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FAIR Plan: What You Need To Know

In the insurance industry, there are two types of risks that can be difficult to insure: those businesses or homeowners that are inherently high risk, and those that become hard-to-place over time due to claims or payment issues.

At times, businesses with many claims may end up with an insurer of last resort: the California Fair Access to Insurance Requirements (FAIR) Plan. While this plan can be a godsend to some insureds, it is not without its problems.

Is the FAIR Plan right for you? What are the risks of being insured under the FAIR Plan? Read on to find out more.

It’s A Last Resort

The web page for the FAIR Plan makes it very clear that they are an insurer of last resort:

What this means is that you can only get a FAIR Plan policy if your insurance broker has exhausted all other options and been declined. This would include insurance companies in both the admitted markets and non admitted markets.

If you receive any other quote from an insurance company, even if it is higher in premium than the FAIR Plan, you must accept the higher quote.

 

How Did You End Up in the FAIR Plan?

There are a few ways your home or business may have ended up in the FAIR Plan:

  1. The homeowner had too many claims. If there were multiple break-ins or fires, the open market may have been uninterested in insuring the home, so it was moved to the FAIR Plan. If you have been in the Plan for several years with no claims, you may be eligible once again for the open market.
  2. The business was too small or too new to qualify for coverage in the open market. Insurers would prefer that companies have some experience under their belt before the company will offer coverage. If you started out with the FAIR Plan and your business has grown in both size and experience over the years, you may be eligible for coverage in the open market.
  3. The business had too many claims. As with homeowners insurance, if you’ve been in the FAIR Plan for a few years with no claims you could qualify for coverage in the open market. It’s time to contact Hayes Brokers to find out about getting more comprehensive coverage.
  4. Your captive insurance company (think State Farm, Allstate, Farmers) was unable to insure you due to claims or payment issues, so they put your home or business in the FAIR Plan.

It Is PROPERTY ONLY

This is something else that is obvious from the FAIR Plan website:

The FAIR Plan offers property insurance only to homeowners, businesses, and course of construction. In addition, they offer limited coverage for Earthquake.

The one exception to this rule is Businessowners Package Policies, which are limited to only certain types of small businesses with small liability risk. To qualify your business must not have received a quote from an admitted or non-admitted carrier and qualify for the program as outlined on the website.

It is Basic Coverage

In the insurance industry, there are three main types of property insurance: basic (or named peril), broad, and special form insurance. Each is defined by the types of perils they insure against.

The FAIR Plan policy is Basic Form, or Named Peril. This means that it insures against only these perils:

  • Fire
  • Lightning
  • Explosion
  • Smoke
  • Windstorm
  • Hail
  • Riot
  • Civil Commotion
  • Aircraft
  • Vehicles
  • Vandalism
  • Sprinkler Leakage
  • Sinkhole Collapse
  • Volcanic Action

That may seem like pretty comprehensive property insurance, but it pales in comparison to Special Form, which includes coverage for Theft, Falling Objects, and any other peril that is not specifically excluded from the policy. Very few policies today are written on anything other than Special Form.

A Difference in Conditions Policy could be written to supplement this Basic Form policy, bringing it to Special Form. However, only independent insurance brokers such as Hayes have access to these types of policies.

In addition to Basic Form, FAIR Plan policies are also issued at Actual Cash Value rather than Replacement Cost, which could result in claim payout shortfalls should your home or business suffer a loss.

Why Liability Is Necessary

Liability insurance is incredibly important for both homes and businesses for different reasons, but it all boils down to financial protection for your family or business in the event of a claim. A liability claim may be as a result of injury or damage on your premises or due to actions by family members or employees. These types of claims can be costly.

Hayes Brokers recently moved a main street bar from the FAIR Plan where they had been for years – without liability coverage, and without liquor liability. The bar had been insured with a captive insurer and nonrenewed years before. They were placed with the FAIR Plan for property insurance, but not for liability insurance because the captive agent was unable to place their coverage with another carrier for liability.

This is a huge insurance gap, one that could have been incredibly costly to the bar had they experience a liability or liquor liability claim. This gap in coverage could have been remedied by seeking separate coverage through an independent insurance broker who may have also been able to move all coverage to another company and avoided the FAIR Plan altogether.

There is no question that the FAIR Plan is a viable option for some homeowners and business owners. The question is: are these homes or businesses properly insured? Unfortunately, the answer to that question is usually “No.”

Call Hayes Brokers today to find out more about how we can help your home or business get properly covered, whether you are in the FAIR Plan or not.

 

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