September 20, 2019

California FAIR and DIC Insurance

The California Fair Policy is the Home Insurer of Last Resort in the state of California.
The FAIR policy is a partial policy that should be paired with either at least a CPL or preferably a DIC policy.
FAIR/DIC Companion policies are becoming more common each year.
The FAIR/DIC or FAIR/CPL combo policies can best be described as a temporary solution for home or dwelling insurance.
What is the TIV limit of the FAIR plan.
Updates about the Program

What is the California FAIR plan?

The California FAIR plan is a bare bones fire insurance policy. It is an exceptionally limited named perild policy. According to the California Department of Insurance it “should only be considered after a diligent search for coverage in the traditional insurance market. ”

“The FAIR Plan is an association located in Los Angeles comprised of all insurers authorized to transact basic property insurance in California. ” Source. FAIR is only to be used after an exhaustive search has been completed and no better options have materialized.

There are underwriting criteria to qualify for Fair. They will not cover (1) Vacant Properties, nor buildings with (2) existing damage (that is not currently being repaired), (4) nor a property that is being used for illegal purposes. There are other limits as well.

At its most basic the FAIR policy covers your home from the following:

Fire
Lightening
Smoke
Internal Explosion

That is it. There are a few optional coverage that can be added to the policy such as:

Vandalism and Malicious Mischief
Windstorm and Hail
Explosion
Riot
Aircraft and Vehicles

The policy is notable in that it does NOT cover you a full variety of other perils that are commonly included on typical Homeowners Policies. These include (but are not limited to):

Theft
Falling Objects
Weight of Ice and Snow
Accidental Discharge
Freezing
Artificial Sudden Electric Current
Personal Liability, nor Liability of Any Kind
Medical Payments
Damage to Properties of Others

In addition to this list there are entire series of Endorsements that some policies might be able to cover that you cannot have on the FAIR policy. These include Mold Coverage, Personal Injury, Water Back Up, etc.

There are other significant differences. All of this adds up to make the California Fair plan not at all a good product.

Another major issue with the CA FAIR plan is that there is a total insurance limit on these policies of $3,000,000. These include the coverages for building, personal property, etc. [This limit has been increased in the past year or so from $1,500,000.]

FAIR plan stands for Fair Access to Insurance Requirements. Just rolls right off the tongue.

Frequency of FAIR policy issuance:

When this article was first written several years ago it was somewhat unusual to issue one. As of 2022 it is not at all uncommon. The amount of FAIR policies issued continues to grow and grow each year. Additionally renewals continue to grow each year. The insurance commissioner in the state of California is concerned about how many policies the FAIR plan has. There are numerous reasons that FAIR plans has grown, but by far the biggest single reason is the wildfire and wildfire underwriting.

What is a DIC policy or DIC / Combination Policy?

A DIC policy stands for Differences in Conditions. It is a policy that pairs with the FAIR plan. I know of no circumstances in which you would buy one of these without a FAIR (or similar policy) , assuming you can get one. The DIC policy attempts to round out the coverage for the consumer. In essence the DIC insurance policy helps to make your FAIR policy more similar to (but not the same) as a somewhat typical homeowners insurance policy.

California FAIR + Differences In Condition = Your Total Home Insurance Package.

*its possible that this might be the best that you can get.

The name DIC is not a perfect name and confusingly can be used for another form of mostly commercial insurance. A better, more apt name might be a DIC Companion Policy. The term companion obviously refers to the fact that you would procure one of these policies at the same time as the FAIR plan.

*please note that the above statement is generally correct. That being said I have been involved in situations where there are more than the two policies, but this is not the norm.

What is a CPL policy?

If for some reason you did not want to get a DIC policy because you were unwilling, unable, etc you could opt to buy a lesser coverage form. This lesser coverage form could be a CPL or Comprehensive Personal Liability policy. A CPL is essentially a stand alone liability policy.

A CPL is not a proper replacement for a DIC policy. DICs almost always provide broader coverage than just a CPL. For more information on the differences between CPLs and DICs, contact us.

California FAIR + CPL = Something much Less than a Home Insurance package.

There is another backdoor method very similar to the FAIR/CPL option available to some, but it is too complicated to explain in a blog post. Contact us for details about the FAIR / cafairplan.

*this is generally not a good solution.

Why do people Need to Buy a Policy with FAIR?

Simple, consumers often need to purchase a FAIR policy because they do not have access to any other form of home insurance. It is important to note that you can not just opt to buy a FAIR policy because you wish to. You are only allowed to buy it if you cannot get regular HO3 or DP3 Insurance.

In recent years the number one reason that consumers are left to purchase the FAIR plan is because of wildfire risk here in California.

Is a Non Admitted Policy from Lloyds of London Better than the FAIR/DIC combination?

Typically a non admitted homeowners insurance policy from Lloyds of London will be written on an HO3, HO5, or HO6 Policy form. These are very similar forms that typical preferred insurers use. In fact some Lloyds policies are written on ISO forms. Often the policy difference between preferred and non admitted is the number and type of exclusions that these policies may have in addition to a higher overall premium.

In general an HO5 policy from Lloyds of London will have several benefits over FAIR/DIC policy, these include the following:

One Insurer to Deal with
A Total Insurance Value limit beyond $3,000,000
One Insurance Deductible
A more familiar Policy Form

There are however drawbacks to Non Admitted Home Insurance Policies:

An Insurer that does not participate in the state Guarantee Fund
Usually an All Pay, One Pay Premium
The inability to Contact the State Department of Insurance for assistance
A minimum earned Premium.
There are certainly others

Where do I Get a Comparison Quote for a FAIR/DIC vs a Non Admitted Policy?

In general you would contact your insurance agent. However some agents / brokers may not be very experienced or slow to deal with. Marindependent Insurance Services LLC welcomes comprehensive submissions for the FAIR/DIC Combo or the Non Admitted Homeowners policy. Often we will run quotes from multiple Non Admitted options as well.

Please Contact us for a Quote.

Does the Decision to Purchase FAIR/DIC vs Non Admitted Come down to Just the Premium?

The decision to opt for a Surplus Lines (Non Admitted) or a FAIR/ DIC policy comes down to matter of opinion with special consideration of the coverages, needs, and overall premium. In general if the premiums are the same, I am not sure why you would not go with a well covered Surplus lines policy. (Assuming it fits your exposures.) But this is where the experience of a insurance specialist will come into play. Exactly which Surplus Lines policies are well worded and will protect you in your situation better.

Is a DP3 policy better for me than a HO5? Is a Lexington Insurance policy more broad than one provided by a syndicate of Lloyds? Exactly how many surplus lines were quoted out? What are the non ordinary exclusions?

These are examples of some of the questions that you might want to ask. The short answer is that I would always advise you speak with an experienced agent on this consideration. Someone that has written numerous hard to write properties. An agent that knows the market.

Very Specific Details about California FAIR Insurance:

The California FAIR plan was created in July of 1968. The plan was created to be a insurer of last resort after riots and wildfires in the 1960s. Almost everything about the California Fair plan is unusual and notable. The plan is NOT publicly funded rather is funded directly from collective premiums and backed by all the admitted insurers in the state.

Technically the FAIR plan is a syndicate of insurance. The syndicate “consist(s) of all insurers licensed to write and engaged in writing in this state. ” California Insurance Code Source, 10095a. Some legislative sources have referred to the California FAIR plan as a “a joint reinsurance association of state insurers.” Source. Which term better describes FAIR, a syndicate or joint reinsurer is unclear.

The California FAIR plan does not have a Financial Strength Rating otherwise known as an FSR. Typically FSRs are issued by credit rating agencies such as AM Best.

“Every insurer licensed to write or engaged in writing basic property insurance in the state of California on a direct basis, shall be a member of the California FAIR Plan Association…. Each insurer shall participate in the writings, expenses, profits and losses of the Association in proportion that its premiums written… Member insurers who voluntary write basic property insurance on risks located in areas designated as brush risks by the Insurance Services Office (ISO) and inner city areas designated by the Commissioner of Insurance, will be proportionately relieved of the liability to participate in the Plan.” Source CFP.net

“Voting on administrative questions of the association and facility shall be weighted in accordance with each insurer s premiums written during the second preceding calendar year as disclosed in the reports filed by the insurer with the commissioner. “

If “an applicant who is denied coverage, or a policyholder whose policy is canceled or not renewed…” the insurance code requires ” the insurer to… provide to an applicant … the Internet Web site address and statewide toll-free telephone number for the plan.”

As you can see from reading the FAIR plan is a special grouping of all California admitted carriers that was established to offer basic fire insurance in uninsurable areas and situations. The members have limited voting ability and the funding and claim financials are pooled to some extent. There are basic underwriting criteria to gain entry and the policy is not a “Be all End all policy.”

TIV FAIR Coverage Amounts:

The FAIR plan has a Total Insurance Value coverage limits of $3,000,000. This includes all the lines of coverage including Ordinance and Law, Extended Rebuild, Coverage A, Other Structures, Fair Rental Value, Debris removal, and other base coverages. [Keep in mind that the FAIR plan does NOT provide liablity or medical coverage.] For many homeowners this TIV limit is a huge importance when applying for a formal application. Is it better to forgo coverage for Fair Rental Value or Other Structures?

Additionally this limits is typically per location, not necesarily per dwelling.

FAIR Coverage Options, AKA Selected Coverages:

FAIR can provide numerous limited coverages. They include [but are not necesarily limited to]:

A – Dwelling
B – Other Structures
C – Personal Property
D – Fair Rental Value
Ordinance and Law
Debris Removal (additional)
Extended Dwelling Coverage
Dwelling Replacement Cost
Inflation Guard
Personal Property Replacement Cost
Fences
Permitted Incidental Occcupancy
Plants, Shrubs, Trees
Outdoor Radio and TV Equipment
Awnings
Signs
Improvements, Alterations, and Additions

When you see a modern FAIR Limited DP1 Policy “DWELLING INSURANCE POLICY DECLARATIONS” it will list these coverages as of May 2022. If you have the coverage selected there will be a check mark and a dollar amount. If you do NOT have a check mark and no dollar amount than you do NOT have the coverage selected. See your broker or agent to make or discuss changes.

Do Mortgage Companies Accept FAIR Insurance for Loan Requirements?

The best way to find out of your mortgage company accepts FAIR insurance is to ask them. However, in this agency’s experience we can say that generally speaking mortgage companies take FAIR insurance as evidence of completing the insurance requirements on homeowner and dwelling home loans. That being said its possible that a mortgage company might not accept the plan.

Why is the FAIR Plan Different than a Homeowner Policy?

Four words: Breadth and Depth of Coverage. Typically owner occupied homes are insured with Homeowners or HO3 policies. The FAIR plan is an exceptionally limited named peril policy. Whereas most home insurance policies cover a lot and then remove coverages with exclusions, the FAIR plan mostly just lists out what you are covered for.

Take my word for it that the FAIR plan is far inferior to an HO3 Homeowners Insurance Policy. If you purchase the FAIR and a DIC you will have coverages similar to HO3, but not the exact same.

California FAIR and DIC Insurance:

Thanks for reading our short article about the California FAIR Plan combined with DIC Insurance. Remember a CPL is not the same as a DIC/Companion plan. Surplus Lines policies may be your best choice, but it depends on your homeowners insurance situation.

November 2019 FAIR Update:

Recently the California Department of Insurance has requested changes for the year 2020 from the California FAIR plan. Among the ‘requested’ changes are the change from essentially a DP1 to an HO3 policy form. This would more closely align with common home insurance policies. In addition the DOI has requested FAIR to ” increase the combined dwelling coverage limit from $1.5 million to $3 million.” This according to the Insurance Journal.

In my opinion these are big changes and it remains to be seen if these changes will be made or can be made on time.

Feel free to contact us with any questions that you may have. FAIR Plan / cafairplan

January 2022 Update on FAIR Insurance:

The California FAIR Insurance plan will begin selling Farm insurance policies. The FARM coverage will be on the Commercial Form.

February 2022 FAIR Update:

We updated this article/ post in 02/16/2022 to state that FAIR plans are now far more common than they were at the initiation of this article, back several years ago. For many folks in high wildfire risk areas – the FAIR plan is the best option they will have.

Additionally we also updated this post to increase the newer statutory TIV amounts now allowed by law: $3,000,000.

March 2022 FAIR Update:

It has been announced that Victoria Roach has will serve as the President of the organization. She had previously served as a Senior Vice President. Ms Roach starts the new postition on March 1st 2022. Before her time at FAIR Ms Roach served at Farmers Insurance.