The state’s insurance of last resort is charging a $1 billion special assessment to private insurance providers, a move approved Tuesday by the state’s insurance commissioner after a record number of FAIR Plan claims were filed after January wildfires in Los Angeles County.

At least half of that assessment can be pushed down to property owners across California, according to the state’s Department of Insurance.

State Insurance Commissioner Ricardo Lara said in his announcement Tuesday that the FAIR Plan can now continue paying consumer claims by permitting its member insurance companies to collect an “assessment” from consumers — even those who are not directly affected by the fires.

The special charge is likely to drive up insurance costs for more than 8.4 million total homeowner policies across the state as private insurers try to plug the financial hole in the FAIR Plan.

FAIR is currently calculating how much insurance providers will pay based on their market share in the state. Those costs will then be passed down to customers after state approval.

Gabriel Sanchez, a spokesman with the state Department of Insurance, said that each insurer has six months to request approval from the state agency on recovery of half of its assessment through “a temporary supplemental fee on its policyholders.”

Lara ordered the assessment on the FAIR Plan’s insurers after receiving a letter on Tuesday from Virginia Roach, president of the Los Angeles-based insurance pool, indicating that a special assessment was needed in order to “maintain our operations” and “continue to pay claims of policyholders.”

Lara said he approved the assessment with one goal in mind: The FAIR Plan must pay claims just like any other insurance company. “I reject those who are hoping for the failure of our insurance market by spreading fear and doubt. Wildfire survivors can’t cash ‘what ifs’ to pay for food and rent, but they can cash FAIR Plan checks.”

As of Sunday, the plan received 3,469 claims for damage caused by the Palisades fire in the Malibu and Pacific Palisades area and 1,325 claims for damage caused by the Eaton fire in Altadena, according to Roach’s letter to Lara.

Roughly 97% of the nearly 4,800 claims received are for damage to residential structures, with fewer than 3% of the claims on commercial structures, she wrote.

A chart included in that letter says the FAIR Plan has paid more than $914 million in losses on claims, triggering “reinsurance” payments from back-up providers.

In earlier statements, the FAIR Plan said it can only tap into reinsurance once it pays its first $900 million in claims.

As of Jan. 1, the FAIR plan reported cash on hand of $1.5 billion, which includes unallocated funds of $510 million — essentially reserves for liabilities incurred but not yet paid. The FAIR plan has since exhausted these unallocated funds and has cash on hand of roughly $1.2 billion, according to Roach. It has triggered recoveries on some of the reinsurance and has started receiving funds, she said.

Looking forward, Roach writes that the financial condition of the FAIR Plan worsens.

She’s estimating losses for last month’s fires totaling about $4 billion, making it difficult to pay out the claims. The $1 billion assessment puts the FAIR Plan at an estimated cash position of just under $400 million by July, and enough to ensure that the FAIR Plan continues to have sufficient funds to “pay for losses and operating expenses, including maintaining elevated staffing levels needed to respond to policyholders impacted by the disaster.”

The FAIR Plan is an insurance pool that all the major private insurers pay into, and the plan then issues policies to people who can’t get private insurance because their properties are deemed too risky to insure. It provides high premiums and basic coverage for fire damage only. There were more than 452,000 policies on the FAIR Plan in 2024, more than double the number in 2020.

“The FAIR Plan assessment is an unfortunate but critical step to meet urgent consumer needs,” said Justin Hakes, a spokesman for the National Association of Mutual Insurance Cos., a Washington, D.C.-based trade group representing 1,300 insurers who account for 61.9% of the homeowners’ insurance market in California.

He said that the state insurance department’s “prompt approval” of the FAIR Plan’s request will help policyholders “start rebuilding” from the fires faster. “Insurers stand prepared to meet their FAIR Plan assessment obligation.”

Not everyone agrees with Lara’s approach to solving the FAIR Plan’s woes.

“The FAIR Plan is in trouble because insurance companies dumped too many homeowners,” said Carmen Balber, executive director of nonprofit organization Consumer Watchdog. “That’s why insurers are on the hook for FAIR Plan losses. Homeowners across California should not have to pay a penalty to repair the damage from home insurance companies’ predatory behavior.”

“The move is contrary to the law … because the statute enacting the FAIR Plan explicitly put insurance companies, not consumers, on the hook for these losses. The statute requires insurers to participate proportionally in the “writings, expenses, profits, and losses” of the Fair Plan,” Balber said in a statement.

However, Roach wrote to Lara that an assessment request was first sought over 30 years ago.

The funding mechanism was triggered when assessments were levied against the insurance industry following the Kinneloa fire in Altadena and Old Topanga fire in Malibu in 1993, according to Roach. Other assessments were made in 1994 and 1995 following the Northridge earthquake. In total, said Roach, the FAIR Plan assessed the industry $260 million.

The Eaton and Palisades fires destroyed nearly 17,000 structures and killed at least 29 people.