What Newsom’s New Laws Mean for the California FAIR PlanOctober 6th, 2025, California Governor Gavin Newsom signed a package of bills aimed at stabilizing and modernizing the state’s “insurer of last resort,” the California FAIR Plan, after the system faced severe stress following January’s wildfire disaster.
The moves are intended to address the California FAIR Plan’s financial vulnerability, improve transparency and oversight, and make policy administration fairer for homeowners.
Here’s a breakdown of what’s going on and why it matters.
The Crisis
In February 2025, the California FAIR Plan reported an estimated $4 billion in losses from the January 2025 wildfires, particularly from the Palisades and Eaton fires. To cover those losses, it assessed insurers $1 billion, half of which insurers may pass back to their customers in the form of increases.
Recently, the FAIR Plan has also sought a 36% rate increase for its policies to remain solvent beginning next spring. If approved, this would be the largest rate hike in the last seven years. However, the increase would affect policyholders differently. While half would see increases between 40% – 55%, some could see rates decrease as much as 78%, but others could face increases exceeding 300%. These new rates would not take effect until renewal, after April 1st. If this rate change is approved, it would be the first time the California FAIR Plan has used wildfire catastrophe models and reinsurance costs in its rate application.
Furthermore, the FAIR Plan has faced criticism and legal pressure for rejecting smoke damage claims from those fire events and for previously being opaque about its financial condition.
The new laws: what changes, and why they matter
Governor Newsom signed several measures intended to stabilize and modernize the California FAIR Plan by April 1st, 2026:
- AB 226 — Bonding capacity for catastrophic events
This bill allows the California Infrastructure and Economic Development Bank (IBank) to issue bonds on behalf of the FAIR Plan to pay catastrophic claims. That gives the FAIR Plan access to capital that isn’t reliant solely on assessments or rate hikes. It also enables FAIR to secure lines of credit with institutional lenders, allowing for the management of cash flow during crises.
- AB 234 — Legislative oversight and transparency
Under this bill, two legislative appointees, the Speaker of the Assembly and the Senate Rules Committee chair (or their designees), become nonvoting members of FAIR’s governing committee. The goal is to inject more accountability and public governance over what has been a carrier-dominated board.
- SB 525 — Equity for manufactured housing
This law requires the California FAIR Plan to offer insurance for manufactured homes that is comparable to what’s offered for more conventional residential properties, thereby closing a coverage disparity.
- AB 290 — Modernization for payments
AB 290 mandates that the California FAIR Plan establish an automatic payment plan for its policyholders, bringing administrative modernization to the handling of payments.
- AB 1 — Incentivizing wildfire risk reduction
While not exclusively a California FAIR Plan reform, this bill requires the state insurance department to ensure that its Safer from Wildfires program incorporates the latest fire risk mitigation measures, and that insurers offering property coverage must discount premiums when homeowners or communities take steps to reduce wildfire risk.
The potential impacts, benefits, and caveats
Stabilization, not a cure-all
By enabling the California FAIR Plan to issue bonds and lines of credit, AB 226 helps avoid depending entirely on sudden premium hikes or insurer assessments. That reduces the shock to homeowners and the insurance market in years with catastrophic events. However, it doesn’t guarantee full solvency under extreme losses, as bond obligations still need servicing, and premiums will likely remain under pressure.
More oversight, More accountability
Adding legislative voices to FAIR’s governance could shift the balance toward more consideration of public interest over purely insurer-driven priorities. However, the legislative seats are nonvoting, meaning that actual decision-making authority remains with the insurer operators. For now, some observers note that oversight remains limited, as the new legislative members are nonvoting.
Fairness in Coverage
Requiring equitable treatment for manufactured homes is a step toward inclusivity, and those in mobile or manufactured housing often are underserved in the insurance market. Automatic payment plans should improve and reduce administrative friction for many policyholders.
Encouraging Fire Risk Mitigation
By tying premium discounts to wildfire safety measures, AB 1 promotes proactive behavior, allowing homeowners and communities to reduce their risk and insurance costs. Over time, this could reduce overall losses for the California FAIR Plan and the insurance system.
What Policyholders and Brokers should watch
- Rate requests and public pushback
The California FAIR Plan is already seeking a rate increase of ~36% for many policyholders. How regulators handle those rate requests (approve, scale back, or reject) will set the tone for future affordability. - How bond financing plays out in practice
The success of bond issuance as a reliable tool will depend on interest rates, investor appetite, and the structure of the debt. If bond servicing costs balloon, that could restrain future flexibility. - Governance changes over time
Whether legislative influence expands beyond nonvoting roles or whether further reforms shift power will indicate how deeply oversight can take root. - Claims disputes, especially smoke damage
After the recent fires, the FAIR Plan has been sued over smoke damage rejections and was directed by Newsom to handle such claims “expeditiously and fairly.” How aggressively FAIR reforms its claims process, and how courts or regulators enforce consumer protection, will be a key test. - Incentive alignment around mitigation
If homeowners, local governments, and utilities take meaningful steps to reduce fire risk (through defensible space, vegetation management, and building materials), premiums and losses could adjust over time in a virtuous cycle.
A tentative path forward in a volatile landscape
California’s insurance market has been under stress for years as climate change intensifies wildfire risk, and many private insurers have withdrawn from certain exposures, leaving gaps for many homeowners to fill. The FAIR Plan has filled that void, but its structural fragility was exposed by the 2025 fires.
California’s legislative package is a step forward in shoring up the safety net, adding accountability, and modernizing operations, but it doesn’t eliminate all risks. Catastrophic losses may still overwhelm capacity, but these changes could make the FAIR Plan more transparent and fairer to policyholders.
For homeowners, the message is mixed: expect rate pressures, watch for more robust claims handling, and consider investing in fire risk mitigation, if possible, as the rules are tilting more strongly in favor of prevention.
