California’s Home Insurance Crisis: Can the FAIR Plan Help?

If you’re a homeowner in California, you probably already know that it’s becoming increasingly difficult to obtain home insurance coverage in the Golden State. Perhaps you’ve been affected by this trend directly, or know someone who has.

Even future home buyers are beginning to realize that there’s a kind of “coverage crisis” developing in California, when it comes to homeowners insurance protection.

While there are still many insurers that offer home insurance policies in the state, some of the industry’s biggest names have either completely paused or greatly limited new home insurance applications, destabilizing the insurance market in California.

But some homeowners might find an alternative solution through the California FAIR Plan. This “insurer of last resort,” as it’s commonly known, provides basic fire insurance coverage to those who cannot obtain it through traditional channels or providers.

But how did we reach this point? Why are so many insurers—small and large companies alike—shying away from providing home insurance to Californians? And what options do homeowners in the Golden State have left, when it comes to insuring their properties?

History of the Home Insurance Problem in California

California faces a growing challenge. The increasing threat of wildfires and other natural disasters is making it difficult, and in some cases impossible, for homeowners to obtain affordable property insurance in the Golden State.

Traditional insurance companies consider wildfire-prone areas to be high risk, leading them to either deny coverage or charge exorbitant premiums. This leaves many homeowners vulnerable, exposed to financial devastation in the event of a disaster.

Major insurers like Allstate, State Farm, Farmers, and USAA have either paused or restricted new home insurance policies in California. The main reasons are increased wildfire risks driven by climate change, elevated construction costs, and challenges with state insurance laws.

This problem has actually been developing for quite some time. But it has intensified within the past couple of years.

Starting in late 2022, insurers began halting or limiting new policies in the state of California. These companies have cited reasons such as wildfire risk, construction cost increases, and challenges with reinsurance.

According to a June 2023 report from the San Francisco Chronicle:

“State Farm, the largest provider of property and casualty insurance in California, made waves in late May by announcing it would stop issuing new homeowner policies in the state due to inflation, wildfires and rising reinsurance costs. That Allstate quietly did the same thing last year signals that insurance woes in the state may be more severe than the public is aware of.”

Escalating wildfire risks in California, worsened by climate change, have led to increased damages and costs for insurers. And some of them are no longer willing to expose themselves to such liabilities, especially in the wake of California’s more devastating wildfire events.

But that’s not the only factor driving the exodus of homeowners insurance providers in California.

In addition to the wildfire threats mentioned above, steep rises in construction material costs have impacted insurers’ ability to estimate future claim expenses accurately. Higher costs for reinsurance policies (which provide coverage to the insurers themselves) have also contributed to this ongoing problem.

California FAIR Plan Helps Some Homeowners

Some homeowners in California who are unable to secure home insurance from traditional providers have turned to alternate sources for coverage and protection. And the California FAIR Plan is one of those alternatives.

The California FAIR Plan provides a crucial safety net for homeowners in such situations. Established by the state legislature, it serves as an “insurer of last resort” by providing basic fire insurance coverage to those who cannot obtain it elsewhere.

The FAIR Plan is not a traditional insurance company. Nor is it a public utility or state agency. It’s actually an independently managed pool of insurers that share in the profits and losses related to the program.

As it states on the organization’s website:

“The FAIR Plan is a syndicated fire insurance pool comprised of all insurers licensed to conduct property/casualty business in California. The FAIR Plan was established by statute … in August 1968 as an insurance placement facility. All licensed property/casualty insurers which write basic property insurance required by Insurance Code sections 10091(a) and 10095(a) are members of the FAIR Plan.”

So, this organization issues fire insurance for California homeowners on behalf of its member companies. And those members in turn share all of the profits, losses and expenses. By distributing the potential losses across the entire network, the FAIR Plan limits the losses that might be incurred by any one company.

How to Apply for the Program

If you’ve shopped the market but are still unable to obtain homeowners coverage, you can apply for coverage through the FAIR Plan.

While you can contact the organization directly, the California Department of Insurance recommends that you work with “a licensed insurance broker that is registered to sell FAIR Plan coverage.”

In fact, the California FAIR Plan’s website has a broker finder tool that’s designed for this very purpose. Here’s how to access it and proceed:

1. Visit their official website at https://www.cfpnet.com.
2. Click the “How to Apply” button located near the main menu.
3. Scroll down to the “broker search” tool and click on that.
4. Enter your ZIP Code or city in the field provided to find brokers in your area.
5. Your broker will first try to find comprehensive coverage through the traditional insurance market.
6. If traditional coverage is not available, the broker will try to determine if the FAIR Plan will work as a temporary solution.

The California FAIR Plan offers a lifeline to those who might otherwise be left vulnerable in the face of natural disasters. It’s not right for every homeowner. But if you are unable to find coverage from a traditional provider, it’s certainly worth exploring.

Additional Information

FAIR Plan website and phone number:
https://www.cfpnet.com
800-339-4099

California Department of Insurance info:
https://www.insurance.ca.gov/01-consumers/200-wrr/California-FAIR-Plan.cfm