The State’s Fire Insurance Backstop Is Becoming Californians’ Only Option

Buy a house in Sacramento County, far from any ridgeline that has ever burned, and there is now a real chance the only insurance you can get is the same bare policy once reserved for homes perched in the path of a firestorm. The California FAIR Plan covers fire, smoke, lightning, and the odd explosion in your own kitchen. Not much else. And it costs more than the comprehensive cover your neighbour signed up for a decade ago. This is the strange new shape of California’s home insurance market, and a Stanford team has just put numbers on it.

The numbers come from somewhere most analyses cannot reach: loan-level data, tracking individual mortgages and the insurance payments bundled into them, running right up to March 2026. That is unusually fresh for this kind of work, and it lets the researchers watch the crisis move almost in real time.

What they watched was a backstop becoming a mainstay. The California FAIR Plan, the state’s insurer of last resort, was set up in 1968 after the Watts riots to drag coverage back into neighbourhoods that insurers had abandoned on racial and economic grounds. For decades it was a small, grudging safety net. By December 2020 it covered roughly 2 per cent of the state’s single-family homes. By March 2026 that figure had climbed to about 5 per cent, and, more tellingly, the plan was backing some 6 per cent of brand-new single-family mortgages. The footprint of last resort is outgrowing the market it was meant to patch.

“A new phenomenon is emerging: Californians’ dependence on the FAIR Plan is now showing up with mortgages in moderate- and low- wildfire risk zip codes at twice the rate of its overall market share,” says Nam Nguyen, a research fellow at Stanford’s Climate and Energy Policy Program and the report’s lead author. In plainer terms, the people being pushed onto the emergency option are increasingly not the ones living where the fire actually is.

When the safety net becomes the only net

How did a fire problem leak into fire-safe postcodes? Follow the money backwards. The 2017 and 2018 fire seasons, the years of the Thomas, Camp and Woolsey fires, wiped out something like three decades of underwriting profit and left more than $10 billion in losses in their wake. Insurers did the rational, brutal thing. By 2022, seven of the twelve largest home insurers in the state had either slammed the brakes on new policies or stopped writing them altogether. When you cannot price a risk the way you would like, you simply decline to carry it.

And here is the bit that catches people out. The pullback did not stay in the hills. Squeezed on what they could charge in the riskiest areas, and facing the prospect of being billed for FAIR Plan failures down the line, insurers trimmed their exposure everywhere, raising rates and writing fewer policies even in places that will probably never see a flame. A homeowner in a low-risk zip code can now find every admitted insurer politely uninterested, and end up on the FAIR Plan not because their house is in danger but because nobody else will pick up the phone.

The cost of all this lands on households with a thud. Average premiums across the state rose 84 per cent in nominal terms between the end of 2020 and March 2026, roughly $90 more a month, and that is before the divergence by risk. Deductibles, the slice you swallow yourself before cover kicks in, crept up from $1,813 to $2,553 as people traded protection for a smaller monthly bill. In the very highest-risk zip codes, the parts of San Mateo, Los Angeles and San Diego counties rated extremely high for fire, premiums jumped more than 100 per cent. The FAIR Plan, meanwhile, holds close to half the market in those areas, which means a single bad fire could hit an enormous number of its policyholders at once. After the January 2025 Los Angeles wildfires it had to levy a $1 billion assessment on its member insurers, a bill that ripples back out to ordinary policyholders.

No way out but fewer ashes

“More than one in 17 new California home loans is now being written with the most limited, most expensive coverage option as the only available choice,” says Michael Wara, the program’s director and a co-author. He is careful to note that the newest figures show the surge in FAIR Plan mortgages cooling a little from its 2025 peak. But the relief may be thin. “Although the most recent data indicates some improvement, unless market fundamentals change, the FAIR Plan’s footprint will keep growing, and housing will become even more out of reach for Californians.”

The roots run back to Proposition 103, a 1988 ballot measure aimed at car insurance that ended up governing home cover too. It requires prior approval for rate changes and, as regulators have interpreted it, has long blocked insurers from leaning on forward-looking catastrophe models or passing reinsurance costs to customers. The workaround became a ritual of repeated sub-7-per-cent requests, the so-called “serial 6.9’s”, that never quite kept pace with the fire. The state’s new Sustainable Insurance Strategy, finalised in 2025, loosens some of this, letting insurers use the models and the reinsurance maths in return for covering more high-risk homes. The catch is awkward: if it works and the carriers come back, premiums are expected to rise, not fall. Solving the availability problem may simply hand Californians an affordability one.

There is one exit the authors keep returning to, and it has nothing to do with actuaries. Prescribed burns to thin the fuel near towns, tougher building codes, hardening the houses themselves so a wind-blown ember does not take the whole street. Reduce the losses, and lower premiums can actually be justified rather than merely demanded. The only durable fix for California’s twin squeeze of availability and affordability, as the paper’s authors put it, is to “burn down fewer houses.” Everything else, the rate filings and the regulatory fine print and the insurer of last resort straining under a job it was never built for, is just managing the smoke.

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