A bulletin, not the statute, sets the FAIR Plan split

The bill for the FAIR Plan’s worst year was not split between the industry and the public by the legislature that created it. A bulletin did that instead. The Insurance Commissioner wrote it himself, using a rate-approval power meant for ordinary premium changes, and it leaves the public’s share uncapped above the threshold his bulletin sets. Three other California safety nets each carry a ceiling the legislature wrote into their own statutes. The FAIR Plan’s does not. It exists only in a document a regulator chose to write.

The Commissioner approved a $1 billion assessment on the FAIR Plan’s member insurers on February 11, 2025. His own bulletin called it the first assessment on its member insurers in over 30 years. Broadcast outlets reported a statewide average FAIR Plan rate increase of 29.1 percent for residential policyholders, effective this October. The Department’s own 2026 press-release index and the FAIR Plan’s own news page, both searched August 14, 2026, carry no statement of it. That rate action carries no argumentative weight. It is the occasion for a question the coverage did not ask: when the fund comes up short, who must make up the difference, and how much of it was written down?

The chapter that never mentions it

The Insurance Code chapter that created the FAIR Plan is its entire charter. Its purposes are specific: stabilize the property insurance market, keep basic property insurance available, encourage use of the normal insurance market, and equitably distribute the risk among admitted insurers. The list stops there. It never addresses what happens once the fund runs short. The chapter gives the Commissioner approval over an assessment of all members, in amounts sufficient to operate the facility. It gives him authority over the plan of operation, plus the power to inspect its books.

The chapter never says what an assessed insurer may charge its policyholders. A search of the chapter’s full text turned up zero uses of “recoup,” “supplemental” or “pass-through.” The authority lives elsewhere. The general rate statute is categorical: an insurer that wants to change any rate must file a complete application and carry the burden of proving the change is justified.

What the bulletin adds that the statute doesn’t

The document that decides the split is Bulletin 2025-4. It issued the same day as Order 2025-1, February 11, 2025. It lets member insurers recoup 50 percent of what they paid on an assessment, up to $1 billion per line per year. Above that threshold, the share jumps. Insurers may recoup 100 percent of the remainder. A search of the bulletin’s text found no cap on that tier. “100 percent” appears exactly once. The Department’s own recoupment FAQ restates the same design.

The shape is not new. A predecessor bulletin, five months earlier, let insurers recoup half an assessment below a threshold and all of it above, under policy-limit rules that 2025-4 later flattened into one line. The two-tier design predates 2025-4. Only the filing procedure and the threshold formula changed.

An insurer seeking recoupment files an application tagged “FPA-2025” in the Department’s filing record. If approved, the charge appears on the bill as its own line item, “Temporary Supplemental Fee,” next to a disclosure paragraph the Commissioner wrote himself. That fee belongs to the insurer, against its book of policyholders.

A different 2026 order let the FAIR Plan itself charge an identically named “Temporary Supplemental Fee” to its own high-value commercial customers. That order leaves the ladder above untouched. The word “recoup” does not appear anywhere in its text. The two share only a label. Nor is the insurer’s version hypothetical. The Department’s account, published in July 2026, states that insurers applied, were approved, and passed the charge on, with a median fee for homeowners of $28 per year.

Consumer Watchdog challenged the mechanism in court. A Los Angeles County Superior Court judge denied the petition on June 30, 2026. The ruling is narrower than either side’s statement suggested. It resolved only the one claim that survived demurrer, that the recoupment bulletins violate the FAIR Plan’s profit-and-loss-sharing formula, and expressly declined to decide whether Consumer Watchdog had standing to sue. A broader challenge to the Commissioner’s authority to write it had failed on demurrer, without leave to amend, nearly a year earlier.

The Department’s release called the outcome a defeat of “an attempt to undermine” the insurance market. Consumer Watchdog called it the opposite, saying the Commissioner had again sided with insurance companies over the consumers he was elected to protect. The ruling decided one narrow statutory question, and left the larger one where it stood.

Three mechanisms it says it resembles

The Commissioner has his own justification. A FAIR Plan unable to grow, he has said, feeds a “negative feedback loop”. Insurers pull back from wildfire-exposed areas from fear of an assessment like this one, further increasing dependence on the FAIR Plan. His bulletin says “a growing FAIR Plan contributes to our insurance crisis,” and frames the recoupment structure as part of “a reliable, yet temporary, safety net.” He has set a target for the alternative: insurers writing at least 85 percent of statewide market share in underserved areas, shrinking the FAIR Plan by attrition.

He compared it to three other mechanisms: the California Insurance Guarantee Association, or CIGA; the life and health guarantee association; and the earthquake authority. The first two answer an insurer’s insolvency, each by its own purpose. All three cap something the FAIR Plan does not. CIGA’s statute caps what it may charge a member insurer at 2 percent of net direct written premium, 1 percent while bonds are outstanding. And it requires the member insurer to recoup that charge, by way of a surcharge on premiums, in full.

The life and health guarantee association carries a 2 percent ceiling of its own, measured against a three-year average of premiums, not a single year. But its recoupment clause reaches only health-account policyholders; nothing in the statute lets it recoup for life or annuity business.

The earthquake authority spreads catastrophe cost, not insolvency risk. It surcharges its policyholders directly. The surcharge shall not exceed 20 percent of premium, and the total net surcharge collected shall not exceed one billion dollars. All three ceilings were written by the legislature into each mechanism’s own statute.

The FAIR Plan has neither end bounded. Its assessment power carries no limit beyond amounts sufficient to operate the facility. Neither does the bulletin’s ladder above the first billion dollars. Florida bounded its version differently. Citizens, Florida’s insurer of last resort, spreads emergency assessments across most property-casualty policyholders statewide. The statute limits that population to its “subject lines of business.” That excludes workers’ compensation, medical malpractice, accident and health coverage, and policies under the National Flood Insurance Program and the Federal Crop Insurance Program.

And it caps the pace, not the total: no more than 10 percent of the deficit, or 10 percent of statewide direct written premium, whichever is greater, per calendar year, for as many years as the deficit requires.

CDI’s Report of Examination found 17 of 32 findings unaddressed as of a December 2025 filing. The Commissioner and the Assembly’s insurance chair answered with the “Make It FAIR Act,” introduced February 2, 2026 — not enacted as of August 13, 2026, when it cleared the Senate Appropriations Committee 7-0 and was ordered to third reading.

The stakes are not abstract. The FAIR Plan’s reporting puts its book at 696,562 policies and $768 billion of exposure as of June 2026, up from $724 billion and 668,609 policies six months earlier, per the Assembly Insurance Committee’s own staff report.

That is where the chain lands. Not at the rate increase making headlines this month. Not at a courtroom decision that answered something narrower than either side claimed. The legislature capped what the earthquake authority can collect. It required what CIGA must collect. It capped what the life and health guarantee association may assess an insurer, without promising a way to recoup it. The FAIR Plan’s marginal share above that first billion dollars was set by one regulator, in one bulletin, with no equivalent limit in the law. A homeowner reading a line item labeled “Temporary Supplemental Fee” is reading that regulatory discretion, not a statute the legislature wrote to bound it.