8.5 Fair Access to Insurance Requirements (FAIR) Plan

Some property owners may be unable to obtain property insurance through the standard insurance market because their property presents a higher-than-usual risk of loss. For example, a property located in an area with a significant wildfire exposure may be considered too high-risk for many standard insurers.

To help address this availability problem, most states have established a Fair Access to Insurance Requirements Plan, commonly called a FAIR Plan. A FAIR Plan is designed to provide basic property insurance to eligible property owners who have been unable to secure coverage through the standard property insurance marketplace.

Although specific rules vary by state, most FAIR Plans operate in a similar manner. They serve as a market of last resort, meaning they are generally intended for applicants who cannot obtain coverage from standard insurers after making a reasonable effort to do so.

FAIR Plans are generally used when a property owner cannot obtain or keep coverage through the standard property insurance market. This may occur when an existing Homeowners or Dwelling policy is being cancelled or nonrenewed because of the property’s loss history, condition, location, or other underwriting concerns.

A FAIR Plan may also be available when the property owner or the property itself does not meet a standard insurer’s underwriting requirements. For example, a standard insurer may decline coverage because the property is vacant, older, in poor condition, located in a high-risk area, or has had multiple prior losses.

In addition, a property owner may seek coverage through a FAIR Plan when a dwelling is currently uninsured and no insurer in the standard marketplace is willing to provide coverage. In some states, the applicant may be required to certify that they made a reasonable effort to obtain insurance in the standard market but were unable to secure coverage.

The key point for learners is that a FAIR Plan is typically a market of last resort. It is intended to provide access to basic property insurance when standard insurance options are not available.

Depending on the state, FAIR Plan coverage may be available for more than residential property. Some FAIR Plans also provide basic property insurance for eligible commercial risks and farm risks.

This means that certain business properties, commercial buildings, or farm properties that cannot obtain coverage in the standard insurance market may qualify for coverage through the state’s FAIR Plan. However, eligibility requirements, available coverages, and policy limits vary by state.

For this reason, producers should review the specific rules of the applicable state FAIR Plan before advising an applicant about coverage options.

FAIR Plan risks are shared among insurers that write property insurance in the standard market. Rather than one insurer assuming all of the risk, participating insurers are assigned a portion of FAIR Plan business based on their share of property insurance premiums written in the state.

For example, an insurer that writes a larger percentage of the state’s property insurance premiums may be responsible for a larger share of FAIR Plan losses and policies. This arrangement helps spread high-risk property exposures across the insurance marketplace.

Agents generally do not have binding authority for FAIR Plan coverage. This means an agent usually cannot make coverage effective immediately on behalf of the FAIR Plan. Coverage is typically bound only after the FAIR Plan or insurer receives the completed application and the insured’s initial premium payment.