Depopulating California’s FAIR Plan and Fixing the Market

Published Date: 12/19/2023

California’s insurance landscape is in crisis — and at the center of it all lies the California FAIR Plan, the state’s insurer of last resort.

In his Insurance Hour episode, “Depopulating California’s FAIR Plan — What Are They Thinking?”, insurance expert Karl Susman walks listeners through the complex web of regulatory reform, market dysfunction, and government response shaping the state’s insurance future.

What emerges is not just a policy debate, but a fundamental reset of how insurance will operate in California for years to come.

California’s Insurance Market at a Crossroads

Susman opened the episode by referencing Insurance Commissioner Ricardo Lara’s testimony before the California Assembly Committee on Insurance, underscoring the urgency of the moment:

“California is at an insurance crossroads — and for many Californians, this is an emergency. An insurance emergency.”

The numbers support that concern. Nearly 87% of California’s admitted insurance market is either shut down or heavily restricted. For homeowners — particularly those in wildfire-prone regions — obtaining coverage has become painfully difficult, if not impossible.

This is why the California Sustainable Insurance Strategy (CSIS), a sweeping reform initiative from the Department of Insurance, is now the state’s blueprint for recovery.

What the Sustainable Insurance Strategy Is Designed to Do

The CSIS is not a single law, but a broad regulatory framework intended to reopen California’s frozen insurance market. Susman outlined its five core goals:

• Increase insurance availability
• Reduce dependence on the FAIR Plan
• Integrate catastrophe modeling and mitigation discounts
• Modernize the FAIR Plan’s infrastructure and operations
• Improve long-term market stability

Each element serves a larger purpose: making private insurers willing to write new policies in California again.

As Susman quoted Commissioner Lara: “The current system doesn’t address today’s challenges. Insurance reforms are long overdue.”

How the FAIR Plan Became the Only Option for Many Homeowners

The FAIR Plan—short for Fair Access to Insurance Requirements—was created in 1968 as a temporary safety net for properties that private insurers would not cover. It was never designed to be a dominant player in the market.

Today, that role has completely inverted.

Susman shared sobering statistics:

• Over 100,000 new FAIR Plan policies added in just the last year
• More than 1,000 applications per day
• Average call wait times exceeding four hours

“The FAIR Plan was never designed to handle this kind of volume,” Susman explained. “It’s overwhelmed — not because it’s failing, but because the rest of the market isn’t functioning.”

What was once limited to remote homes without hydrants or nearby fire protection now includes many suburban neighborhoods. This shift — where the insurer of last resort becomes the insurer of first resort — is exactly what regulators are trying to reverse.

What “Depopulating” the FAIR Plan Really Means

“Depopulating” the FAIR Plan does not mean eliminating it. It means transitioning policyholders back into the private insurance market as carriers return.

“The FAIR Plan is supposed to be a temporary holding place,” Susman said. “You go there because you have nowhere else to go — and then you leave when you do.”

Right now, however, the lack of competition forces homeowners to remain on FAIR Plan policies, often paying higher premiums for limited coverage. The Department of Insurance acknowledges this imbalance and is working urgently to restore normal market conditions.

How the FAIR Plan Is Being Modernized

To cope with its massive growth, the FAIR Plan is undergoing long-overdue modernization. Key upgrades include:

• A new digital platform for policy management and billing
• A 10-payment installment plan replacing the old three- or four-payment structures
• Expanded commercial coverage limits from $4 million to $20 million per building
• Additional staffing and improved customer service infrastructure

“Modernizing the FAIR Plan isn’t an oxymoron,” Susman joked. “They’re upgrading because they have to.”

This modernization improves capacity, but it does not fix the core issue. To truly depopulate the FAIR Plan, private insurers must be able to profitably return to the market — and that requires regulatory reform.

Why Catastrophe Modeling and Mitigation Discounts Matter

One of the most important reforms within the Sustainable Insurance Strategy is the adoption of catastrophe modeling. Instead of relying solely on historical data, insurers can now use advanced predictive models and AI-driven risk analytics to estimate future losses.

“Previously, the only way a company could calculate risk was by looking backward,” Susman explained. “Now, we can finally look forward.”

This shift also enables meaningful mitigation-based discounts. Homeowners who take steps such as:

• Installing Class-A fire-resistant roofs
• Enclosing eaves
• Clearing brush within 100 feet of the home

will soon receive measurable premium reductions.

“If you take steps to make your home safer, you should pay less,” Susman said. These incentives align safety with affordability while strengthening long-term community resilience.

Why Premiums Are Rising and Why This Is Not a Bailout

Susman was direct about near-term costs: premiums are rising, and they will continue to rise in the short term.

“There’s no way around the math,” he said. “Higher risk means higher cost.”

He also addressed the popular misconception that recent reforms represent a bailout for insurance companies.

“No one’s writing checks to insurance companies,” Susman clarified. “This isn’t about handouts. It’s about creating rules that make it possible for carriers to compete, stay solvent, and pay claims.”

In his view, restoring competition — not suppressing prices by regulation — is the only sustainable path to long-term affordability.

How Outdated Regulations Helped Create the Crisis

A central driver of the current market failure, Susman argued, is California’s 30-year-old regulatory framework.

“What’s not different today than it was 30 years ago?” he asked. “Everything has changed — except our insurance rules.”

Existing laws limit how insurers model risk, file rates, and recover catastrophic losses. When companies are forced to operate under rules that no longer reflect economic or environmental reality, they stop participating.

“When you’re forced to play by rules that don’t work,” Susman said, “you stop playing.”

The Sustainable Insurance Strategy seeks to realign regulation with modern risk, inflation, and climate exposure.

A Personal Interlude in a Serious Conversation

In typical Karl Susman fashion, he briefly lightened the episode with a personal update — his battle to quit caffeine after years of espresso-fueled mornings.

“I literally walk over to where the espresso machine is and just stare at it,” he laughed. “Muscles ache, headaches — it’s brutal.”

The moment added levity to an otherwise weighty discussion and reflected Susman’s ability to humanize complex industry issues.

What Homeowners Should Expect Moving Forward

California’s insurance market did not unravel overnight — and it will not recover overnight either. But Susman believes meaningful progress is underway.

“They’re working with urgency,” he said. “They know this can’t wait — and the solutions they’re rolling out make sense.”

For consumers, the outlook is cautiously optimistic:

• The FAIR Plan will stabilize
• Private insurers will return gradually
• Choice and competition will increase
• Mitigation will play a growing role in affordability

Until then, homeowners are encouraged to stay informed, avoid policy lapses, and invest in risk-reduction measures.

Final Thoughts on Depopulating California’s FAIR Plan

The effort to depopulate California’s FAIR Plan is more than bureaucratic reform. It is an acknowledgment that the state’s insurance ecosystem must evolve to survive.

By embracing catastrophe modeling, rewarding mitigation, modernizing infrastructure, and updating decades-old regulations, California is laying the groundwork for a more resilient and functional insurance market.

As Susman concluded:

“This isn’t about politics or panic. It’s about making the system work again — for insurers, for agents, and for every Californian trying to protect their home.”