If you live in California, you’ve likely heard of the California FAIR Plan, often called the “insurer of last resort.” But what is it really, and how does it differ from a traditional homeowners policy?
In a recent episode of The Insurance Hour, independent broker and insurance expert witness Karl Susman clarified the realities of the FAIR Plan while also addressing a major concern for many families: the rising cost and complexity of auto insurance. His insights offer practical guidance for California homeowners and drivers trying to stay properly covered in a challenging insurance market.
What the California FAIR Plan Really Is
Despite its reputation, the California FAIR Plan is not an insurance company in the traditional sense. As Susman explains, it is an association—specifically, a joint association of all admitted insurance carriers in California.
The FAIR Plan (Fair Access to Insurance Requirements) was created in the late 1960s after widespread urban riots and wildfires left thousands of property owners unable to obtain basic fire coverage. Instead of forming a state-run insurer, the industry created a collective risk-sharing pool.
Each insurer contributes based on market share. If a company writes 10% of the homeowners policies statewide, it is responsible for 10% of FAIR Plan premiums and claims. The plan is administered centrally and backed by the admitted insurance industry—not taxpayer funds.
If claims ever exceed available resources, the California Insurance Guarantee Association (CIGA) provides an added layer of protection. As Susman notes, this effectively means all admitted insurers back one another, ensuring claims are paid.
What the FAIR Plan Covers
At its core, the FAIR Plan provides basic fire insurance for properties that private carriers will not insure. The core covered perils include:
- Fire or lightning
- Smoke damage
- Internal explosion
Homeowners can also add Extended Coverage and Vandalism or Malicious Mischief (VMM) endorsements. These expand protection to include:
- Windstorm or hail
- External explosion
- Riot or civil commotion
- Aircraft or vehicle impact
- Vandalism or malicious mischief
With these additions, the FAIR Plan becomes a named-perils policy that can meet lender requirements and cover several major hazards. As Susman emphasizes, these endorsements are inexpensive and well worth adding.
What the FAIR Plan Does Not Cover
Many homeowners are caught off guard by what the FAIR Plan excludes. Key exclusions include:
- Theft
- Falling objects
- Weight of ice, snow, or sleet
- Water or steam discharge
- Freezing
- Electrical current damage
- Personal liability
- Internal and external water damage
Water damage is especially significant. Nationally, nearly 20% of insurance claims involve water losses, from burst pipes to roof leaks—none of which are covered by the FAIR Plan.
The Liability Coverage Gap
Perhaps the most serious exclusion in a FAIR Plan policy is personal liability coverage. Liability protects homeowners if someone is injured on their property or if they are sued for property damage.
Susman stresses that liability insurance is one of the most important types of coverage a homeowner can have. Losing a house to fire is devastating, but facing a major lawsuit without liability coverage can result in bankruptcy or lifelong financial hardship. Yet many FAIR Plan policyholders mistakenly assume liability protection is included.
The Role of a DIC Policy
To close these gaps, homeowners must pair a FAIR Plan policy with a Difference-in-Conditions (DIC) policy. A DIC policy adds essential protections such as:
- Water damage
- Personal liability
- Theft
- Falling object damage
Together, the FAIR Plan and a DIC policy closely approximate the protection of a standard homeowners insurance policy.
Susman strongly recommends having both policies written by the same agent or broker to avoid coverage gaps and coordination problems. Since 2024, the FAIR Plan has also required specialized training and certification for participating agents. He further cautions that brokers are not legally allowed to charge additional broker fees for FAIR Plan policies.
Adding a Teen Driver to Your Auto Policy
In the second half of the broadcast, Susman addressed one of the most common auto insurance questions for families: how to properly insure a teenage driver.
For permit holders, coverage typically extends under a parent’s policy with permission. Once a teen becomes a licensed driver and lives in the household, they must be either added to the policy or formally excluded. Failing to do so can give the insurance company grounds to deny a claim.
Susman also corrected a common misconception: in California, insurers can no longer use gender as a pricing factor. Premium differences now depend on driving experience, mileage, and risk—not whether the driver is male or female.
Managing the Cost of Teen Auto Insurance
To help parents control the added expense of insuring a teenage driver, Susman highlighted several cost-saving strategies:
- Good Student Discount for teens with a B average or better
- Defensive driving courses for teens
- Low-mileage ratings when teens drive infrequently
- Assigning the teen to an older vehicle with lower physical damage value
However, he cautions that liability costs remain the same regardless of the vehicle’s age or value because the real financial exposure involves injuries and third-party damage.
Susman also warned against titling a vehicle in a teen’s name to reduce premiums or shield parents from liability. Courts consistently hold parents financially responsible when a teen lives at home and is financially supported by them.
Ongoing Challenges in California’s Insurance Market
Both homeowners and auto insurance markets in California remain under strain. Major carriers have limited or paused new business in response to rising claims, wildfire exposure, and regulatory challenges.
Still, Susman expressed cautious optimism that insurers may begin quietly re-entering the market as conditions stabilize. He advises consumers to stay informed, review policies carefully, and work closely with experienced agents who understand the shifting landscape.
Key Takeaways for California Homeowners and Drivers
Susman’s central message is clear: education is the most powerful form of insurance protection.
- Do not fear the FAIR Plan—understand its purpose and limits.
- Always pair FAIR Plan coverage with a DIC policy.
- Make sure household drivers are properly listed on auto policies.
- Use available discounts and safe driving habits to manage costs.
As Susman emphasizes, the most critical reminder for FAIR Plan policyholders is simple: it does not include liability coverage, and liability coverage is absolutely essential.
For Californians navigating an uncertain insurance environment, informed decisions are the strongest safeguard against costly mistakes.
