The ongoing home insurance crisis in the United States is becoming increasingly evident as residents in California begin the difficult process of recovery following the devastating Eaton and Palisades wildfires.
For local residents Louise Hamlin and Chris Wilson, the disparities in their insurance coverage for nearly identical homes in Altadena highlight just how unequal the rebuilding efforts will likely be.
Hamlin, who was privately insured, has already secured a payout close to one million dollars and is actively seeking contractors to help rebuild her home. In stark contrast, Wilson, whose coverage came from the California Fair Access to Insurance Requirements (FAIR) Plan—a basic state-run insurance option—faces receiving only a fraction of what he needs. He is now contemplating resorting to loans, considering legal action, or even relocating his family out of California altogether.
So, how does one end up on the FAIR Plan?
The FAIR Plan serves as a temporary insurance solution for homeowners who struggle to find private coverage, a scenario that has become increasingly common as numerous major insurance companies have either halted or limited new policies within the state in recent years. Wilson’s private insurer opted not to renew his policy last year, despite his willingness to take fire mitigation measures. Faced with a lack of alternatives, he was compelled to enroll in the FAIR Plan to fulfill his mortgage obligations.
The number of residential policies under the FAIR Plan has surged, more than doubling from 2020 to 2024, now totaling around 452,000 policies.
In terms of cost, Wilson’s situation is not favorable. His premiums under the FAIR Plan are roughly 60% higher than Hamlin’s, yet he is set to receive less than half the coverage that she has. Additionally, Wilson’s overall insurance expenses are inflated because he needed to acquire “wrap-around insurance” to guard against incidents not covered by the FAIR Plan, including problems like burst pipes and fallen debris.
The Insurance Information Institute, an organization representing numerous prominent insurers, acknowledges that the FAIR Plan acts as a crucial safety net for homeowners unable to secure private insurance. They assert that the circumstances would be significantly worse if homeowners were entirely uninsured.
What potential solutions exist?
In response to the crisis, state officials have introduced various new regulations designed to provide insurers with more flexibility to increase premiums in exchange for expanding their policies in higher-risk areas. These modifications include permitting insurers to factor in climate change when determining prices and enabling them to pass on reinsurance costs to consumers in California.
Experts emphasize that government bodies must also contribute to funding critical fire mitigation initiatives; otherwise, the financial burden related to California’s wildfire risks will remain disproportionately placed on homeowners. Stephen Collier, a professor of urban planning at the University of California, Berkeley, noted that California plans to allocate approximately $25 million from a voter-approved climate bond to enhance fire mitigation standards surrounding homes.
