If you are a homeowner in California you have seen your homeowner's insurance rates increasing over the last couple of years, sometimes dramatically and even without having filed a claim. One of the major reasons for this has been the devastating wildfires that have plagued our state over the last couple of years. As a way to minimize the massive losses some insurance carriers have experienced, many carriers have revised their underwriting rules for brush exposure. This has resulted in many homes being non-renewed due to the revised brush maps. So many homes were being quickly non-renewed that the Department of Insurance had to step in and setup new retroactive rules to protect homeowners and give them time to get replacement coverage. For many homeowners that have been non-renewed, they are left with the insurer of last resort, the California Fair Plan. The Fair Plan is one part of a two-policy package to insure homes that the private marketplace is unwilling to insure for fire. I will be discussing what the Fair Plan covers and what the second policy that is needed, a Difference in Conditions policy, also known as a DIC or a Wrap policy, covers.

The California Fair Plan is an insurance pool that was created in 1968 after devastating riots and brush fires happened across the state. It was designed to make sure basic property insurance coverage was available for California property owners who could not secure property insurance in the private marketplace due to brush fire exposure or a high concentration of claims in the area where their property was located. The Fair Plan is a "Named Peril" policy, meaning it covers only those causes of loss that are specifically "Named" and defined in the policy.

Here is the list of the Named Perils found in the Fair Plan policy:

  • Fire, including brush fire
  • Lightning
  • Smoke
  • Internal Explosion

Below is a list of additional Named Perils that can be added to the policy:

  • Wind or Windstorm
  • Hail
  • Explosion
  • Riot or Civil Commotion
  • Falling Aircraft
  • Vehicles
  • Volcanic Eruption
  • Vandalism and Malicious Mischief

Additional coverages can also be added to the policy for an additional premium:

  • Extended Coverage
  • Building Code Upgrades
  • Debris Removal
  • Replacement Cost on Personal Property
  • Fair Rental Value/Loss of Use/Loss of Rents
  • Trees and Foliage
  • Fences
  • Detached Structures
  • Outdoor Radio and TV Equipment, Awnings and Signs

The Fair Plan is limited as to what it covers, and it specifically DOES NOT cover losses due to theft, burglary, bursting of pipes, and premises liability. This is where a Difference in Conditions policy comes into play. It is designed to fill in the gaps by covering the four causes of loss that the Fair Plan does not cover. In most cases, the combination of the DIC policy and the Fair Plan policy will provide a homeowner with coverage equivalent to the DIC carriers basic homeowners policy in the private marketplace. It is important to note that not all carriers offering DIC policies offer the same optional coverages as you would find on their regular homeowners polices, so it is important to consult with your independent agent as to which carriers will provide you with the most options. For example, Travelers recently launched a new DIC policy that offers all the same optional coverages as their homeowners' policy, including backup of sewer and drain, equipment breakdown, and service line coverage. They also allow for increases in the sub-limits for some types of property for specified losses, like theft, lost and misplaced jewelry and firearms.

As insurance companies come to grips with the realities of wildfires losses in California, we expect to see more properties being limited to CA Fair Plan and DIC combo policies. While they will cost more than a conventional homeowners policy, understanding how they work together, and knowing that not all DIC policies are created equal can help you identify the best policy to fit your needs, wants and budget.


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