FAIR Plan

The FAIR Plan grew out of the federal Urban Property Protection and Reinsurance Act of August 1, 1968, passed for the neighborhoods insurers were leaving after the urban riots, long before wildfires filled its book. The California FAIR Plan (Fair Access to Insurance Requirements) is a residual insurance mechanism created in 1968 to guarantee access to basic coverage for homeowners rejected by the private market. Initially designed as a marginal safety net for extreme risks, the FAIR Plan has become a mass insurer within less than a decade due to the progressive withdrawal of major private insurers from fire-exposed areas. Its operation rests on forced pooling: all insurers licensed in California are members of the plan and contribute to losses proportionally to their market share. In March 2025, the FAIR Plan covered more than 555,000 policies for cumulative exposure of 599 billion dollars, nearly four times its 2015 volume. The Palisades and Eaton fires of January 2025 caused it approximately four billion dollars in losses, forcing it to levy a one-billion-dollar special assessment on its member insurers. This cycle describes an adverse selection spiral: the withdrawal of private insurers concentrates extreme risks in the FAIR Plan, degrading its loss ratio and imposing member assessments that incentivize further withdrawal, reinforcing the shift toward the plan. This mechanism constitutes a textbook illustration of the limits of insurability in the face of climate risk.