Depopulating California’s FAIR Plan — What Are They Thinking?
Published Date: 12/19/2023
Depopulating California’s FAIR Plan: What Are They Thinking?
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 that’s shaping the state’s insurance future.
What he reveals is not just a policy debate — it’s a fundamental reset of how insurance will work in California for years to come.
1. California’s Insurance Crossroads
Susman opened the episode by referencing Insurance Commissioner Ricardo Lara’s testimony before the California Assembly Committee on Insurance. Lara’s remarks, Susman noted, captured the urgency of the moment:
“California is at an insurance crossroads — and for many Californians, this is an emergency. An insurance emergency.”
The data supports it. As Susman explained, nearly 87% of California’s admitted insurance market is either shut down or heavily restricted. For homeowners trying to obtain coverage — particularly in wildfire-prone regions — the process has become painfully difficult, if not impossible.
That’s why the California Sustainable Insurance Strategy (CSIS), a sweeping reform plan from the Department of Insurance, has become the state’s blueprint for recovery.
2. What the “Sustainable Insurance Strategy” Really Means
The CSIS isn’t a single law — it’s a comprehensive regulatory framework designed to reopen California’s frozen insurance market. Susman broke it down into five key goals:
- Increase insurance availability
- Reduce dependence on the FAIR Plan (“depopulate it”)
- Integrate catastrophe modeling and mitigation discounts
- Modernize the FAIR Plan’s infrastructure and operations
- Improve long-term market stability
Each point is part of a larger mission: to make private insurers willing to write new policies in California again.
“The current system doesn’t address today’s challenges,” Susman quoted Lara as saying. “Insurance reforms are long overdue.”
3. The FAIR Plan: From Safety Net to Overload
The FAIR Plan — short for Fair Access to Insurance Requirements — was created in 1968 as a temporary last-resort safety net for high-risk properties that private insurers refused to cover.
But today, it’s become a primary insurance source for tens of thousands of Californians.
Susman revealed staggering numbers:
- Over 100,000 new FAIR Plan policies have been added in just the last year.
- The organization is receiving more than 1,000 applications per day.
- Average hold times exceed four hours, with some callers waiting six or more.
“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.”
Originally, the plan covered only homes in remote areas without hydrants or nearby fire departments. Now, even suburban homeowners are turning to it after being dropped by private carriers.
This inversion — where the insurer of last resort becomes the insurer of first resort — is exactly what regulators are trying to reverse.
4. The Push to “Depopulate” the FAIR Plan
“Depopulating” the FAIR Plan doesn’t mean eliminating it. It means helping policyholders move back into the private market once insurers return to the state.
“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.”
But right now, no one’s leaving. The lack of competition among carriers has forced thousands of homeowners to stay on FAIR Plan policies — often paying higher premiums for limited coverage.
Susman noted that the Department of Insurance recognizes this imbalance and is working with urgency to restore normalcy.
“They get it,” he emphasized. “They know something’s really not as it should be, and it’s urgent.”
5. Modernizing the FAIR Plan
To handle its bloated workload, the FAIR Plan is undergoing what Susman called a long-overdue modernization.
Among the upgrades:
- A new digital platform for policy management and billing.
- A 10-payment plan for policyholders (replacing the old three- or four-payment system).
- Expanded commercial coverage limits — from $4 million to $20 million per building.
- More staffing and improved customer infrastructure.
“Modernizing the FAIR Plan isn’t an oxymoron,” Susman joked. “It’s a real thing. They’re hiring, upgrading systems, and expanding limits because they have to.”
Still, modernization alone won’t solve the underlying problem. To truly “depopulate” the FAIR Plan, private insurers must re-enter the market — and that depends on reforms to outdated regulations like Proposition 103, which still governs how insurers file rates in California.
6. Catastrophe Modeling and Mitigation Discounts: A New Era of Fairness
One of the most consequential pieces of the Sustainable Insurance Strategy is the integration of catastrophe modeling — a predictive system that uses advanced data and AI to estimate future losses instead of relying solely on past claims.
This allows insurers to price policies based on real, current wildfire and environmental risks rather than outdated historical averages.
“Previously, the only way a company could calculate risk was by looking backward,” Susman explained. “Now, we can finally look forward.”
This forward-looking approach also enables mitigation-based discounts. Homeowners who take proactive measures — such as installing Class-A fire-resistant roofs, enclosing eaves, or clearing brush within 100 feet of their home — will soon be rewarded with meaningful premium reductions.
“If you take steps to make your home safer, you should pay less. That’s just common sense,” Susman said.
These incentives not only make premiums fairer but also help communities build long-term resilience against climate-driven disasters.
7. Why Premiums Are Rising — and Why It’s Not a “Bailout”
Susman didn’t sugarcoat the reality: premiums are rising, and they will continue to rise in the near term.
“There’s no way around the math,” he said. “Higher risk means higher cost.”
He was quick to clarify, however, that recent regulatory reforms are not a bailout for insurers — a misconception fueled by social media outrage.
“No one’s writing checks to insurance companies,” he explained. “This isn’t about handouts. It’s about creating rules that make it possible for carriers to compete, stay solvent, and pay claims.”
Susman’s message was clear: restoring competition is the only sustainable way to bring premiums down over time.
8. Improving Market Stability — Fixing Outdated Rules
A major cause of the crisis, according to Susman, is California’s 30-year-old regulatory structure.
“What’s not different today than it was 30 years ago?” he asked rhetorically. “Everything has changed — except our insurance rules.”
Current laws restrict how insurers can model risk, file rates, and recover from losses — making it unprofitable to do business in the state.
As Susman explained, “When you have rules that don’t work, and you’re forced to play by those rules, what do you do? You stop playing.”
That’s exactly what happened: insurers stopped writing new business.
The Sustainable Insurance Strategy seeks to rewrite those rules, aligning California’s system with modern economic and environmental realities.
9. A Human Touch: The Caffeine-Free Insurance Expert
In classic Karl Susman fashion, he briefly veered off-topic — humorously noting that he was on day seven without 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.”
It was a lighthearted moment in an otherwise weighty conversation — but it underscored Susman’s enduring approach: educate, empathize, and humanize.
10. The Bottom Line: Progress Through Patience
California’s insurance market didn’t break overnight — and it won’t recover overnight either.
But Susman believes the Department of Insurance is finally on the right track.
“They’re working with urgency,” he said. “They know this can’t wait — and the solutions they’re rolling out make sense.”
For homeowners, the message is one of cautious optimism:
- Relief is coming.
- The FAIR Plan will stabilize.
- Private insurers will return — gradually.
- Consumers will regain choice and competition.
Until then, understanding the reforms — and staying proactive with mitigation — remains the best defense.
Final Thoughts
The effort to depopulate California’s FAIR Plan is more than bureaucratic reform. It’s a recognition that the state’s insurance ecosystem must evolve or collapse.
By embracing catastrophe modeling, rewarding risk mitigation, and updating decades-old regulations, California is laying the groundwork for a more resilient, responsive, and realistic 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.”
Author