If you live in California, chances are you've heard of the California FAIR Plan — often described as the "insurer of last resort." But what exactly is it? And how does it differ from traditional homeowners policies?
In a recent Insurance Hour broadcast, KarlSusman, independent broker and insurance expert witness, broke down the myths and realities surrounding the FAIR Plan — while also tackling another pressing issue for families: the rising cost and complexity of auto insurance.
This episode was classicSusman — equal parts education and empowerment — offering homeowners and drivers practical insights into how to stay covered and avoid costly mistakes.
One of Susman's first clarifications might surprise many:
"The California FAIR Plan isn't an insurer at all — it's an association," he explained.
The FAIR Plan (Fair Access to Insurance Requirements) was created in the late 1960s after a series of devastating urban riots and wildfires left thousands unable to obtain basic fire coverage. Rather than a state-run company, it's a joint association of all admitted insurance carriers in California.
Each insurer participates based on its market share — meaning if a company writes 10% of the homeowners business statewide, it's responsible for 10% of FAIR Plan premiums and claims.
So while the plan is administered centrally, it's actually backed by the collective strength of California's admitted insurance industry — not taxpayer funds.
And if a crisis pushes it beyond solvency, there's a backup system in place: the California Insurance Guarantee Association (CIGA). Since the FAIR Plan is part of this safety net, claims will still be honored even if the association runs out of funds.
"Effectively,"Susman noted, "you have all of the admitted insurance companies backing all of the admitted insurance companies."
At its core, the FAIR Plan provides basic fire insurance — protection for those who cannot obtain standard homeowners coverage.
But it covers more than most people realize. Reading directly from the policy,Susman outlined the included perils:
Fire or lightning
Smoke damage
Internal explosion
These are the "core three," as he called them — the foundational coverages of the FAIR Plan. But homeowners can also add Extended Coverage and Vandalism or Malicious Mischief (VMM) endorsements, which expand protection to include:
Windstorm or hail
Explosion (external)
Riot or civil commotion
Aircraft or vehicle impact
Vandalism or malicious mischief
Together, these form a reasonably comprehensive "named perils" policy — enough to meet lender requirements and cover major hazards.
"So it's not just basic fire coverage,"Susman emphasized. "You can and should add these options — they're inexpensive and absolutely worth it."
The limitations of the FAIR Plan, however, are where many homeowners get caught off guard.
Sussman methodically listed the major exclusions — the things a FAIR Plan policy will not pay for:
Theft
Falling objects
Weight of ice, snow, or sleet
Water or steam discharge
Freezing
Electrical current damage
Personal liability
Water damage (internal or external)
While some of these perils are rare in California (like snow), others — especially water damage and liability — are critical gaps.
Sussman stressed that water-related claims make up nearly 20% of all insurance claims nationally. From burst pipes to roof leaks, water losses are common, costly, and completely uncovered under the FAIR Plan.
"Almost one in five claims nationwide involves water," he explained. "And that's a specific peril that's not on the FAIR Plan."
Perhaps the most serious omission from the FAIR Plan is personal liability coverage — the protection that kicks in if someone is injured on your property or you're sued for damages.
"Liability insurance is probably one of, if not the most, important coverage you can have,"Susman said.
He contrasted two scenarios: losing a house to fire versus facing a lawsuit after someone is injured. The first leaves you with "dirt and a mortgage." The second could lead to bankruptcy or lifelong financial ruin.
Without liability coverage, homeowners risk losing everything — yet many FAIR Plan customers mistakenly assume they're protected.
To fill these critical coverage gaps,Susman recommends a Difference-in-Conditions (DIC) policy — a supplemental contract that wraps around the FAIR Plan to add missing protections like:
Water damage
Liability
Theft
Falling object damage
Together, the FAIR Plan and DIC provide the closest approximation to a standard homeowners policy.
However,Susman cautioned homeowners to ensure both policies are written by the same agent or broker.
"You don't want to split them up between agencies," he said. "Make sure your agent writes both — and that they've taken the new FAIR Plan training course."
Since 2024, the FAIR Plan has begun certifying agents through dedicated training programs. Choosing a certified agent ensures they understand the nuances of FAIR Plan coverage, limits, and endorsements.
He also warned against brokers charging extra fees for FAIR Plan policies — something that's explicitly prohibited.
"If you see a broker fee attached to your FAIR Plan, that's a red flag,"Susman said. "Legally, they can't charge one."
In the second half of the program,Susman shifted gears — literally — to tackle one of the most common family insurance dilemmas: adding a teenage driver.
A caller from Santa Barbara asked whether her 16-year-old son needed to be added to her policy or could simply drive with "permission."Susman broke it down simply:
Permit holders: covered under a parent's policy (with permission).
Licensed drivers: must be added or excluded.
"If he lives in your household and has a license, you need to add him or exclude him,"Susman said. "Don't give the insurance company an excuse to deny a claim."
He also debunked a persistent myth — that boys automatically pay more than girls.
"That used to be true," he explained. "But in California, insurers can no longer use gender as a rating factor. The cost difference now comes down to experience and mileage."
To help parents manage the sticker shock,Susman shared several discount strategies:
Good Student Discount – for a GPA of B or better.
Teen Defensive Driving Courses – similar to mature driver programs.
Low-Mileage Rating – if the teen drives only occasionally.
Assigning to a Single Vehicle – especially an older car with lower physical damage value.
However, he cautioned that liability premiums remain the same regardless of vehicle value — because "the risk isn't what you're driving, it's what you might hit."
As for titling a car in a teenager's name to lower premiums or shield liability,Susman strongly advised against it:
"Don't play that game," he said. "Courts have consistently ruled that parents remain financially responsible if the teen lives at home and is supported by them."
Throughout the discussion,Susman contextualized both homeowners and auto insurance issues within California's broader market challenges.
Many major carriers have restricted or paused new business due to the state's outdated regulatory framework and rising claims costs. But he expressed cautious optimism:
"In the next few weeks, we may start to see insurers quietly returning to the market," he said. "Don't expect big ad campaigns — they'll tiptoe back in, not jump."
His advice to consumers? Stay informed, shop carefully, and always read the fine print.
From wildfire coverage to teen driver premiums,Susman's message was consistent: knowledge is the key to protection.
Don't fear the FAIR Plan — understand it.
Always pair it with a DIC policy for complete coverage.
Stay compliant with auto insurance rules.
Use discounts and responsible driving habits to control costs.
"If you take nothing else away from today's program,"Susman concluded, "remember this: the FAIR Plan doesn't include liability coverage — and that's something you absolutely must have."
For California homeowners and drivers navigating a turbulent insurance environment, that's advice worth taking to heart.
