant increases.
Discounts are available for homeowners who take steps to reduce wildfire risk on their properties.
Of note is that the California FAIR Plan’s policy covers only fire damage, requiring policyholders to purchase a separate policy for liability, water damage, and other risks. Many homeowners report that switching to the FAIR Plan results in paying double or more compared to previous private market rates, even without recent increases.
Currently, on average, the combined cost of a FAIR Plan policy and a Difference in Conditions (DIC) policy is around US$3,200 per year, a figure consistently cited by multiple consumer and industry sources. This amount is more than twice the cost of a standard private homeowners policy, which averages roughly US$1,429 annually for similar properties.
FAIR Plan president Victoria Roach previously warned of the need for a substantial rate increase, stating it would help the insurer cover the costs of major wildfires. Since 2021, the number of FAIR Plan policyholders has more than doubled, reaching 591,000 this summer. The program and its backing private insurers have cited the financial strain of this growth.
The FAIR Plan has faced criticism over its handling of wildfire claims, particularly in Los Angeles. In August, Commissioner Lara issued a cease and desist order against the FAIR Plan for allegedly denying claims from homeowners whose properties remain standing but are contaminated with soot and ash.
Gov. Gavin Newsom also criticized the insurer’s handling of smoke-damaged homes, calling its actions “unscrupulous and unfair.” The program has been called on by the California Department of Insurance (CDI) to explain this matter, a situation that could result in fines totalling $1 million or more.
A FAIR Plan spokesperson said, “Use of the rate guidelines prior to the [Sustainable Insurance Strategy] would have resulted in the FAIR Plan seeking an 80% rate increase. The current 35.8% filing reflects the measured approach made possible under SIS, and the FAIR Plan appreciates Commissioner Ricardo Lara’s leadership in advancing SIS to help stabilize rates and broaden property insurance options.”
In 2021, the FAIR Plan sought a 48.8% increase but was granted a 15.7% rise, which took effect at the end of 2023.
If the requested rate change is approved, it will be the first time the FAIR Plan has used wildfire catastrophe models and reinsurance costs in its rate application. These changes were introduced under Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy at the start of the year.
Other insurers have also sought rate increases under the new reforms. CSAA and Mercury Insurance, both among California’s top 10 insurers, have requested 6.9% increases.
Industry observers anticipated that the reforms would lead to higher rates. However, the FAIR Plan stated that the reforms resulted in a lower requested increase than would have been sought under the previous system.
Previously, insurers could only use historical loss data and could not include reinsurance costs in their rate calculations. The new rules allow the use of catastrophe models to assess wildfire risk, which proponents argue better reflects current and future conditions.
On the other hand, the state is looking into its own options to assess these risks. Newsom and other lawmakers are reviewing legislation that would establish what they describe as the nation’s first public wildfire catastrophe model.
Senate Bill 429 would create a Wildfire Safety and Risk Mitigation Program under the CDI. The program would fund research to develop and implement a public wildfire catastrophe model.
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