(Airdate: 2024-01-04) NBC - KNBC - Navigating Home Insurance - 4:30pm

Published Date: 01/04/2024

Navigating California’s Home Insurance Maze: Why the FAIR Plan Is Becoming the “First and Only” Option

Buying a home in California has never been easy — soaring prices, competitive markets, and tight lending conditions make the process daunting enough. But for many homeowners today, a new obstacle has emerged that even the best budgeting can’t overcome: finding insurance.

In January 2024, NBC4’s I-Team investigated this growing crisis, uncovering how homeowners are being dropped by long-time insurers, forced onto the state’s FAIR Plan, and left to navigate an increasingly confusing and costly insurance landscape. The report highlighted a critical shift: the FAIR Plan, originally designed as a last-resort program, is fast becoming the only resort for thousands of Californians.

This post breaks down what’s happening, what the recent court ruling could mean for FAIR Plan coverage, and how homeowners can adapt in an unpredictable market.

From Coverage to Cancellation: A Homeowner’s Dilemma

Few stories capture the emotional toll of California’s insurance crisis better than that of Allison Rosenberg, a homeowner in Marina del Rey.

After years with the same insurance company, Rosenberg received an unexpected email: her policy would not be renewed. The reason? Three claims in ten years — not an unusual record, but enough for her carrier to label her as too risky.

“I hit the wall pretty quickly,” she told NBC’s Lolita Lopez, after contacting multiple insurers without success. “It seems like you thought it would be easier… but it’s not.”

Her only option now: the California FAIR Plan, a state-mandated insurance pool designed to provide basic fire coverage when no private insurer will.

The FAIR Plan’s Expanding Role

Created in the late 1960s after widespread urban fires, the Fair Access to Insurance Requirements (FAIR) Plan operates as California’s insurer of last resort. All insurers licensed in the state are required to participate in the pool, collectively sharing the risk of homeowners who can’t obtain private coverage.

Historically, the FAIR Plan covered only a small fraction of California homes. But in recent years, that number has exploded. According to NBC4’s I-Team, the FAIR Plan’s total active policies have more than doubled since 2018, rising to over 341,000 as of late 2023.

“It’s a mess,” said Amy Bach, executive director of the consumer group United Policyholders. “It’s not the way it should be, and we’re trying to fix it — but it’s tough.”

Bach noted that approximately 40% of FAIR Plan policyholders now rely solely on that coverage, meaning they don’t have supplemental insurance for theft, water damage, or liability. “If your toilet overflows, or someone breaks in, or your washer hose comes off — you get nothing,” she explained.

This reality underscores the growing inequity in California’s insurance system: as private insurers withdraw from high-risk areas, homeowners are paying more for less protection.

A Legal Turning Point: The Court Ruling That Could Expand FAIR Plan Coverage

There may be change on the horizon — but it won’t happen overnight.

In November 2023, a California court upheld an order from Insurance Commissioner Ricardo Lara requiring the FAIR Plan to expand its coverage options. The decision supports the commissioner’s push for the plan to offer more comprehensive policies that go beyond basic fire damage, including coverage for liability, theft, and water damage — the same types of protections found in standard homeowners policies.

On the surface, the ruling sounds like a win for consumers. But as insurance broker Karl Susman cautioned in the NBC segment, implementation will be far from immediate.

“Even if they accepted that, we could be talking about years before there’s actually a change,” Susman said. “Remember, the FAIR Plan doesn’t know how to price theft or liability. How do they know how to price slip-and-falls? No idea. They’ve never done it before.”

That challenge points to a deeper structural issue: the FAIR Plan wasn’t designed to function as a full-fledged insurance company. It’s a consortium mechanism meant to provide limited fire protection, not to underwrite complex risks like liability or vandalism. Transitioning to a broader model will require new data, regulatory guidance, and possibly legislative reform.

A FAIR Plan representative told NBC4 that it would “carefully review the court’s ruling and its potential impact on policyholders and the insurance marketplace.” But for now, homeowners shouldn’t expect immediate relief.

Discounts for Preparedness: A Small Bright Spot

While the FAIR Plan remains limited in coverage, there are a few ways homeowners can reduce their premiums.

Susman noted that the plan has introduced home-hardening discounts — financial incentives for residents who take proactive steps to make their homes more fire-resistant.

“There are two discounts,” he explained. “One has to do with things you can do to your home — closing the eaves, installing a fire-resistant chimney cap — and another for clearing defensible space around the house.”

Together, these efforts can earn homeowners up to 14.5% off FAIR Plan premiums.

These discounts reflect a growing industry trend toward risk-based pricing and resilience incentives. Insurers, both public and private, are increasingly using data and technology to reward mitigation efforts — a shift that could eventually make wildfire-prone areas more insurable.

Technology Enters the Equation: AI and Predictive Fire Modeling

One of the most significant changes in California’s insurance market is the growing use of technology and artificial intelligence to assess property risk.

Susman explained that, for the first time, FAIR Plan and private insurers are beginning to use data-driven models to calculate risk on a house-by-house basis — rather than applying uniform regional rates.

“You could literally pay one rate for one house, and two houses down, the rate could be completely different,” he said.

This hyper-localized approach mirrors the catastrophe modeling already used in flood and earthquake insurance nationwide. While it promises greater fairness by linking premiums to individual property conditions, it also means that homeowners in high-risk zones may face steep premiums — even if their neighbors pay less.

The New Rules for Homebuyers: Start Early and Strategize

As the FAIR Plan faces surging demand, obtaining coverage has become a time-consuming process. Susman and other industry experts offered several practical tips for navigating this new landscape:

1. Start Early

“Tip one: start looking early,” Susman advised. “The FAIR Plan is drowning in applications, and it’s taking sometimes a week or two just to get the policy bound.”

For homebuyers in escrow, that delay can be disastrous. Without proof of insurance, lenders won’t approve mortgage closings. Buyers should start shopping for coverage as soon as they begin the purchase process — not after the offer is accepted.

2. Know What You Can Afford

With premiums rising across the state, homeowners should carefully review their coverage levels. “If it makes your premium more affordable,” Susman said, “consider reducing coverage on your contents — your stuff, not your house.”

He recommended maintaining full dwelling coverage but being flexible with optional protections like personal property limits or deductibles.

3. Work With a Knowledgeable Broker

Homeowners can purchase FAIR Plan coverage directly or through an independent broker. However, Susman strongly recommends working with an experienced agent. “A broker can help find alternative options, identify discounts, and manage paperwork — all of which can save time and money.”

In a system as complex as California’s, professional guidance can make the difference between a delayed closing and a smooth transaction.

A System in Transition

The FAIR Plan’s growing prominence reveals an uncomfortable truth: California’s insurance ecosystem is out of balance. The state’s climate risks are rising faster than its regulatory systems can adapt.

As private insurers retreat, more homeowners are being forced into a plan that was never meant to be permanent. And while regulators and courts push for expanded coverage, the FAIR Plan itself is straining under the weight of demand and technological growing pains.

Still, experts see hope in the state’s commitment to modernization. The adoption of AI-driven risk modeling, increased incentives for wildfire mitigation, and Commissioner Lara’s push for regulatory reform all signal a shift toward a more data-informed and resilient future.

But for now, homeowners like Rosenberg must continue to navigate a market defined by uncertainty — one where patience, planning, and persistence are as important as the insurance itself.

Conclusion: Adapting to California’s New Insurance Reality

California’s home insurance market is in the midst of a transformation driven by climate change, regulation, and innovation. For many, the FAIR Plan — once a rarely used backup — has become a lifeline, albeit one with limits and frustrations.

The court ruling requiring expanded FAIR Plan coverage offers a glimpse of progress, but implementation will take time. In the meantime, homeowners must take proactive steps: start early, invest in mitigation, and seek expert guidance.

As Amy Bach aptly summarized, “It’s not the way it should be, but we’re trying to fix it.”

In an era of growing climate risk, “fixing it” may not mean restoring the old system — but creating a smarter, fairer, and more resilient one that reflects the realities of 21st-century California.