California FAIR Plan Insurance Explained
The California FAIR Plan serves as a safety net for homeowners who are unable to secure standard home insurance coverage due to factors like high-risk wildfire zones. Unlike common misconceptions, it’s not a government-funded initiative; instead, it’s financially backed by California’s private home insurance companies. However, recent instability in the California home insurance market has put a strain on the FAIR Plan, leading to increased costs and an overwhelming number of policies.
As of September 2024, the California FAIR Plan has more than 450,000 residential policies in force. For those whose homes are in high-risk wildfire areas, it can be the only option for protecting their properties financially.
Bankrate’s team of insurance experts offers this guide to help Californians understand the FAIR Plan.
What’s New with the California FAIR Plan?
Starting July 1, 2024, the FAIR Plan’s clearinghouse program will extend its eligibility to commercial policies. This program, established by Senate Bill 505 of 2023, aims to shift FAIR Plan policies to private insurance providers with the help of brokers and carriers. This news offered some relief to insurance professionals, who have long warned about the strain on the CA FAIR Plan.
In March 2024, FAIR Plan president Victoria Roach told a state legislative committee, “We are one event away from a large assessment” and “there’s no other way to say it, because we don’t have the money on hand [to pay every claim] and we have a lot of exposure.”
That significant event could very well have been the recent Los Angeles wildfires. The January 2025 wildfires caused an estimated $40 billion in insured losses, potentially even more. The Palisades Fire, a major blaze, devastated the Pacific Palisades, a coastal community in western Los Angeles. The FAIR Plan covered approximately 22 percent of the structures damaged in the Palisades Fire and 12 percent of structures destroyed by the Eaton Fire. The total potential exposure for the FAIR Plan is estimated at $4.77 billion.
What is the California FAIR Plan?
The California Fair Access to Insurance Requirements (FAIR) Plan was founded in 1968 to offer insurance coverage to homeowners in high-risk areas, whether they are located in a fire zone or near an earthquake fault line. The FAIR Plan operates through a shared market where licensed insurance companies bear the risk for California homeowners who don’t qualify for standard coverage.
As of September 2024, the CA FAIR Plan has $458 billion in dwelling coverage exposure, an increase of over 61 percent since September 2023.
How the California FAIR Plan Works
When an insurance company is licensed to sell policies in California, it also agrees to financially support the FAIR Plan if a catastrophic disaster exhausts its funds. If a wildfire destroys a large number of homes insured by the FAIR Plan and there are insufficient reserves to cover those claims, the FAIR Plan would turn to the state’s private insurers for financial assistance.
California FAIR Plan insurance offers more limited coverage than a standard homeowners insurance policy, but it can still protect homeowners from incurring the full cost of a loss out-of-pocket. While a FAIR Plan typically covers fewer types of losses and offers fewer policy options than a private plan, additional coverage can be purchased at an extra cost. Notably, earthquake coverage is not included and must be added through an endorsement from the California Earthquake Authority.
The FAIR Plan Association suggests that California homeowners apply for private homeowners insurance multiple times before seeking FAIR Plan coverage. Additionally, homeowners need to meet certain criteria to be eligible for the FAIR Plan. The FAIR Plan is considered a last resort and is designed as a temporary solution for those in need of hazard insurance in California.
How Will the California Sustainable Insurance Strategy Affect the FAIR Plan?
The trend of multiple insurance companies limiting or halting new home insurance policies in California has made the insurance market more volatile. Starting in late 2022, seven of the twelve largest home insurance companies in California had paused or severely restricted writing new policies in the state. Because coverage availability is decreasing, many homeowners in California have had no choice but to turn to the FAIR Plan.
In March 2024, State Farm, the largest home insurance company in California by market share, announced it would not renew about 70,000 policies, with an estimated 30,000 of those belonging to homeowners. It is anticipated that many of these non-renewed policies will transition to the FAIR Plan, increasing the risk of the plan becoming insolvent.
FAIR Plan insolvency could also affect homeowners who aren’t on the plan. Remember, the FAIR Plan is supported by California’s private insurance companies. If policyholders on the plan incur widespread losses, homeowners using private plans potentially could see their premiums increase sharply to cover those FAIR Plan losses.
In late 2023, Ricardo Lara, the California Insurance Commissioner, announced the Sustainable Insurance Strategy, a multi-pronged approach to bring stability to the home insurance market and urge private providers to return to the state. One of the goals mentioned in Lara’s plan is to alleviate pressure on the FAIR Plan by finding a commitment from private insurers to write 85 percent of new business in historically underserved areas and to modernize the existing FAIR Plan to include homeowners associations and affordable housing projects. However, a component of the Strategy would be for the FAIR Plan to seek funds from homeowners and the state’s insurance companies, instead of insurance companies alone, in the event the Plan requires a cash call after a large residential loss.
Essentially, if the FAIR Plan makes an assessment, both private insurance companies and homeowners across the state would help pay the bill. Some experts estimate insured losses from the January 2025 wildfires at $75 billion, suggesting that an assessment could be coming soon.
“We would expect insured losses [from the January 2025 wildfires] to run in the billions of dollars given the high value of homes and businesses in the impacted areas. Losses will be shared among standard homeowners insurers, insurers specializing in high-value excess and surplus homeowners policies, and the California FAIR plan. In addition, commercial property losses could be significant,” said Jason Cooper, Vice President-Senior Credit Officer, Moody’s Ratings.
What California’s FAIR Plan Insurance Covers
A California FAIR Plan policy provides less coverage compared to a traditional HO-3. A standard CA FAIR Plan policy only financially protects your home’s dwelling and personal property if they are damaged by one of four named perils: fire, lightning, internal explosions, and smoke. Liability coverage is not available through the California FAIR Plan, and the standard plan only insures at actual cash value. An HO-3 policy includes liability coverage, covers your dwelling and other structures on an open-peril basis, and offers financial protection for your personal property from 16 different named perils.
A FAIR Plan home insurance policy can be modified with these endorsements, but doing so will increase the cost of coverage:
- Other structures coverage: This protects against covered damage to detached structures like a garage, porch, shed, or fence.
- Fair rental value coverage: For rental properties, this covers lost income if the unit becomes unlivable due to damage from a covered peril.
- Dwelling replacement cost coverage: This covers the dwelling at replacement cost value (RCV) versus actual cash value (ACV).
- Personal property replacement cost coverage: Insures personal belongings at RCV, replacing items at their current replacement value without depreciation.
- Ordinance/law coverage: After a covered loss, this pays to make structural upgrades to a home to meet building codes.
- Vandalism and malicious mischief: Adds financial protection for damage to your home’s physical structure and personal belongings due to vandalism or malicious mischief.
- Debris removal coverage: Pays for cleaning up debris on the property after a storm.
- Inflation guard protection: Automatically raises coverage limits based on inflation.
- Plants, shrubs, and trees coverage: Includes up to $250 of coverage for landscaping losses.
- Outdoor radio and TV equipment, awnings, and signs coverage: Covers outdoor equipment, signs, and awnings from covered perils, except for wind or hail storms.
- Improvements, alterations, and additions coverage: This coverage is available for condo owners, and covers damage to improvements or alterations in your unit.
Earthquake insurance is not available through the FAIR Plan. Customers can purchase a separate earthquake insurance policy through the California Earthquake Authority (CEA).
FAIR Plan Lawsuit: Smoke and Ash Claims
In July 2024, the FAIR Plan was sued in the Alameda County Superior Court for refusing to investigate and pay wildfire smoke damage claims. It’s a class-action lawsuit with an estimated 350,000 to 400,000 FAIR Plan policyholders.
What is a Difference in Conditions (DIC) Policy in California?
While adding endorsements to a FAIR Plan policy can broaden financial protection, it is still not equivalent to a private insurance policy. Homeowners on the FAIR Plan who are unable to get a policy in the private market but want the type of financial protection offered by an HO-3, can buy a Difference in Conditions (DIC) policy. It is a supplemental form of insurance designed to fill in the coverage gaps left by a FAIR Plan policy. It provides coverage for a broader range of perils, such as theft, and can include liability insurance. A DIC policy often covers events like landslides, mudflows, earthquakes, and floods. Not every insurer in California provides this coverage, but the California Department of Insurance lists these providers.
Who Is Eligible for California’s FAIR Plan?
California’s FAIR Plan provides property insurance for owner-occupied and tenant-occupied buildings, seasonal homes, condos, and rental properties (personal property coverage only). To qualify for this coverage, property owners must meet certain requirements. FAIR Plan applicants must own a single-family home, townhome, condo, or have a rental unit in California, and the home must meet specific building requirements.
Some homeowners don’t meet the criteria, even if they face high risks. The FAIR Plan does not cover vacant homes that are unoccupied for 50 percent of the year, homes with existing damages that haven’t been repaired and those related to illegal activities under state and federal laws. Most importantly, to get into the California FAIR Plan, homeowners need to show that they have been denied coverage by the private insurance market repeatedly. The FAIR Plan was made to be an insurer of last resort, and its policies are generally for the most high-risk homes in the state.
How Much Does California’s FAIR Plan Insurance Cost?
Similar to standard home insurance, California FAIR plan premiums vary based on several factors. These include the home’s location, age, and condition; its proximity to a fire station; the homeowner’s claims history; the types and amount of coverage; and the chosen deductibles. In a 2022 interview with KCRA, a FAIR Plan spokesperson stated that the average policy cost is around $3,200 per year, which is considerably more than a typical home insurance policy in California, where the average homeowner paid $1,429 for $300,000 in dwelling coverage as of February 2025. Keep in mind that the FAIR plan covers much less than a typical home insurance policy, and that homeowners on the FAIR plan usually pay more for less. The cost to insure a home can be even more expensive if purchasing policies, such as a difference in conditions, flood, or earthquake policy, to complement the FAIR Plan.
How to Get California’s FAIR Plan
The process of purchasing a California FAIR Plan is simple, but the process is slightly different than getting a traditional home insurance policy. Here’s a brief overview of how to get a California FAIR Plan:
- Find a provider: You can buy California FAIR Plan insurance through a licensed insurance broker in the state. Homeowners can find local agents within or near their ZIP code using the online broker search tool on the FAIR Plan website. Brokers don’t collect a fee when selling FAIR Plan policies like they do for standard home policies.
- See if you are eligible: Not every homeowner will qualify for the California FAIR Plan. Your broker will do a comprehensive search to see if you can get preferred homeowners insurance coverage through the traditional marketplace before you will be allowed to move forward with the FAIR Plan application.
- Complete the application: If you work with a broker, they can assist you in completing the application, choosing a suitable amount of coverage and endorsements, and estimating the fair market value of your home. You will receive an immediate rate quote once the application is completed. Keep in mind that if you apply for a FAIR Plan without a broker, you cannot get an immediate price estimate.
- Schedule a home inspection: Depending on your home’s location, a FAIR Plan representative may request a home inspection. This will help them understand your home’s insurability better. For example, your home’s coverage amount can be impacted if it’s in a heavily wooded area with a high risk of wildfires.
- Pay the premium: Once your application has been approved the last step is to make the first month’s premium payment. Coverage will only start once you’ve made the first payment. Homeowners on the FAIR Plan have the option to pay in full, in three installments, or monthly.
Frequently Asked Questions
The information provided in this article is for informational purposes only and does not constitute financial or insurance advice. Always consult with a qualified professional for advice tailored to your specific situation.
The content provided is based on information available as of the date of publication and is subject to change. Consult official sources for the most up-to-date information.
