Understanding the California FAIR Plan: A Guide for Property Owners

The FAIR Plan offers coverage for perils such as fire, lightning, and internal explosion. Policyholders can purchase additional coverage for vandalism or malicious mischief, but the plan does not include liability, theft, or water damage. Many property owners supplement their FAIR Plan policy with a “difference in conditions” (DIC) policy to fill these gaps.

Over time, the FAIR Plan’s role has evolved, especially in response to the growing threat of wildfires. With climate change increasing the frequency and intensity of these disasters, the FAIR Plan has become a critical solution for property owners in wildfire-prone areas.

1. Funding and Structure:
   • The FAIR Plan is funded by insurance companies licensed to operate in California. These companies share in the profits and losses of the FAIR Plan based on their market share.
   • It is not a state-funded program; rather, it operates as a shared-market insurance pool.
   • The California FAIR Plan Association is not a state agency and receives no public funding. Every insurer licensed to write basic property insurance in California is a member as a condition of doing business here. Each member shares in the profits, losses, and expenses in direct proportion to its share of the California market.
2. Premium Rates:
   • Premiums are generally higher than those in the voluntary market due to the increased risk associated with the properties insured by the FAIR Plan.
   • Rates must be approved by the California Department of Insurance.
3. Eligibility Requirements:
   • Property owners and/or insurance agents must demonstrate they were unable to secure insurance through the voluntary market.
   • Properties must meet certain safety and maintenance standards to qualify.

1. Limited Coverage:
   • The FAIR Plan only provides basic protection against specific perils, such as fire and lightning. It does not include comprehensive coverage for theft, water damage, or liability, which are common features of standard homeowners insurance policies.
   • Policyholders often need a separate “difference in conditions” (DIC) policy to bridge these coverage gaps, which can increase overall costs.
2. Higher Premiums for Riskier Properties:
   • While some assume the FAIR Plan might be cheaper, it’s important to note that premiums can be higher due to the inherent risks associated with properties it insures.
3. Challenges in Returning to Standard Markets:
   • Leaving a standard carrier for the FAIR Plan can create difficulties re-entering the traditional homeowners insurance market later. Insurers may view the switch as a sign of higher risk, limiting options for future coverage or policyholders may be leaving a product they are grandfathered into that won’t be available to them again.
4. Requirement to Exhaust Standard Options First:
   • Insurance agents must demonstrate that they have made reasonable efforts to place the risk with a standard carrier before binding coverage through the California FAIR Plan. This process ensures the program remains a true safety net.

1. Regulatory Adjustments:
   • Recent changes by the California Department of Insurance allow insurers to use forward-looking probabilistic models to better predict catastrophic risks. This shift enables more accurate premium setting.
   • Insurers can now include reinsurance costs in their rates, helping them manage financial risk.
   • A significant change is the shift in how the California FAIR Plan handles shortfalls. If claims exceed the FAIR Plan’s resources, all California policyholders may face surcharges on their premiums to cover the deficit.
2. Escalating Risks from Climate Change:
   • With wildfires and other natural disasters becoming more frequent and severe, the California FAIR Plan faces growing financial strain. Experts caution that increasing premiums alone may not be sufficient to ensure its sustainability.
3. Heavy Reliance on the FAIR Plan:
   • Data from the California FAIR Plan’s key statistics page reveals a sharp increase in policyholders, highlighting a troubling reliance on the FAIR Plan as a primary insurance solution. This runs counter to its original goal of serving as a temporary safety net.
   • The growing risk exposure underscores the need for revitalizing the voluntary insurance market to provide better alternatives for property owners.
4. Potential Surcharges for Policyholders:
   • Homeowners across the state can see a temporary supplemental fee on their policies when the FAIR Plan assesses its member insurers. Under the guidance issued in 2025, a member insurer may apply to recoup half of what it paid, subject to the Insurance Commissioner’s prior approval under Proposition 103. The fee is calculated as a percentage of policy premium rather than a flat amount, so what any household pays depends on its own premium and its carrier’s share of the assessment.
5. Call for Broader Climate Action:
   • While regulatory changes provide temporary relief, long-term solutions must address the root causes of the crisis. Comprehensive climate action is essential to mitigate risks and ensure the insurance market’s viability.

1. Reserves and Reinsurance:
   • The FAIR Plan maintains financial reserves and purchases reinsurance to help cover claims during catastrophic events.
   • Reinsurance serves as a backup, transferring some of the risk to global reinsurers.
2. Assessment of Insurers and Policyholders:
   • If losses exceed the FAIR Plan’s resources, participating insurance companies are assessed additional funds based on their market share in California. Additionally, policyholders statewide may now face surcharges to help rebuild reserves.
3. What the state does and does not do:
   • There is no state or taxpayer backstop behind the FAIR Plan. It is funded by its member insurers, its reserves, its reinsurance, and the assessment mechanism. The Legislature has intervened in the past to change how the plan operates, most recently through legislation moving in the 2026 session, but no statute currently obligates state funds to cover a shortfall.

• Assess Your Risk: Determine if your property is in a high-risk area and explore coverage options before turning to the FAIR Plan.
• Supplemental Policies: Consider purchasing a DIC policy to cover gaps in FAIR Plan coverage.
• Proactive Measures: Implement safety measures to protect your property and reduce wildfire risk. This may help you qualify for coverage in the voluntary market or reduce your FAIR Plan premiums.
• Consult a Professional: Work with an experienced insurance agent to explore all options in the standard market before considering the FAIR Plan.