The California FAIR Plan is an insurance product providing basic fire coverage when traditional homeowner insurance won’t. Many established carriers no longer offer fire (or some other) coverage to Californians, mainly due to the devastation we’ve experienced in recent years.
High-risk areas are particularly challenged as carriers decline new coverage or won’t renew existing policies based on fire risk in the surrounding areas. The FAIR Plan was established as a last resort solution, but more people are turning to it as they cannot obtain coverage any other way. FAIR Plan coverage is offered by all insurers who are members of the FAIR Plan and can be added to existing policies when certain conditions are met.
Earlier this year, the FAIR Plan was modernized to increase commercial, agricultural, and business coverage and ensure policyholders are financially protected in extreme loss scenarios. Until recently, the Plan was under scrutiny for undermining carriers and forcing some to drop fire coverage entirely, but the amendments have been designed to reverse that trend. In protecting policyholders from insolvency, the FAIR Plan strengthens the insurance industry by ensuring California property owners, business owners, developers, and HOAs continue to thrive.
It should be noted that the FAIR Plan only covers fire and must be supplemented by other coverage. But before you recoil at the idea of multiple policies, adding a FAIR policy is less expensive than you might think.
What’s Covered Under the FAIR Plan and Who’s it For?
Any homeowner, business owner, HOA, or farm can access coverage under the FAIR Plan if no other fire coverage is available.
The FAIR Plan was established in 1968 as a temporary safety net for homeowners to turn to when unable to acquire coverage any other way. It is not state or privately administered. Rather, it is a syndicated fire insurance pool funded by all licensed insurers who issue property or casualty policies.
The emphasis here is on “temporary” – the FAIR Plan was never meant to be a permanent solution. Their goal is attrition, meaning they want their policyholders to be able to move on as soon as coverage becomes available.
The Plan has grown substantially in recent years because of wildfires and damage sustained due to the fires, causing many insurers to refuse renewals and cease issuing new policies altogether. Because of its enrollment surge, the FAIR Plan was being blamed, in part, for the insolvency of the insurance industry. Earlier this year, amendments were put in place to turn that around.
In July 2024, the FAIR Plan was modernized to substantially increase limits for businesses, including HOAs. Now, policyholders can access up to $20 million per building on a single property, up to a maximum of $100 million per location. This increase is pivotal for HOAs that may now be paying over $1 million in premiums for $10 million in coverage, having been forced to accept the increases because the only other choice was to have no coverage at all. With the ability to access fire coverage under the Plan, HOAs can significantly reduce operating costs and potentially avoid raising monthly fees.
As mentioned above, the FAIR Plan only covers fire. HOAs will still need to find liability and water/flood coverage if these options are unavailable on their master policy.
Good News, Yes. But the Fire Risk is Still Real!
Will California ever be out of the woods when it comes to wildfires? It’s unlikely. But it might comfort you to know that other states are just as challenged by extreme risk and high insurance costs, albeit for different reasons.
In terms of premium costs, California doesn’t even rank in the top ten most expensive insurance states. Florida, Nebraska, Oklahoma, Texas, and Louisiana outpace California by a longshot, likely due to hurricanes, flooding, and other extreme weather events.
But while that might help you sleep better at night, it doesn’t mean you can ignore the risk. We can be thankful that HOAs can look forward to a bit of a break on their fire coverage and possibly put that savings back into the community. Condo owners can also be thankful that their properties are adequately protected and don’t have to worry about whether their association has their backs.
Lower premiums also reduce the anxiety around policy renewals. Recent years have put many HOAs on edge as they furiously shop around for the best coverage at the lowest price and double down on efforts to reduce fire risk around the property. While insurers will always be looking for reasons to reduce or deny you coverage, your continued focus on risk mitigation and cost optimization should put your association in a good place for the coming fiscal year.
HOAs should continue to look for ways to reduce operational costs, optimize contracts, and minimize the potential for loss around the property. Clearing dry brush, even on adjacent land, may help reduce the potential for damage in case of a fire. Your diligence and commitment to the safety of your community will increase property values, keep members happy, and may pave the way to not needing coverage under the FAIR Plan at all.
For now, let’s just be glad it’s there for us.
Final Thoughts
This year’s modernization of the California FAIR Plan is excellent news for HOAs and condo owners as it may temporarily ease the cost burden of carrying high-risk fire insurance. If and when the risk eases (maybe never), policyholders will need to switch back to their traditional policies, in which case costs will bounce back up again.
Though the FAIR Plan is just for fire, it is a more inexpensive alternative—at least for now. Condos still must secure water and liability insurance, but when layered on top of fire coverage, the additional cost is pennies on the dollar.
Speak to the Belwood Property Management team today to learn more about HOA insurance and how to reduce your risk and operational costs.
