How a U.S. home insurance fix is becoming a problem

Across the U.S., the number of homes covered by these so-called “insurers of last resort” has been steadily increasing for the past five years. FAIR plans were designed as a stopgap measure, but as climate change fuels stronger disasters, these insurers are increasingly relied on.

Depending on the state, FAIR plans, which provide only bare-bones coverage, are either state-run firms or consortiums of private insurers with state oversight. They rely on premiums from policyholders to pay claims, but private insurers in the state also back them.

At present, 32 states offer FAIR plans. California, along with Texas, North Carolina, Florida and Louisiana – states that have experienced significant disasters in recent years – collectively accounted for 84% of all FAIR planholders in 2024, industry data showed.

They helped drive FAIR plan takeups to a record in 2023, and although the number of policies dipped the year after, they remained elevated compared to their 10-year average.

Coverage under a FAIR plan differs from one state to another. In California, they cover wildfire damage, while in Texas, North Carolina and Florida, they pay for wind damage. A FAIR plan does not cover flood damage, which is insured under the National Flood Insurance Program of the federal government.

Even then, FAIR plan coverage can be insufficient protection. Ken Farley’s home in Altadena was insured under the California FAIR Plan and was among the houses burned in the fires in January 2025. Nearly a year later, he is still running after the insurer for about $50,000 on “remediation costs,” which paid for cleanup and testing for hazardous materials like lead and asbestos to ensure that his house was still livable.

The FAIR Plan, he said, is insisting that these costs were not covered by his policy. “It’s just taking forever to get it. And in a time when everybody is traumatized, this is one more thing you don’t want to have to deal with,” Farley, 61, said.

He is not alone. About 3.7% of California’s home insurance market was under FAIR plans in 2021, the latest year in which data was available. In Texas and Florida, their share was between 8%-9% during the same period. Those are small percentages, but still represent millions of homeowners, and a growing segment of the population at risk from climate disasters without access to reliable home insurance.

“As climate change makes these disasters more common, more frequent and severe, and insurers continue to react to that reality, FAIR plans are increasingly called upon to focus on coverage of natural hazards,” Rob Moore, director at the non-profit Natural Resources Defense Council, said.

By taking in homeowners living in disaster-prone areas, FAIR plans endure a cash crunch that stems from paying claims more than they can collect in premiums, the exact scenario private insurers have been trying to avoid.

In Louisiana, for instance, claims by policyholders breached premiums by over 1,500% in 2021 after Citizens Property Insurance Corp, the state’s FAIR plan, paid billions of dollars to residents affected by Hurricane Ida. Citizens had since booked a small profit in 2023 and 2024, but it was one of the few exceptions: 19 of the 32 FAIR plans still incurred losses last year, industry data showed.

FAIR plans are not-for-profit entities, but they do need the money to sustain paying claims. Ideally, FAIR plan policyholders eventually get insured privately and help relieve FAIR plans of financial burden. In California, Louisiana and Florida, FAIR plans themselves initiate “depopulation” programs where they offer financial incentives to insurance companies that take in existing FAIR planholders.

Depopulation, however, is still highly dependent on the private sector’s risk appetite and therefore not guaranteed. When premiums fall short, FAIR plans easily become financially vulnerable. They make up for this shortfall by charging an “assessment” to the private insurers that support them.

That is exactly what happened in California. The FAIR plan billed insurers operating in the state a record $1 billion in assessment to help keep it liquid after the Eaton and Pacific Palisades fires. Private insurers then often pass the assessment’s cost to their own policyholders through higher premiums.

This cycle creates tension between policymakers and the insurance companies. Regulators who approve premium hikes try to keep them at a minimum to prevent a price shock to policyholders. “But if the cost of doing business rises for an insurer and the regulatory regime doesn’t allow prices in the marketplace to rise at a commensurate level, then private insurers might simply choose to not do business in a certain area,” said Steven Francis Koller, a postdoctoral fellow at Harvard’s Joint Center for Housing Studies, a think tank.

As private insurers leave states, more people like Farley are left with just two options: risk it and stay uninsured, or get on a FAIR plan’s measly coverage. Farley chose the latter, but said that he would rather have better service from a private insurer if available.

Still, others can find even FAIR plans to be hardly affordable and decide to forgo home insurance altogether. Like a typical insurer, FAIR plans also hike premiums, often way above the market rate. From 2019 to 2023, for example, Louisiana’s Citizens increased average premiums for residential coverage by over 730% and Florida’s Citizens and California FAIR plan by about 400% each, data from the Climate and Community Institute, a progressive climate think tank, showed. To compare, average premiums for homeowners rose nearly 23% during the same period.

Nam Nguyen, an economist at the Climate and Energy Policy Program of the Stanford Woods Institute for the Environment, said elevated premiums are a reflection of growing disaster risk, which depends on many factors, including the location where the house is built. “We tend to build homes in more dangerous areas at a faster rate than safe areas,” he said.

Eric Macomber, a research attorney in the same think tank, said the key is to reduce risk so that insurers can set affordable premiums for policyholders yet still be attractive for insurers to stay in business.

The risk of disaster may be too high in some areas for affordable insurance, but for many homes there are ways to lower risk and costs. Minor home alterations such as installing fireproof windows and periodic roof maintenance for houses in windy areas, Koller said, can make houses climate resilient and get them cheaper insurance. At the state level, Moore suggested subsidizing premiums of low-income households under FAIR plans as those households are likely to suffer the biggest losses during a disaster.

“Risk reduction and climate resilience work – these are things we can do to stave off a potential insurance crisis in the making,” he said.