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.
  • The FAIR/DIC or FAIR/CPL combo policies can best be described as a temporary solution for home insurance.
About the FAIR plan and DIC and CPL

What is the California FAIR plan?

The California FAIR plan is a bare bones fire insurance 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 $1,500,000. These include the coverages for building, personal property, etc.

What is a DIC 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.

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.

*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 $1,500,000
  • 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.

All about FAIR plan

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

“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 an end all be all policy.

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 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.