California Homeowners Insurance Market Shifts Towards FAIR Plan and E&S
In 2025, one-seventh of California homeowners insurance policies were obtained through the FAIR Plan or the excess and surplus (E&S) lines market, marking a pivotal shift in the state's insurance landscape, according to a report by the Insurance Information Institute (Triple-I).
The findings, outlined in the "State of the State: California Homeowners Insurance" report, highlight an increasing reliance on alternative insurance avenues as traditional insurers face mounting challenges. The E&S homeowners market share in California saw a substantial rise from 1.1% (2016–2020 average) to 7.3% in 2025. Concurrently, the FAIR Plan grew its policy count by 157% since 2022, with its total exposure reaching $768 billion in June. Together, these channels represented 15% of the California homeowners market in 2025.
The Challenges Faced by Insurers
California's challenging operating environment is evident in historical data showing an average combined ratio of 122.6 for homeowners insurers between 2016 and 2025. This indicates that insurers spent more on claims and expenses than they earned in premiums. The Los Angeles wildfires in 2025 alone resulted in over $22 billion in insured claims, further stressing insurers' financial stability.
Regulatory hurdles compound these challenges. The median time for rate-filing approvals in California is 225 days, compared to the national median of 35 days. This delay hampers carriers' ability to adjust rates promptly, leading some to reduce market participation and leaving the FAIR Plan and E&S market to fill the void.
Regulatory Shifts and Sustainable Solutions
To combat these issues, Commissioner Ricardo Lara introduced a sustainable insurance strategy, allowing carriers to incorporate forward-looking catastrophe models and reinsurance costs in their rate filings. Participating insurers commit to maintaining 85% of their statewide market share in wildfire-prone areas. By mid-2026, six of the ten largest home insurance groups in California adopted this strategy, as reported by the California Department of Insurance (CDI).
“Despite these positive moves, Triple-I argues that further reforms are essential to stabilize the market.”Insurance Information Institute
The FAIR Plan announced an average rate hike of 29.1%, effective October 15, after initially proposing a 35.8% increase. Meanwhile, State Farm resumed limited new business in wildfire-affected ZIP codes under the sustainable insurance strategy agreement, though widespread availability among major carriers remains elusive.
Expanding E&S Market
In 2025, surplus lines homeowners policies in California surpassed 300,000, with most concentrated in urban areas, according to the Surplus Line Association of California (SLACAL). This growth indicates that the E&S market is extending beyond traditional wildfire-prone zones to standard neighborhoods across the state.
- The number of surplus lines policies exceeded 300,000 in 2025.
- E&S market share grew from 1.1% to 7.3% between 2016 and 2025.
- FAIR Plan's exposure amounted to $768 billion by June 2025.
Triple-I considers this a structural challenge that requires ongoing regulatory adjustments. Despite the positive impact of recent reforms, evidence of success remains mixed. For instance, there was a reported 25% reduction in new FAIR Plan business in 2026, which CDI views as a promising result of the sustainable insurance strategy reforms.