California's insurer of last resort seeks 36% rate hike

As authorities solve one mystery—who set the fire that devastated Pacific Palisades—another deepens: how to make the math work for home insurance in California

Just as authorities declared this week they had finally solved the mystery of who set the fire that devastated Pacific Palisades, Californians got the news that the FAIR Plan—the state’s insurer of last resort—is proposing to raise its home insurance rates by an average of almost 36 percent. The news that Jonathan Rinderknecht, 29, has been arrested and charged with setting a fire that led directly to the cataclysmic conflagration provides some closure. Kenny Cooper, Special Agent in Charge of the ATF Los Angeles Field Division, stated “We know this is [an] incendiary fire and that the subject that we arrested started it.”

But the news about the FAIR Plan brings no such resolution. There is no arsonist to blame—just deepening, widening uncertainty. The private home insurance market in California is not functioning. As insurers exit the state, there is enormous pressure on the FAIR Plan to take up a hugely expanded range of policies. “The math doesn’t work,” FAIR Plan president Victoria Roach said in May.

FAIR Plan president Victoria Roach, testifying in May 2025

What’s ahead? Increasingly expensive and unreliable insurance, the routine shifting to homeowners of assessments needed to shore the whole scheme up, and a weakening property market that will reprice in surprising ways.

What would be better? California has announced new wildfire home hardening and prevention grant programs, offering some homeowners funding for defensible space, retrofits, and fire-resistant materials. These programs, while valuable, are hopelessly oversubscribed. It would be better to enact broad, statewide, retroactive building code mandates tied to the state’s public safety powers that would make the market insurable in the face of rapidly intensifying climate change. This would be expensive, politically explosive—and far more effective.

Ms. Roach made clear during the May 2025 oversight hearing why higher FAIR Plan rates are necessary. The whole idea behind the plan, set up by the California legislature in response to the 1968 Watts riots, was to provide a temporary safety net until consumers unable to get insurance could move back into the “voluntary market” of insurers doing business in the state. The FAIR Plan is not supposed to compete with those licensed insurers—it’s supposed to charge much more in order to encourage policyholders to return to the regular market. In 1996, the legislature required the FAIR Plan to take in enough money in premiums to pay for operating expenses and projected claims—to charge, in other words, “actuarially sound rates.” At the same time, the FAIR Plan takes all comers. These conditions were, in the past, delicately balanced so that the FAIR Plan’s role in the state’s insurance market was limited and extraordinary.

As of 2018, the FAIR Plan was exposed to about $50 billion in potential claims. The Camp Fire that year was a turning point, as was State Farm’s announced departure in May 2023. Now, according to Ms. Roach, “there just isn’t enough availability” of insurance in the state. Last year the number of policies issued by the FAIR Plan grew by 40 percent and its exposure grew by 60 percent. “What we’re finding now is instead of being a temporary safety net, we’re becoming the insurer that people are forced—because they can’t find insurance somewhere else—to come to,” she says. As of June 2025, the FAIR Plan is exposed to $650 billion in claims—a nearly threefold increase since 2021, the last time a rate change went into effect. It appears to have about $1.5 billion in cash on hand.

Today, low-wildfire-risk suburban homeowners are flooding into the FAIR Plan. As of June 2025, Ms. Roach says, the Plan had “grown about 40 percent in exposure” in these low risk areas. Why? Because ordinary insurers are fleeing, and the FAIR Plan is now offering (by default) a low priced option, even though it covers only fire, smoke, and lightning damage. Homeowners buying a policy from the FAIR Plan can get an additional “differences in conditions” wrap-around policy to cover water damage, theft, and other common risks, and the two together today may cost less than what an ordinary insurance company (if you can find one doing business in your area) is charging for full coverage. The FAIR Plan needs “to raise our rates so there’s more incentive for people to leave when there is coverage available,” says Ms. Roach. That’s what’s behind this week’s announcement.

Even if this requested rate increase is approved—the last time around, the FAIR Plan asked for between a 50 and 75 percent rate increase, and got 15—the FAIR Plan will not necessarily be viable. Over the last few years, it has extended its reach to cover wineries. It now pays out up to $100 million for commercial properties and up to $3 million for residential claims. It is being asked to cover a comprehensive array of claims (not just fire damage) and will likely be tasked with covering the full replacement cost of mobile homes—which, if it happens, will come close to doubling the number of policies it already issues. The Plan is already growing at exponential rates, and fire season seemingly never stops these days in California. The Plan reported in May it had received more than 5,000 claims stemming from the January wildfires—nearly half of them total losses—and expected to pay out $4 billion over time.

None of this pencils out. If the Plan can’t pay claims out of its surplus or its reinsurance, it goes back to its insurers to bill them for the overage—as it did following the January fire, when it issued a $1 billion assessment. This week, forty carriers asked permission to recoup part of that payment from their policyholders. Carriers would much rather not face these assessments, and so the FAIR Plan—which is an association of insurers doing business in the state, not a public entity—is hoping to get both bonding authority and lines of credit that will help it stay afloat.

In May, John Norwood, speaking on behalf of independent insurance agents and brokers in California, said “We’re not going to bring these [insurance] companies back [to California] as long as they think they’re going to get additional assessments, period.” Dan Dunmore of the California Building Industry Association was similarly blunt, saying in May that the FAIR Plan’s growth “should be a big red flag to all of you in leadership that the market’s not working.”

Ultimately, homeowners across California will be paying for all of this uncertainty, one way or another. The FAIR Plan wants greater authority to “depopulate” its list of policyholders by sending them back into the ordinary market—as Florida does—and the insurers who will be there to greet them will likely be increasingly risky entities. As years of increasingly destructive conflagrations continue, some form of “insurance” will continue to exist in California, on paper, but it will be a year-to-year, shaky negotiation on all sides.

In May, Heather Hadwick, an assemblymember from Alturas, asked Armand Feliciano, an advisor to the FAIR Plan, whether there was anything that the California legislature could do to “keep you solvent.” Feliciano was vaguely optimistic in response, saying only that “it took a while for California to get to this level” of exposure and risk, and “It is going to take some time to get out.” He’s paid to be cheerful.

Armand Feliciano is General Counsel for Public Policy Advocates, LLC, a firm that represents insurance sector clients including those involved with the California FAIR Plan.

But any real way out will require addressing, directly, where and how Californians live, and lowering physical risk everywhere—including for existing residences and commercial buildings—so that a new, different, insurable market can emerge.

Understanding the source of the Palisades fire and arresting the man who caused it took eight months of painstaking forensic investigation of thousands of acres, crawling over the hills and testing debris. There is no singular enemy in the insurance crisis in California, but there is clearly mounting risk, evidenced by an insurance system that is now just barely creaking along. Unless governments at all levels do the extraordinarily difficult work of forcing physical changes that will keep people safer, only despair, foreclosures, and sinking markets are ahead.