The devastating wildfires in the Los Angeles area earlier this year destroyed thousands of properties and burned tens of thousands of acres. Wildfire disasters like these have accelerated California’s insurance crisis, as major carriers continue to limit their risk exposure in fire-prone regions or exit the market entirely.
The insurance situation has been deteriorating for years. According to the California Department of Insurance, between 2020 and 2022 insurance companies declined to renew 2.8 million homeowners policies in California, including more than half a million in Los Angeles County — leaving many homeowners scrambling for coverage.
Even property owners who’ve managed to maintain coverage often discover it isn’t enough to fully rebuild after a disaster. With construction costs rising and many policies failing to keep pace with these increases, homeowners and business owners may find themselves significantly underinsured. This “underinsurance” problem compounds the stress and financial strain that follows a disaster.
For property owners who aren’t able obtain coverage in the traditional insurance market through no fault of their own, the California FAIR Plan has become increasingly important. But what exactly is the CA FAIR Plan, and how might it fit into your overall financial strategy?
What is the California FAIR Plan?
The CA FAIR (Fair Access to Insurance Requirements) Plan provides basic fire insurance coverage for high-risk properties when private insurers won’t. Established in the 1960s, the FAIR Plan is an association of property insurance companies doing business in California overseen by the California Department of Insurance.
Though designed to be a temporary solution until property owners are able to find private insurance coverage, for many Californians the FAIR Plan has become their only option. In fact, it has grown dramatically in recent years, from covering just 126,709 properties in 2018 to over 460,000 in 2024. This surge reflects the growing challenges in California’s insurance market, where major insurers have restricted new policies or withdrawn from high-risk areas altogether.
What Does the California FAIR Plan Cover?
A basic FAIR Plan policy provides much more limited coverage than a standard insurance policy, covering only damage to a property or its contents caused by fire, lightning, smoke, or internal explosion.
For an extra cost, FAIR Plan coverage can be extended to include damages from windstorms, hail, and vandalism. A FAIR plan policy doesn’t cover theft, water damage (including broken pipes), liability protection, additional living expenses if you can’t live in your home, and medical payments to others.
As we discussed in our recent article on fire insurance and prevention, having proper coverage is vital for financial preparedness. The FAIR Plan can help provide basic fire protection when traditional coverage isn’t available but its limitations require careful planning.
The FAIR Plan provides coverage limits of up to $3 million for homes and $20 million for commercial properties (with a maximum of $100 million per location). Despite these seemingly high limits, many property owners find even maximum coverage may not be sufficient to fully rebuild in today’s construction market.
To fill the gaps, most policyholders need to purchase a supplemental “Difference in Conditions” (DIC) policy from a regular insurer. A DIC policy combined with the FAIR Plan can provide similar coverage to a traditional property policy, protecting against risks like theft, water damage, and personal liability. DIC policies are generally available through insurance agents or brokers.
Who is Eligible for the California FAIR Plan?
The CA FAIR Plan is specifically for property owners who “have made a diligent but unsuccessful effort” to purchase California state home insurance in the regular market. To be eligible:
- Your property must be in California.
- Your property must meet basic insurability standards (like working utilities and reasonable maintenance).
- You must have been rejected by at least two private insurance companies.
The FAIR Plan will insure a home even if it’s in an area at high risk of wildfires, as long as it meets the plan’s underwriting standards. This makes it particularly important for property owners in regions where major insurers have pulled back coverage.
Types of properties that qualify for FAIR Plan coverage include:
- Owner-occupied homes (one to four units where the owner lives in at least one unit)
- Seasonal rentals
- Long-term rentals
- Condos (for personal property and improvements)
- Renters’ personal property
While the FAIR Plan can’t deny you coverage because your property is in a high-risk area, the premiums are generally more expensive. In 2022, the average annual premium was about $3,200 — higher than most property insurance premiums while providing less coverage.
How Financial Advisors Can Help with Insurance Planning
Insurance planning is a key part of financial planning, especially in high-fire-risk areas like California. At Blankinship & Foster, we understand navigating this complex insurance landscape can be overwhelming.
A financial advisor can help you:
- Evaluate your property’s risk profile and determine appropriate insurance coverage
- Assess whether the FAIR Plan is applicable to your situation while accounting for higher premiums and potential exclusions
- Calculate accurate rebuilding costs to ensure you’re not underinsured
- Identify FAIR Plan coverage gaps and help you find appropriate supplemental DIC policies
- Incorporate insurance costs into your financial plan and create emergency funds to save for potential insurance shortfalls
For many Californians, the FAIR Plan provides essential fire protection when nothing else is available but it’s typically not enough on its own. Working with a financial advisor who understands your insurance options and overall finances helps ensure you don’t end up with surprise coverage gaps or premiums that strain your budget.
Taking the Next Step
We can help you develop a strategy that protects both your home and financial future in this challenging environment. If you’re facing property insurance challenges or want to ensure your disaster preparation strategy is financially sound, we invite you to schedule a consultation with our team. Our specialty is helping clients navigate complex financial challenges with clarity and confidence.