(Airdate: 2023-10-16) FOX - KTVU - Changes For California Home Insurance
Published Date: 10/16/2023
California’s FAIR Plan and the Rise of AI in Home Insurance: What Homeowners Need to Know
California’s homeowners insurance market has been in turmoil for years — and the pressure is only increasing. As wildfires grow more destructive and insurers retreat from high-risk regions, many property owners have turned to the California FAIR Plan, the state’s “insurer of last resort.” But with growing enrollment and new technology reshaping how wildfire risk is assessed, even the FAIR Plan is undergoing major changes.
In October 2023, FOX KTVU reported on new developments involving AI-powered wildfire scoring, state-approved rate increases, and negotiations designed to bring private insurers back to California. The interview featured Karl Susman of Susman Insurance Agency, who provided deep insight into what these changes mean for consumers.
This article breaks down what’s happening, why it matters, and how homeowners can prepare for a new era of data-driven insurance in California.
The Background: A Market in Crisis
California’s home insurance landscape has been under severe stress since 2018, when the state experienced back-to-back catastrophic wildfires that wiped out entire communities. As claims piled up, major insurers like State Farm and Allstate began refusing to write new homeowner policies in many regions. Some even stopped renewing existing ones.
The reasons were twofold:
- Rising wildfire losses made entire zip codes unprofitable.
- Regulatory limits under Proposition 103 prevented insurers from quickly adjusting rates to match increasing risk.
As a result, tens of thousands of Californians were forced onto the FAIR Plan—a state-managed insurance pool meant as a safety net for those unable to obtain private coverage.
The FAIR Plan was designed to be temporary coverage of last resort, not a long-term solution for a large portion of the state’s population. Yet today, it has become a primary insurer for growing numbers of homeowners in fire-prone regions. And now, even this fallback system is facing strain.
The FAIR Plan’s New Approach: AI-Powered Risk Assessment
In 2023, the FAIR Plan introduced a new wildfire risk scoring system built on artificial intelligence technology called ZestyAI — or, as insiders refer to it, the “Z-Fire Score.”
According to Susman, this is “a lot more granular” than the older, zip-code-based model. Instead of assigning a general fire risk to a neighborhood or region, the AI system evaluates individual properties based on dozens of unique factors.
“It’s not zip code. It’s not territory,” Susman explained. “You could literally be paying a significantly different premium than your next-door neighbor.”
This marks a major shift toward property-specific underwriting, powered by machine learning models that use aerial imagery, climate data, and structural information. ZestyAI’s technology assesses things like:
- The amount of defensible space (cleared vegetation) around the home
- Proximity of trees and brush to the roofline
- Type and age of the roof material
- Historical fire frequency in the immediate area
- The date of the last roof replacement
- Terrain slope and exposure to prevailing winds
The AI produces two numerical risk scores on a scale of 1 to 10:
- Property-level risk score (how fire-resistant the individual home is)
- Location-level risk score (the environmental risk of the area)
Together, these determine the final premium. Lower scores lead to lower rates — and critically, some of those factors are within the homeowner’s control.
Empowering Homeowners Through Risk Mitigation
While AI-driven risk assessment may sound intimidating, Susman noted that the new system could actually benefit proactive homeowners. “It’s putting more control in the consumer’s hands,” he said.
That’s because California’s Department of Insurance is now requiring insurers — including the FAIR Plan — to offer discounts for homes that have undergone “hardening” improvements to reduce fire vulnerability.
Examples include:
- Installing ember-resistant vents
- Upgrading to Class A fire-rated roofing
- Removing vegetation within 5–30 feet of the structure
- Clearing gutters and trimming overhanging branches
- Using non-combustible siding and decks
Under the new AI model, each of these actions can directly impact a property’s Z-Fire score — and therefore its premium. In short, homeowners who invest in resilience can now see measurable financial rewards.
This is a significant evolution from the old system, where risk ratings were often based solely on location, leaving individuals powerless to change their standing.
Rate Increases: How Much More Will Homeowners Pay?
Despite these improvements, costs are climbing. The California Department of Insurance recently approved a 15% rate increase for FAIR Plan policyholders.
However, the introduction of the new AI model means that actual premium changes will vary widely. Some homeowners could see only minor adjustments, while others — especially those in very high-risk areas — may face substantial jumps.
Susman emphasized that while rate hikes sound alarming, the FAIR Plan has imposed caps to limit extreme increases. “The maximum that the FAIR Plan can charge you over last year’s premium is 100%,” he said.
In practical terms, that means:
- A $5,000 policy could rise to as much as $10,000 in rare cases.
- But the average homeowner is unlikely to face such a steep jump.
Susman added that the steepest increases will likely occur in outlying rural zones, where fire suppression resources are limited and vegetation density is high. “For most people,” he reassured, “I think that’s going to be really just in the outlying areas, not for the average person.”
The FAIR Plan’s Expanding Role — and Its Risks
The FAIR Plan has grown dramatically in recent years, now covering more than 350,000 policies statewide — double the number from just a few years ago.
While this growth has kept many homeowners insured, it also exposes the plan to enormous financial risk. Since FAIR is funded collectively by all insurers operating in California, catastrophic losses could ripple through the entire market.
To manage this, the FAIR Plan has adopted a more actuarially accurate pricing model (the AI-driven one) and is lobbying for higher maximum coverage limits. But this shift also underscores a deeper issue: the FAIR Plan was never intended to carry this much of California’s insurance burden.
As more private insurers exited the market, FAIR became a lifeline — but it’s now stretched thin. The state’s broader goal remains to restore private market participation, reducing dependence on the FAIR Plan.
Negotiations With Insurers: A Glimmer of Hope
There is reason for optimism. As Susman noted, the Department of Insurance is in active negotiations with major carriers to bring them back to the California market.
These discussions include concessions that would:
- Allow insurers to use modern catastrophe modeling to set rates (reflecting real climate risk)
- Permit partial reinsurance cost adjustments specific to California
- Require insurers to write a minimum percentage of policies in high-risk zones
Combined, these measures are designed to restore competition, which in turn could help stabilize — and eventually lower — premiums.
As Susman put it, “The best part actually is that the FAIR Plan is not intended to be permanent. The whole idea is to bring the big carriers back in. Once they return and start competing, that’s when we’ll see things balance out again.”
What Homeowners Should Do Now
For homeowners currently on the FAIR Plan or worried about potential changes, here are key steps to take:
- Assess Your Home’s Wildfire Readiness.
Use the state’s Safer from Wildfires checklist or request your Z-Fire score if available. Identify simple improvements that could lower your property’s risk rating. - Keep Documentation.
Maintain records of fire-resistant upgrades, defensible space work, and roof replacements. These can be submitted to appeal or verify your AI-based risk score. - Explore Private Market Options Regularly.
Even if you’re on the FAIR Plan today, continue checking with brokers and new carriers. As regulations shift, insurers may return to your area sooner than expected. - Understand Your Coverage Limits.
FAIR Plan policies often provide limited coverage (e.g., excluding liability or theft). Supplement them with a Difference in Conditions (DIC) policy when possible. - Stay Engaged.
The Department of Insurance continues to hold public workshops and hearings. Participation helps ensure that reforms reflect consumer needs, not just industry interests.
Looking Ahead: Technology Meets Policy
The introduction of AI in California’s insurance system marks a new chapter — one where data and environmental science are deeply intertwined with consumer protection.
If implemented correctly, these technologies could make the market more transparent, fair, and adaptive. They allow homeowners to see how specific actions — like clearing brush or upgrading materials — translate directly into savings.
But these same tools also raise questions about privacy, fairness, and accessibility. Will lower-income homeowners be penalized for lacking the resources to retrofit their homes? Will AI models adequately account for local fire mitigation efforts by communities?
The answers will depend on ongoing oversight, ethical implementation, and clear communication between regulators, insurers, and consumers.
Conclusion: A Market in Transition
California’s home insurance market is in the midst of profound transformation. The FAIR Plan’s adoption of AI-based wildfire modeling, coupled with rate adjustments and regulatory reforms, reflects an urgent effort to modernize how risk is measured and priced.
While challenges remain — particularly around affordability — the shift toward data-driven risk evaluation could ultimately empower homeowners, encourage mitigation, and bring insurers back into the fold.
As climate change reshapes the landscape, California’s insurance system must evolve to survive. The FAIR Plan’s use of AI may just be the first step toward a more sustainable, transparent, and resilient future.
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