The past decade has seen soaring insurer costs in California due to the frequent wildfires that have damaged many properties. This activity has resulted in many insurance companies pulling out of the state, leaving consumers with few coverage options.
We’re consistently dealing with insurance challenges in real estate transactions these days in San Francisco, even though our city doesn’t have the same level of rural fire risk. The reality is that insurers are balancing their exposure by putting many policy limitations in place statewide. This is leading to coverage refusal for various reasons—older construction, outdated electrical/plumbing, and older roofs, to name a few.
When traditional insurance companies refuse to cover a property, the go-to (temporary) option is the California Fair Access to Insurance Requirements (FAIR) Plan. Established in 1968, the FAIR Plan is a syndicated fire insurance pool comprised of all insurers licensed to do property/casualty business in the state. The Plan issues fire policies on behalf of its member companies, and each of the latter participate in the profits, losses and expenses of the Plan in proportion to its business market share in the state.
The FAIR Plan is not supposed to be a permanent insurance solution. However, until things change in the insurance industry, the Plan may be more than temporary for many properties that are considered to be high risk when it comes to fire.
What’s important to know is that you need what’s called a Difference in Coverage (DIC) policy if you want comprehensive insurance. This policy covers items such as liability, theft, and water damage.
The FAIR Plan won’t cover homes worth $3M or more, which is notable if you’re planning to buy that baller mansion in wine country. But for the average San Francisco home, there will be coverage. A recent example is the three-bedroom, 1,400-square foot Outer Richmond single-family home built in 1941 listed for $1.2M that my clients were considering purchasing. We got a FAIR Plan estimate for $632/year, and the DIC policy was in the $1,500/year range.
You can get FAIR Plan coverage through an insurance broker. But before you go that route, exhaust all possibilities on the traditional side. There are insurance companies outside of California that are wading into the state as they see coverage opportunity.