A California bill would allow the state-mandated FAIR Plan to request bonds and loans so that the insurer can cover damages amid the growing wildfire risk in the state.

Assembly Bill 226, also known as the FAIR Plan Stabilization Act, passed the Assembly in a 77–0 vote in April and will be heard in the state Senate Business, Professions and Economic Development Committee on June 9.

The bill would authorize bonds and loans to be issued so that the FAIR Plan can pay insurance claims in the wake of the Los Angeles fires that killed dozens of people and torched thousands of homes in January. The FAIR Plan, the state’s insurer of last resort, has dispersed approximately $1.2 billion in claims for the Palisades and Eaton Fires.

The FAIR Plan estimates the Palisades and Eaton Fires could result in a total loss of about $4 billion, spurring the Plan to request a market assessment from the California Insurance Commissioner for the first time in more than 30 years. This means other insurers in the state will be required to help cover the Plan’s expenses based on their market share.

AB 226 is an attempt to keep the FAIR Plan solvent, lawmakers say.

“AB 226 stabilizes the FAIR Plan by allowing bonds to spread costs over time, preventing sudden insurer assessments that could spike premiums or bankrupt small companies,” Assemblymember Lisa Calderon, who chairs the Insurance Committee, said in a statement. “This urgent fix protects homeowners and safeguards our insurance market from catastrophic failure.”

The California FAIR Plan is an insurance pool designed to provide insurance for high-risk properties that can’t get insured in the regular insurance market. Property and casualty insurers operating in the state contribute to the fund, which is required by law. However, insurers leaving California due to increased wildfire claims has caused financial challenges for the Plan.

AB 226 would authorize the FAIR Plan to request the California Infrastructure and Economic Development Bank to issue bonds and provide funds through loans and credit lines to pay claims and accumulate liquidity. The Plan will be allowed to implement assessments on insurers to repay those obligations if needed.

The FAIR Plan requested to assess their member companies for $1 billion, and Insurance Commissioner Ricardo Lara approved the assessment in February.

The bill was introduced by Assemblymembers Lisa Calderon of Whittier and David Alvarez of San Diego and has 15 Assembly co-authors. Speaker Robert Rivas made it a priority bill in the legislature, said Calderon.

“The loss in Southern California is inconceivable. AB 226 will alleviate some of the uncertainty that FAIR Plan policy holders may encounter as a result of this tragedy,” Calderon, who chairs the Assembly Committee on Insurance, said in January, referring to the Los Angeles wildfires. “We remain steadfast in acting with urgency to support the impacted communities during this difficult time.”

California business leaders sent a letter to Calderon in January in support of the bill. The letter was signed by representatives from the California Building Industry Association, the California Association of Realtors, the California Apartment Association, and others.

“AB 226 will ensure that the Fair Access to Insurance Requirement Plan (FAIR Plan) has additional tools to ensure it has a greater claim paying capacity and is more resilient as a result of the major catastrophic events that are occurring in Southern California and will assist the admitted insurance market in hopefully returning to normal, and competition and consumer choices are once again made available,” they wrote in a statement.