The FAIR Plan said Friday it has received 3,600 claims so far and estimated that it covers 22% of the structures in the Palisades fire, representing potential exposure of more than $4 billion. Meanwhile, about 12% of the structures in the Eaton fire are covered by FAIR, representing potential exposure of more than $775 million.

“The FAIR Plan, a not-for-profit catastrophe insurer, has the payment mechanisms in place to ensure all covered claims will be paid,” it said in a letter. “The FAIR Plan operates on a cash-in, cash-out basis, meaning its financial situation evolves daily.”

To be sure, exposure doesn’t equal losses or the anticipated claims and related expense payments. FAIR said actual claims following a fire have historically translated to about 31% of the total exposure in an area, on average.

FAIR also said it can access reinsurance once the first $900 million in claims are paid, likening it to a deductible. Once that threshold is reached, reinsurance is fully available for the next $350 million of claims payments, subject to certain conditions.

After that, there are various levels of coinsurance between reinsurance and FAIR or admitted market insurers, totaling as much as $5.78 billion that’s shared between reinsurers and FAIR, subject to certain conditions.

According to the Los Angeles Times, FAIR has $377 million in reserves on hand, suggesting it faces a cash shortfall before it can access reinsurance.

FAIR can tap insurance companies to make up for any financing gaps, and those companies can pass on costs to policyholders. In its update on Friday, FAIR said it hasn’t yet asked California’s insurance commissioner to levy an assessment on insurers, adding that it has no role in how insurers manage assessment costs.

But Consumer Watchdog has previously estimated that California homeowners could be on the hook for a $1,000 to $3,700 surcharge—or possibly even more— in the event of a major fire. FAIR said it can’t speculate about the LA wildfires’ future impact on California policyholders. 

The wildfires are shaping up to be one of the worst disasters in U.S. history. AccuWeather’s latest estimate puts the total damage and economic loss at $250 billion-$275 billion. Meanwhile, CoreLogic estimated that insured losses from the fires could reach $35 billion-$45 billion.

Before the LA wildfires hit, private insurance companies had already been curbing their exposure in California as natural disasters have been piling up in the state. As a result, more homeowners were forced to turn to FAIR for fire coverage, which has seen its statewide exposure triple in recent years to $458 billion.

FAIR caps its coverage for residential policyholders at $3 million. While that may be enough for some homeowners to rebuild, it falls far short in wealthier neighborhoods.

One real estate investor spent $27 million buying and renovating a luxury beachfront home on Malibu’s famed “Billionaire’s Beach,” but it burned down in the Palisades fire.

According to the Wall Street Journal, Robert Rivani was planning to list the five-bedroom mansion this spring for $40 million after buying it for $19.55 million in 2022.

“What value do you put on an entire community where the land is burnt to a crisp, where you don’t have restaurants or grocery stores, gas stations or working power?” he told the Journal.

More on the Los Angeles wildfires:

• California wildfires raise alarm on water-guzzling AI like ChatGPT
• Homeowners in California could pay a surcharge of $1,000 or more if FAIR Plan runs dry
• Claims about a billionaire couple hurting efforts to fight the L.A. fires via their ‘control’ of the water supply are false
• Son and father-in-law fleeing fire couldn’t get a ride from Uber or 911, then kind strangers stepped in to save them—twice