Jennifer Stojanovich

Understanding Fair Plan key to today’s home insurance market

Jennifer StojanovichCONTRA COSTA COUNTY, CA (Sept. 20, 2023) — Insurance has become a common topic of conversation in California, as residents have found themselves caught in the crosshairs of an insurance crisis.

Many insurance providers have deemed parts of the state “high risk” and are no longer offering coverage. This is affecting current homeowners and future homebuyers as they try to secure homeowners insurance.

Insurance tied to escrow

When a buyer is in the process of purchasing a home in California, one critical step is securing homeowners insurance. Lenders typically require insurance as a condition for approving a borrower’s mortgage. However, several factors have made this step more challenging recently.

California is no stranger to wildfires, and insurers have become increasingly cautious about underwriting homes in high-risk fire areas. This has led to premium increases and, in some cases, insurance companies refusing coverage altogether. In Clayton, for example, the 94517 zip code in general is considered “high risk.”

Recently, a buyer had their insurance in place but when the lender tried to draw docs, the insurance provider retracted the quote and is no longer covering homes in California. Difficulty securing insurance can lead to delays in the escrow process, potentially causing buyers to miss out on their dream home.

Using the Fair Plan

Most buyers are now being forced to use the California Fair Plan to close escrow and satisfy escrow/lender requirements. The Fair Plan is a state-mandated program designed to provide basic property insurance coverage to homeowners who cannot obtain insurance through the traditional market.

The Fair Plan can serve as a last resort for homebuyers who are unable to secure coverage through regular insurers. Many lenders will accept the Fair Plan policy to meet their insurance requirements during the escrow process.

Premiums for Fair Plan policies are typically higher than those for standard insurance policies because they cater to properties in high-risk areas. However, the cost might be well worth it for homeowners who would otherwise struggle to find coverage.

Seeking additional ­coverage

While the Fair Plan can be a lifesaver for those in need, it’s essential to understand that it only offers basic coverage. It typically covers damage caused by fire, smoke, lightning and internal explosions. Coverage for other things like theft, vandalism and liability may need to be obtained separately.

Most homebuyers who are forced to use a Fair Plan obtain a Difference in Conditions (DIC) wrap policy, which comes at a significantly higher cost. In some cases, the increased cost can offset the buyers’ Debt-to-Income Ratio (DTI), causing concern for their ability to qualify for financing for the purchase of their home.

It’s important to emphasize that the Fair Plan should be seen as a last resort. Homeowners should make efforts to secure insurance through traditional carriers first, because Fair Plan coverage may not be as comprehensive as regular homeowners insurance.

Homebuyers should consult with insurance agents before making an offer. By understanding insurance options upfront, homebuyers can enter escrow with greater confidence.

Jennifer Stojanovich is an owner/broker with Better Homes Real Estate. Send questions and comments to