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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 of the California FAIR Plan
The 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 gap, the California Legislature mandated that all property owners must have access to essential property insurance. 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 insurers operating in the state. Each insurer contributes to the FAIR Plan’s pool based on its market share.
If a carrier insures 10% of California homes, it must also contribute 10% of FAIR Plan premiums and claims. In this way, the FAIR Plan acts as a shared safety net supported by the very insurers that can no longer cover high-risk properties themselves.
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The FAIR Plan’s Role as Insurer of Last Resort
The FAIR Plan’s mission is straightforward: to provide basic fire insurance coverage to properties the private market won’t insure.
That’s why it’s often called the “insurer of last resort.” It’s where homeowners turn when every other carrier has said no.
But as Susman notes, the FAIR Plan isn’t an insurer in the traditional sense — it’s a risk-sharing association. Its purpose is not to generate profit, but simply to collect enough premium to pay claims. It exists to serve, not to earn.
What the FAIR Plan Does and Doesn’t Cover
Homeowners must understand one essential point:
The California FAIR Plan does not provide full homeowners insurance.
It was never designed to.
The FAIR Plan offers basic fire insurance — often referred to as “fire-only coverage.” It covers damage caused by:
- Fire
- Lightning
- Smoke
- Internal explosion
And that’s it.
Losses such as water damage, theft, liability, or injuries on your property are
not covered.
To fill these gaps, most homeowners purchase a companion policy called a Difference in Conditions (DIC) policy.
Completing Coverage With a DIC Policy
A DIC policy works alongside the FAIR Plan to provide broader protection. It typically includes:
- Liability coverage
- Theft and vandalism
- Water damage
- Additional living expenses
Together, the FAIR Plan + DIC combination closely mirrors a standard homeowners policy. As Susman explains:
“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.”
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Why FAIR Plan Premiums Are Higher
A common misconception is that FAIR Plan coverage is cheaper. In reality, it’s often more expensive because it serves high-risk areas — places with wildfire exposure or limited fire protection.
“These are properties the private insurance companies have found to be uninsurable,” Susman notes. “Naturally, the FAIR Plan will charge a premium that reflects that risk.”
Though the price may feel high for limited coverage, it provides insurance that private carriers have declined — making it a crucial backstop for thousands of homeowners.
How Widespread Is FAIR Plan Usage?
Despite media attention on California’s insurance challenges, only about
3% of homes in the state are insured through the FAIR Plan. That means
97% still obtain private-market homeowners insurance.
However, that 3% is growing, especially in wildfire-prone areas such as:
- The Sierra foothills
- Sonoma County
- The Santa Monica Mountains
Understanding FAIR Plan Limits
The FAIR Plan’s maximum total insured value (TIV) is
$3 million per policy, which includes:
- Structure coverage
- Personal property
- Loss of use
For most homeowners, this is sufficient. Higher-value properties may need additional excess coverage from specialty carriers.
Is the FAIR Plan Financially Secure?
Some homeowners worry about whether the FAIR Plan could run out of money during catastrophic fire years. Susman reassures listeners that the FAIR Plan is financially stable, partly thanks to support from the California Insurance Guarantee Association (CIGA):
“If there’s not enough money to pay claims, CIGA will step in. You don’t need to be concerned about the FAIR Plan running out of money.”
This backing ensures that claims will be paid even in severe wildfire seasons.
Overcoming the FAIR Plan Stigma
Many homeowners feel embarrassed or frustrated when they end up on the FAIR Plan. But Susman is quick to dispel the stigma:
“Going and getting coverage with the California FAIR Plan is not such a horrible thing. It just means your home is in an area the current insurance industry isn’t able to cover right now.”
In today’s climate reality, FAIR Plan policies are increasingly common — even for homes that have undergone significant fire-hardening upgrades.
What the Future Holds for the FAIR Plan
The FAIR Plan is under growing pressure to modernize as California’s climate risks increase. Recent proposals aim to:
- Expand coverage offerings
- Improve claims handling
- Encourage homeowners to invest in mitigation
Susman believes more updates are on the horizon:
“We’re going to see updates and enhancements in the FAIR Plan over the next few years. It’s not perfect, but it’s essential for keeping homeowners protected while the private market stabilizes.”
Steps Homeowners Should Take
If you're considering or already enrolled in the FAIR Plan, here’s how to stay protected:
- Pair the FAIR Plan with a DIC policy.
- Check your coverage limits regularly.
- Invest in wildfire mitigation to reduce risk.
- Stay in contact with your broker for private-market updates.
- Keep documentation up to date for renewals.
Final Thoughts
The California FAIR Plan isn’t meant to be perfect — it’s meant to be available. In a strained market, it provides essential 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 many Californians living in high-risk wildfire areas, that safety net is the final line of defense between financial security and devastation.
Understanding how to use the FAIR Plan effectively — and pairing it correctly with a DIC policy — can make all the difference.
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