What are FAIR insurance plans?

Some homeowners who live in high-risk locations struggle to obtain insurance. Whether their homes are located in areas prone to natural catastrophes like hurricanes or tornadoes, or they live in urban areas with very high crime statistics, sometimes their exposures are deemed so severe that insurers offer a blanket ‘NO’.    

There are always options. Homeowners who have exhausted all efforts to approach the private insurance markets can get coverage via state-mandated programs, known as the Fair Access to Insurance Requirements (FAIR) plans.

FAIR plans were created in the 1960s to make sure that people who lived in areas with abnormally high exposure to uncontrollable risks still had the chance to purchase some insurance coverage. The plans are considered a last resort and they often don’t provide as much coverage as the standard, voluntary markets.

According to the Insurance Information Institute, 35 states offer a FAIR plan. These plans are partially subsidized by taxpayers and by private insurers in a system known as the shared market. Instead of one insurance company taking on a high-risk home, multiple sources pool together to cover the risk as a collective.

Should disaster strike and a claim be made by an insured on a FAIR plan, the losses are shared out among participating insurers. But it’s not all bad. If a risk performs well, the licensed property insurers will also share in the profits.

What risks do FAIR plans cover?

All FAIR plans offer coverage for losses resulting from fire, windstorm, vandalism and riot. The plans are unique in each state, reflecting the common perils affecting homeowners. In California, for example, the FAIR plan covers brush fires. Meanwhile, in New York and Georgia, the plans provide wind and hail coverage for some of the highest-risk coastal communities. Homeowners with abnormally high exposure are advised to ally themselves with an insurance agent with knowledge of the specialty property markets and the state FAIR plans.

Most FAIR plans have coverage limits of around $500,000 to $600,000 for dwelling coverage. Some states, such as New Jersey, have added optional coverage for personal property (up to $200,000), while others, like Ohio, provide two types of basic coverage – fire coverage and a comprehensive homeowners’ policy, which also protects contents.

How much do FAIR plans typically cost?

The cost of the FAIR insurance plans varies from state to state. FAIR plans often cost more than private insurance. They cannot be described as programs to help low-income earners to purchase insurance.

Are there any requirements for eligible policyholders?

The Insurance Information Institute states that in order to qualify for a FAIR plan, you must:

1. Make improvements that limit the risk of fire, theft or water damage, such as upgrading your electrical wiring, heating or plumbing systems, repairing your roof or improving security.
2. If you do not correct conditions that make your home prone to losses, the FAIR Plan administrator has the right to deny insurance coverage.

FAIR plans versus the E&S market

State-mandated Fair Access to Insurance Requirements (FAIR) Plan programs have created some bumps in the road for the wholesale broker. In Rhode Island, for example, the FAIR plan provides basic property insurance on eligible property to people who haven’t been able to get insurance elsewhere. Licensed agents and brokers get a 12% commission, the online quote-bind-issue system is smooth, and the agent gets an answer in 24 hours. While it’s mostly personal lines business, not too long ago, that business would’ve gone through the surplus lines marketplace.

“In some cases, certain agents think of the standard market first, then the FAIR plan, then the E&S market,” said Tom DeCotis, CEO of DeCotis Specialty Insurance, in a recent interview with Insurance Business. “We need to do a better job as an industry of identifying those areas and trying to innovate better, and make the case for why those risks are better off in the surplus lines industry through an E&S broker.”

Which states offer FAIR plans, and what are their administrator phone numbers?

For more information on FAIR plans, call your state insurance department.