In Search of the Fair Share of FAIR Plan Policies Among Northern California Counties

Due to wildfire risk, conventional fire insurance has become difficult to obtain in a several areas of Northern California. As a consequence, many residents have been forced to obtain more expensive policies through the last-resort option, the California FAIR Plan. The lack of conventional insurance is particularly acute in the Central Sierra region. In 2022, the latest year for which county data is available, FAIR Plan policies in several Central Sierras counties comprised nearly 40% of the homeowner insurance market. The number of FAIR Plan policies compared to at-risk homes in the Central Sierras is nearly 1.5 times higher than in the Northern Sierras and 4.8 times higher than in the San Francisco Bay Area. This disparity exists despite the fact that losses as a percentage of at-risk homes have been much lower in the Central Sierras. In June, 2024, the California Department of Insurance (CDI) proposed regulations to limit FAIR Plan policies to a maximum of 15% of homeowner policies by county. The intent was to achieve a more balanced distribution of FAIR Plan policies. The following analysis examines what would happen if the number of FAIR Plan policies in effect in Northern California in 2022 were distributed among counties on the basis of each county’s total risk. What would be the resulting percentage of FAIR Plan policies in each county? And what would be the impact on the total number of FAIR Plan policies by region in Northern California? Four different methods for calculating risk by county are analyzed. In each case, the CDI estimates for the number of high-risk dwelling units by county are used as the starting point. On method simply uses the CDI numbers directly as the risk metric. In other risk assessments, factors such as the proportion of structures by Fire Hazard Severity Zone (CAL FIRE, 2024), the proportion of structures in high-wind areas, and past loss rates by zone are used to weight the CDI numbers. If based on the results of this analysis, the number of FAIR Plan policies in the Central and Southern Sierras would be reduced by at least 40% compared to 2022 levels and over 70% if risk calculations reflected the relatively small extent of high-wind areas in those regions. In the Central Sierras, Tuolumne and Mariposa counties would be slightly above the cap at 19% under some risk scenarios but would drop as low as 8% in others.