California Wildfires: Why Insurance Companies Need Strong Financial Controls More Than Ever
California has faced devastating wildfires over the years, with the most recent Los Angeles wildfires in January 2025 causing widespread destruction, loss of life, and financial losses for residents. These disasters have placed immense pressure on the state’s insurance system, increasing the need for accurate financial reporting and compliance.
Established in 1968, the California FAIR Plan serves as an “insurer of last resort,” providing coverage to homeowners who cannot obtain policies through private insurers. Over the years, demand for FAIR Plan coverage has surged as wildfires have grown more frequent and severe.
Impact of 2025 Los Angeles Wildfires on the Insurance Industry
The L.A. wildfires have placed considerable pressure on California’s insurance system, affecting both the FAIR Plan and private insurers.
The FAIR Plan has received nearly 5,000 claims for damages caused by the Palisades and Eaton Fires and paid more than $1.2 billion to policyholders. A handful of major California insurers have reported losses of over $1 billion from the devastating loss.
The financial strain on the FAIR Plan is likely to have ripple effects across the insurance market:
- Private insurers will be charged an assessment according to their market share
- Up to $500 million of the assessment may be passed on to policyholders
- The situation may accelerate the exit of private insurers from high-risk areas
This disaster has prompted calls for further reforms to stabilize California’s insurance market, with state regulators approving the FAIR Plan’s levying of a $1 billion assessment on private member insurers to offset losses from the wildfires.
Pressures on FAIR Plans in Other States
The California wildfires have highlighted the critical need for strong planning to ensure financial stability and consumer confidence, not just for California insurers, but for FAIR Plans and private insurers across the country.
As insurers of last resort, FAIR Plans and similar state programs have been disproportionately affected by the growing incidence of weather-related catastrophe events across the country, including wildfires but also hurricanes, floods, and other severe weather events.
Louisiana saw a tripling of homeowners in its state program during the three years following Hurricane Laura in 2020. Florida’s state program grew rapidly after 2018, eventually implementing a “depopulation program” to transfer policies to private insurers.
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Today, FAIR Plans cover 32 states, including Washington, D.C., and Puerto Rico, with Colorado being the latest state to add a FAIR Plan.
Some states (including Alabama, Florida, Louisiana, Mississippi, North Carolina, South Carolina, and Texas) have Beach and Windstorm plans – equivalent to FAIR Plans – to provide insurance coverage in designated areas against hurricanes and other severe windstorms.
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Why Strong Accounting Systems Are Critical
The fallout from the L.A. wildfires will increase the pressures faced by finance and accounting teams at California insurers. With possible new state regulations, there is more need than ever for insurance companies to have robust audit trail functionalities that meet regulatory requirements.
Insurance companies are being scrutinized and must adhere to strict financial reporting requirements set by the California Department of Insurance (CDI).
The increase in severe weather events across the U.S. will continue to create financial challenges for FAIR Plans and private insurers. Strong financial systems and controls will be essential to help insurers react to these market dislocations and attendant regulatory changes.
Accounting technology has a major role to play:
- enabling insurers to gain better visibility across their businesses
- make data-driven decisions
- operate more nimbly in response to market pressures
- achieve compliance with evolving regulations to avoid penalties or operational restrictions.
With increased calls for FAIR Plan and private insurer transparency, robust accounting systems that produce audit-ready financial statements will be key to public trust, particularly as insurers seek to justify rate adjustments and other business changes in response to new market realities.
Flexi has been a technology innovator in the insurance industry for more than 30 years.
Its general ledger and comprehensive accounting platform are purpose-built for insurance companies with special features that simplify statutory reporting, including:
- A flexible COA that enables easy reporting by line of business, state, accident year, treaty, and more;
- Fully auditable Statutory Accounting books that meet regulatory requirements;
- Powerful allocation functionality that accurately categorizes transactions for statutory compliance;
- Seamless integration with leading NAIC-approved statutory filing software, and the industry’s top Policy, Billing, and Claims systems.
See how Flexi’s software can streamline accounting for your business.