California homeowners could end up subsidizing wildfire risk in 9 wealthy ZIP codes

California's mounting wildfire insurance strain is no longer confined to wealthy neighborhoods in the state's highest-risk fire zones.

Within California's backup insurance system, billions of dollars in exposure are clustered in just nine ZIP codes, fueling worries that the consequences could reach homeowners statewide.

What's happening?

For homeowners who can't find coverage from private insurers, the California FAIR Plan provides basic fire insurance. Data analyzed by Bloomberg News and cited by the Los Angeles Times shows how concentrated that safety net has become: as of September 2025, about $44 billion in liability exposure — roughly 7% of the plan's total risk — was tied to only nine of California's more than 1,700 ZIP codes.

Among the places with the largest concentrations of FAIR Plan risk are Beverly Hills, Malibu, Bel-Air, Lake Arrowhead, and a Lake Tahoe ZIP code where about half of homes are second properties. That Tahoe area alone represents $9 billion in FAIR Plan exposure.

The program has expanded rapidly. Bloomberg also reported that between September 2022 and March 2026, residential FAIR policies rose 151%, while total exposure jumped 234% to $700 billion.

A March UC Berkeley study found that the plan's risk is "disproportionately tied to higher-income, high-asset communities."

As a result, a system meant to serve communities with limited insurance options is increasingly being used to support multimillion-dollar homes in high-fire-risk areas.

Why does it matter?

The FAIR Plan is backed by California insurers rather than operating in isolation, so its losses can spread beyond the policyholders it directly covers. When the plan needs additional money, insurers can be required to contribute, and some of those costs can later be passed along to customers across the state.

Bloomberg reported that after the 2025 Los Angeles firestorms, FAIR was facing a possible $3 billion liability tied to Pacific Palisades alone. In response, the California Department of Insurance allowed the plan to draw $1 billion from insurers and let those companies recover up to half of that through statewide premium increases — between $11 and $176 a year for two years.

So middle-income families already facing rising housing and insurance costs may also end up covering part of the wildfire risk associated with high-value homes.

Nancy Wallace, a professor of finance and real estate at the University of California, Berkeley's Haas School of Business and author of the March study, said, "It is a real challenge in terms of how to undo this escalation of liability that we're seeing."

What's being done?

State officials said they are working to stabilize the market. Michael Soller, a spokesperson for the California Department of Insurance, told Bloomberg that reforms are speeding up reviews of insurer rate filings in exchange for commitments to write more policies in high-risk areas.

"We are seeing initial signs of market stabilization and recovery," he said.

There are already some limits in place. FAIR policy payouts for high-value homes are capped at $3 million, though some experts argue that still leaves too much exposure in the system.

Michael Wara, director of the climate and energy policy program at Stanford University, said one possible solution, as Bloomberg reported, would be to keep second homes out of the FAIR Plan and direct those owners to the non-admitted market, where insurers take on more specialized risk. That, he said, could reduce the burden on primary homeowners who have fewer options.

"If you can afford to have a house in Tahoe, then you should not be reliant on what is essentially a subsidy from the rest of the state for your homeowner's insurance," Wara said.

And as Karen Collins, vice president for property and environmental at the industry advocacy group American Property Casualty Insurance Assn., warned, "As more risk accumulates in a small number of communities, a single disaster can generate significant losses and increase the likelihood of assessments that ultimately affect the broader insurance market."

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