The California Fair Plan: Understanding Coverage Options for High-Risk Homeowners

Published Date: 10/16/2023

The California FAIR Plan: Understanding Coverage Options for High-Risk Homeowners

When homeowners in California receive a dreaded non-renewal notice from their insurance company, one phrase often appears as their last resort: the California FAIR Plan.

It’s a name that can sound intimidating—or even unfair—to those unfamiliar with it. But despite its reputation as a “last resort” option, the California FAIR Plan Association (CFPA) serves an essential purpose in the state’s insurance system: ensuring that every property owner, no matter where they live, can obtain basic fire insurance coverage.

Insurance expert and radio host Karl Susman—who has written FAIR Plan policies for over 30 years—recently explained how it all works on The Insurance Hour. His insights shed light on what the FAIR Plan really is, how it came to be, and what homeowners need to understand before choosing this kind of coverage.

A Brief History: Why the FAIR Plan Exists

The California FAIR Plan was created more than 50 years ago, following the Watts Riots of 1965–1968, which exposed severe disparities in insurance availability. In many urban areas, insurers refused to write property coverage, leaving residents vulnerable and unprotected.

To address this, the California Legislature stepped in. Lawmakers mandated that all property owners must have access to essential property insurance, and from that directive, the California FAIR Plan was born.

The FAIR Plan is not a government agency—it’s a nonprofit insurance association, funded collectively by all admitted insurance companies operating in California. Each insurer contributes to the FAIR Plan’s pool based on its market share.

For example:

• If a carrier insures 10% of the homes in California,
• It must also contribute 10% of the FAIR Plan’s premiums and claims.

In this sense, the FAIR Plan is a shared safety net, supported by the very insurers that can no longer cover high-risk properties themselves.

The Role: Insurer of Last Resort

The FAIR Plan’s primary mission is simple: to provide basic fire insurance coverage to properties that the private market won’t insure.

That’s why it’s often referred to as the “insurer of last resort.” It’s where homeowners turn when every other carrier has said no.

But as Susman points out, the FAIR Plan isn’t actually an “insurer” in the traditional sense—it’s a risk-sharing association. Its purpose is not to generate profits, but to collect enough premium to pay for claims.

In other words, the FAIR Plan exists to serve—not to earn.

What the FAIR Plan Covers (and What It Doesn’t)

Here’s the key distinction homeowners must understand:
The California FAIR Plan does not provide full homeowners insurance.

It was never designed to.

At its core, the FAIR Plan offers basic fire insurance—often referred to as “fire-only coverage.” This means it covers damage caused by fire, lightning, smoke, and internal explosion.

That’s it.

If your home suffers water damage from a burst pipe, if someone is injured on your property, or if your belongings are stolen—those losses would not be covered under a FAIR Plan policy.

To fill that gap, most homeowners purchase a companion policy from the open market known as a Difference in Conditions (DIC) policy.

The DIC Policy: Completing the Puzzle

A DIC policy works hand in hand with the FAIR Plan.

While the FAIR Plan covers fire and certain direct perils, the DIC adds:

• Liability coverage (for injuries or property damage you may cause),
• Theft and vandalism coverage,
• Water damage, and
• Additional living expenses (in case you need to relocate temporarily).

Together, the FAIR Plan and DIC create a two-policy package that roughly mirrors the protection of a standard homeowners insurance policy.

Susman clarifies:

“Between the California FAIR Plan and a DIC policy, you should have comprehensive coverage. I use that word loosely—it doesn’t mean ‘everything,’ but it gives you roughly the same type of coverage as a standard homeowners policy.”

How Premiums Are Calculated

One of the biggest misconceptions about the FAIR Plan is that it offers cheap coverage.

In reality, FAIR Plan premiums tend to be higher than private-market policies—because they insure properties in high-risk zones, often areas with a history of wildfires or limited fire protection infrastructure.

As Susman puts it:

“These are properties that literally are in areas the private insurance companies have found to be uninsurable. Naturally, the FAIR Plan will charge a premium that reflects that risk.”

So while it may feel frustrating to pay more for “less” coverage, homeowners should remember that the FAIR Plan is providing insurance that private companies have already declined. That alone makes it a vital safety valve for California’s housing market.

How Common Is FAIR Plan Coverage?

Despite all the media attention surrounding California’s insurance crisis, only about 3% of California homes are insured through the FAIR Plan.

That means 97% of homeowners still have access to private insurance.

But that number is rising fast. As wildfires, floods, and regulatory challenges push major insurers like State Farm, Allstate, and Farmers to limit new policies, more homeowners are being pushed toward the FAIR Plan—especially in rural and high-fire-risk regions like the Sierra foothills, Sonoma County, and the Santa Monica Mountains.

Policy Limits and Protections

The FAIR Plan has a maximum total insured value (TIV) of $3 million per policy.

That amount includes the structure, personal property, and loss-of-use coverage (the cost of temporary housing during repairs).

For most California homeowners, this limit is sufficient. However, luxury properties in areas like Malibu or Napa may need to supplement coverage through excess or specialty carriers to ensure full replacement cost protection.

Is the FAIR Plan Financially Stable?

Homeowners sometimes worry about whether the FAIR Plan can actually pay claims—especially during catastrophic fire seasons.

Susman reassures listeners that the FAIR Plan is financially sound, thanks in part to its participation in the California Insurance Guarantee Association (CIGA).

“If there’s not enough money to pay claims, CIGA will step in,” he explains. “You don’t need to be concerned about the FAIR Plan running out of money.”

This backing effectively means that the FAIR Plan is supported by all insurers operating in the state—a redundancy that ensures claim payments even in the most devastating years.

The FAIR Plan Stigma: A Myth Worth Busting

Many homeowners feel embarrassed or frustrated when they find themselves on the FAIR Plan.

But as Susman emphasizes, it’s not a scarlet letter—it’s a safety net.

“Going and getting coverage with the California FAIR Plan is not such a horrible thing,” he says. “It just means your home is in an area that the current insurance industry isn’t able to cover right now. That’s all it means.”

In fact, FAIR Plan policies have become increasingly common among homeowners who have invested in fire-hardening improvements—like clearing vegetation, upgrading roofs, and installing ember-resistant vents—yet still can’t find private coverage.

The Future of the FAIR Plan

As California’s climate risks evolve, the FAIR Plan is under growing pressure to modernize.

Recent proposals from the California Department of Insurance aim to expand FAIR Plan coverage options, improve claims handling, and incentivize property owners to invest in mitigation.

Susman believes more change is coming:

“We’re going to see updates and enhancements in the FAIR Plan over the next few years. It’s not perfect, but it’s an essential part of keeping homeowners protected while the private market stabilizes.”

What Homeowners Should Do

If you’re considering or already enrolled in the FAIR Plan, here’s how to ensure you’re properly protected:

1. Pair it with a DIC policy. Don’t rely solely on FAIR Plan fire coverage.
2. Confirm your limits. Make sure your dwelling and personal property values are up to date.
3. Review mitigation steps. You may qualify for discounts by reducing wildfire exposure.
4. Stay in touch with your broker. Markets change fast—private options may reopen.
5. Keep documentation. FAIR Plan renewals often require updated property condition reports.

Final Thoughts

The California FAIR Plan isn’t perfect—and it’s not meant to be. It’s a backstop in a market under strain, a vital tool ensuring that every homeowner can maintain at least basic protection when private insurers can’t or won’t.

As Karl Susman puts it:

“The FAIR Plan is okay. It’s there for you when no one else is. It’s not a death sentence—it’s just another way of keeping your home insured.”

For thousands of Californians living in wildfire-prone areas, that safety net is the only thing standing between security and catastrophe.

And in an era when climate change continues to reshape the insurance landscape, understanding how to “fairly” use the FAIR Plan could make all the difference.