(Airdate: 2023-12-18) ABC - KGO - New Problems with California FAIR Plan - with Michel Finney
Published Date: 12/18/2023
California’s FAIR Plan Crisis: When the Insurer of Last Resort Becomes a Last-Minute Headache
In California, homeowners struggling to find fire insurance have long relied on the California FAIR Plan, the state’s “insurer of last resort.” It was designed as a safety net for those who couldn’t get coverage from private insurers — typically because they live in high-risk areas like the wildland-urban interface.
But now, even that safety net is fraying. According to an ABC7 KGO investigation aired in December 2023, homeowners across the state are finding it increasingly difficult to obtain FAIR Plan coverage in a timely manner. The delays, technical glitches, and skyrocketing demand have turned what was once a fallback option into a logistical nightmare.
In short: Californians in wildfire zones are facing a new kind of insurance crisis — not just higher costs, but inaccessibility itself.
From Risk to Rejection: How We Got Here
The FAIR Plan (Fair Access to Insurance Requirements) was created in 1968 after devastating urban fires left thousands uninsured. Its purpose is simple: to provide basic fire insurance when traditional carriers won’t.
Yet in today’s era of climate-driven mega-disasters, “basic” no longer cuts it. Over the past five years, the state has seen major carriers — including State Farm, Allstate, and Farmers — stop writing or renewing policies in high-risk areas.
Homeowners like Mark and Alma O’Brien from Napa County have experienced this firsthand. Their ranch survived a grassfire, but their insurer didn’t stick around afterward. “We went to probably three or four different carriers and got turned down,” Alma said.
That left the FAIR Plan as their only option — and that’s where the trouble began.
The FAIR Plan: Expensive, Limited, and Now Overwhelmed
The FAIR Plan is meant to be a temporary solution, not a replacement for standard homeowners insurance. It offers bare-bones coverage—typically only for fire damage—with higher deductibles and higher premiums. Homeowners must purchase a “Difference in Conditions” (DIC) policy separately to cover other perils like theft, water damage, or liability.
As consumer advocate Amy Bach, founder of United Policyholders, told ABC7:
“The FAIR Plan is getting a thousand applications a day. They switched over to a new computer platform, and there seem to be a lot of kinks. We’re getting panicked emails from homeowners and agents saying, ‘I can’t reach anybody.’”
In short, the system is buckling under demand. The Department of Insurance reports that the FAIR Plan now serves more than 350,000 policies, a record number that continues to grow as more private insurers retreat from fire-prone areas.
And now, the plan’s technical infrastructure appears unprepared to handle the surge.
A System on Hold — Literally
Los Angeles–based insurance broker Karl Susman painted a vivid picture of what agents and consumers are up against. “We have one person in the office that’s always on hold with the FAIR Plan because the hold time is four hours a day,” he said.
Susman even shared a video of his staff’s workaround: when someone at the FAIR Plan finally picks up, they pass the phone around the office so multiple pending applications can be processed before the call disconnects.
“The FAIR Plan is quoting 14 to 21 days just to get a quote,” he said.
That kind of delay has serious consequences — especially for homebuyers. Insurance is required to close escrow on a property. “When people are in escrow,” Susman explained, “they’re often looking for insurance two or three days before closing. That’s not possible if they have to go with the FAIR Plan.”
In other words, waiting until the last minute could now jeopardize an entire real estate transaction.
A New Rule for Buyers: Start Early or Risk Losing the Deal
Traditionally, most buyers treat homeowners insurance as an afterthought — something to handle near the end of the purchase process. But in California’s current environment, that’s a recipe for disaster.
ABC7’s Michael Finney offered this warning:
“If you’re buying a home, do not treat homeowners insurance as an afterthought. That’s how we’ve done it up till now. Because if you do, you are for sure going to get burned.”
Given current delays, buyers in wildfire zones should start the insurance process as soon as they enter escrow, if not earlier. Agents report that even well-prepared applications can take weeks to process — time that most closing timelines simply don’t allow.
This new reality means real estate agents, lenders, and insurers must now coordinate much earlier in the transaction process to prevent last-minute collapses.
Behind the Bottleneck: Technology and Demand
The FAIR Plan’s troubles aren’t just about volume — they’re also about technology. The organization recently migrated to a new computer platform, intended to streamline underwriting and improve customer access. Instead, the rollout appears to have caused widespread confusion.
Agents have reported frozen accounts, lost applications, and system errors that prevent them from logging in. Combined with staffing shortages, this has created a backlog of thousands of unprocessed requests.
Consumer groups say they’ve been inundated with calls from frustrated homeowners unable to get even basic responses. As Bach noted, “Some agents are saying it’s taking two weeks to get a policy locked in, and just there’s a lot of anxiety out there.”
The Broader Picture: An Overloaded Insurance Ecosystem
What’s happening with the FAIR Plan is symptomatic of a much larger problem — the collapse of affordability and access in California’s insurance market.
Insurers say they’re trapped between rising wildfire risks and regulatory restrictions that limit their ability to raise rates or use predictive risk models. Many argue that the state’s 1988 law, Proposition 103, makes it impossible to price risk accurately.
As a result, insurers have opted to limit their exposure — leaving homeowners with few choices beyond the FAIR Plan.
Even Commissioner Ricardo Lara has acknowledged the system’s unsustainability, saying reforms are needed to “bring insurers back to the market” and modernize how risk is evaluated.
Relief in Sight? A Small Win for Homeowners
Despite the frustrations, Susman did share a small piece of good news during the ABC7 segment: the FAIR Plan now offers payment plans for eligible policyholders.
Previously, homeowners were required to pay the entire annual premium upfront — an enormous burden, especially for those already stretched thin. The new option allows payments to be spread across several months, making coverage slightly more attainable.
“It can really help some people afford this,” Susman said. “So talk to your insurance broker about that.”
While this may be a modest improvement, it’s a step toward financial accessibility in a system where affordability has become the exception, not the rule.
The Human Cost of a System Under Strain
For homeowners like the O’Briens, navigating the FAIR Plan isn’t just about paperwork — it’s about peace of mind. After surviving fires and being dropped by their insurer, they’re left wondering whether they can ever feel secure again.
Their story reflects a deeper crisis of trust. Californians are losing faith that their state can provide a stable, functioning insurance safety net. And while most accept that wildfire risk is unavoidable, few are prepared for the bureaucratic hurdles that now come with simply obtaining coverage.
As Finney summarized bluntly: “This is really precarious for a lot of people — and it’s going to be costly.”
Practical Takeaways for California Homeowners
Whether you’re a current homeowner, a buyer, or a real estate professional, the lessons from the FAIR Plan’s struggles are clear:
- Start Early. Don’t wait until the week of closing to secure homeowners insurance. Begin the search as soon as you start home shopping.
- Work with an Experienced Broker. Brokers who specialize in high-risk areas can navigate the FAIR Plan system more efficiently — and may uncover private options you didn’t know existed.
- Budget Realistically. FAIR Plan coverage is more expensive and offers less protection. Consider supplemental DIC policies to fill gaps.
- Ask About Payment Options. If paying a full premium upfront isn’t feasible, inquire about installment plans.
- Document Everything. Keep records of communications, applications, and policy updates in case of disputes or delays.
A Turning Point for California’s Insurance Future
The problems at the FAIR Plan reveal just how fragile California’s insurance infrastructure has become. Once a reliable safety net, it’s now being strained by forces — climate change, outdated regulation, and technological missteps — that demand systemic reform.
For homeowners, this means adapting to a new reality: insurance in California requires planning, persistence, and patience.
And for policymakers, it’s a wake-up call. Unless the private market is revitalized and the FAIR Plan modernized, Californians will continue to face the double threat of natural disaster and bureaucratic breakdown.
Until then, as Karl Susman’s office experience shows, getting insured in California can be a full-time job — one that sometimes requires literally staying on hold all day.
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