California FAIR Plan and AI Wildfire Risk Scoring Changes

Published Date: 10/16/2023

California’s homeowners insurance market has been under pressure for years, but the strain continues to intensify. 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.” With rising enrollment and new technology reshaping how wildfire risk is measured, even the FAIR Plan is undergoing major changes.

In October 2023, FOX KTVU reported on new developments involving AI-powered wildfire scoring, approved rate increases, and ongoing negotiations aimed at bringing private insurers back to California. Insurance expert Karl Susman of Susman Insurance Agency shared insight into what these shifts mean for homeowners and the future of coverage statewide.

California’s Home Insurance Market in Crisis

California’s home insurance system has faced severe stress since 2018, when catastrophic wildfires destroyed entire communities across the state. As claims mounted, major insurers such as State Farm and Allstate began refusing to write new homeowner policies in many regions, and in some cases stopped renewing existing customers.

Two main forces drove this shift. First, wildfire losses made entire ZIP codes unprofitable. Second, Proposition 103 limited how quickly insurers could adjust rates to match rising risk. As a result, tens of thousands of homeowners were pushed onto the FAIR Plan, which was designed as temporary, last-resort coverage—not a long-term solution for a large share of the population.

Today, the FAIR Plan has become a primary insurer for many Californians in fire-prone areas, placing the program itself under increasing financial and operational strain.

The FAIR Plan’s Shift to AI-Based Wildfire Scoring

In 2023, the FAIR Plan implemented a new wildfire risk scoring system powered by artificial intelligence known as ZestyAI, often referred to as the “Z-Fire Score.”

Unlike the old approach that relied on ZIP-code or territory-level risk, the new model evaluates individual properties using detailed data analysis. Each home is scored based on property-specific and location-specific risk factors, meaning neighboring homes can now receive significantly different premiums.

The AI system analyzes numerous variables, including defensible space, proximity of vegetation to structures, roof type and age, terrain slope, wind exposure, and historical fire activity. It produces two scores on a scale from 1 to 10: one reflecting the individual property’s resilience and another representing the broader environmental risk of the location. Together, these scores directly influence the final premium.

How AI Risk Scoring Can Empower Homeowners

While data-driven underwriting may sound intimidating, the new scoring model can actually work in favor of homeowners who take steps to reduce fire risk.

California regulators now require insurers, including the FAIR Plan, to provide discounts for “home hardening” measures that reduce wildfire vulnerability. Improvements such as ember-resistant vents, Class A fire-rated roofing, defensible space, cleared gutters, non-combustible siding, and trimmed vegetation can directly improve a home’s Z-Fire score.

Under the new model, homeowners who invest in mitigation may see measurable premium benefits. This represents a major departure from the past, when residents were often judged solely on location and had little control over their risk profile.

FAIR Plan Rate Increases and What Homeowners May Pay

The California Department of Insurance has approved a 15% rate increase for FAIR Plan policyholders. However, because premiums are now tied to individual AI-based risk scores, actual changes will vary widely from home to home.

Some policyholders may see modest adjustments, while others in very high-risk areas may experience larger increases. The FAIR Plan has imposed caps to prevent extreme jumps, with the maximum increase limited to 100% over the prior year’s premium.

In practical terms, a $5,000 policy could reach $10,000 in rare cases, though that level of increase is expected primarily in remote, highly exposed rural areas. Most homeowners are unlikely to face the upper limits of that range.

The Expanding Role and Financial Risk of the FAIR Plan

The FAIR Plan now serves more than 350,000 policyholders statewide—double the number from just a few years ago. While this expansion has kept many homeowners insured, it has also exposed the program to significant financial risk.

Because the FAIR Plan is funded collectively by insurers operating in California, large catastrophe losses could impose costs across the entire insurance market. To manage this exposure, the FAIR Plan has adopted more actuarially precise pricing through AI underwriting and is seeking higher maximum coverage limits.

Even so, the FAIR Plan was never intended to carry such a large share of the state’s insurance burden. The long-term objective remains restoring private market participation and reducing the state’s dependence on the FAIR Plan as a primary insurer.

Negotiations to Bring Private Insurers Back

The California Department of Insurance is engaged in active negotiations with major carriers to encourage their return to the market. Proposed regulatory changes would allow limited use of modern catastrophe modeling, permit partial reinsurance cost adjustments tied specifically to California risk, and require insurers to write a set percentage of policies in high-risk zones.

These measures are intended to restore competition, which could eventually stabilize—and potentially lower—premiums. The broader strategy is to shift high-risk properties back into the private market, allowing the FAIR Plan to return to its intended role as temporary last-resort coverage.

What Homeowners Should Do Right Now

For homeowners currently on the FAIR Plan or concerned about upcoming changes, preparation is essential.

Assess your home’s wildfire readiness using state mitigation checklists and available risk scoring tools. Keep documentation of fire-resistant upgrades, vegetation clearance, and roof replacements, as these can influence AI-based risk evaluations and potential discounts.

Continue exploring private market options with licensed brokers, even if you are currently insured through the FAIR Plan. As regulations evolve, new carriers may re-enter your area. Review coverage limits carefully, since FAIR Plan policies often exclude theft or liability and may require a supplemental Difference in Conditions policy.

Staying informed and engaged with regulatory updates can help homeowners anticipate changes rather than react to them after the fact.

Technology, Fairness, and the Future of Wildfire Insurance

The use of AI in California’s insurance system represents a significant shift in how risk is evaluated and priced. Properly implemented, these tools can increase transparency and give homeowners direct incentives to reduce their exposure.

At the same time, concerns remain about fairness and accessibility. Lower-income homeowners may struggle to afford costly mitigation upgrades, and questions persist about how well AI models account for community-wide fire protection efforts.

Ongoing regulatory oversight will play a critical role in ensuring that technological progress does not undermine consumer fairness.

Conclusion: A Market in Transition

California’s home insurance market is undergoing a profound transformation. The FAIR Plan’s adoption of AI-based wildfire scoring, combined with state-approved rate increases and regulatory reform efforts, reflects an urgent push to modernize how risk is measured and priced.

While affordability challenges remain, data-driven underwriting may ultimately empower homeowners, improve resilience, and encourage private insurers to return. As climate change continues to reshape wildfire risk, California’s insurance system must evolve alongside it.

The FAIR Plan’s embrace of artificial intelligence may be the first step toward a more sustainable, transparent, and resilient insurance future for homeowners statewide.