Why backing up the plan doesn't solve the real insurance problem in California
Home insurance has been a major challenge in the state of California, especially in the wake of this year’s wildfires. Many major insurance companies have pulled out of the state, leaving homebuyers few options.
The last resort option in the state is the Fair Access to Insurance Requirements (FAIR) Plan, which was struggling with funding. On Thursday, California governor Gavin Newsom signed a package of bills looking to boost the FAIR plan.
Proponents say the new laws will allow for quicker payout of claims, better oversight, and added coverage for manufactured homes. It will enable the plan to obtain additional funds through bonds or a line of credit.
Critics, including one California mortgage broker, say the plan doesn’t address the real problem: how to get insurance companies from pulling out of the state.
Amir Nurani (pictured top), broker-owner at Left Coast Leaders in California, said while he understands why the action was taken, it’s leaving the main problems unsolved.
“(Newsom) is attacking the wrong problem,” Nurani told Mortgage Professional America. “Bolstering the FAIR Plan is not the solution. I understand the moves that he put into place are to prevent an insolvency issue with FAIR Plan, which is great and all right, but FAIR Plan is supposed to be the backstop. You don't want to concentrate your efforts on insulating your backup plan.”
Fixing the real issue
The issue in California is that it is difficult for insurance companies to raise premiums. Proposition 103, passed in 1988, requires companies to go through several steps, including obtaining approval from the California Department of Insurance (CDI) before raising rates.
Nurani said that because these companies have taken large losses on natural disasters in the state, including the wildfires, it doesn’t make financial sense for them to stay and lose money without the ability to raise premiums to offset those losses.
“You want to concentrate your efforts on making sure that the primary solution is still effective and is still thriving,” he said. “Tons of insurance companies have exited California or limited their exposure as far as how many policies they're writing. When people look into this stuff, they get upset about the fact that ‘I can't get insurance.’ So they're resorting to the FAIR Plan.
“Insurance companies aren't able to raise their premiums to make sure that they don't have an insolvency issue. Regulation in California is so tight around insurance. If they remove this and just let insurance companies price their premiums against each other, you would have the fair market basically neutralizing one company from going too high.”
While the FAIR Plan covers wildfire damage, Nurani said it does not cover flood damage. The premiums on the FAIR plan are also significantly higher than with other types of insurance.
“I love that we have a backstop, but it's not a great backstop, because one of the things about FAIR Plan is it doesn't cover water claims for homeowners,” he said. “For homeowners, if their residence floods, they have to cover that bill. FAIR Plan doesn't step in and cover water damage, and this is one of the most common reasons why people have insurance.”
How to advise homebuyers
While Nurani would like to see changes to allow for free markets for insurance companies, he knows it is unlikely to happen. Suggesting a plan that would allow insurance companies to raise premiums would be politically unpopular with both parties, even if those premiums would likely still be cheaper than the FAIR Plan.
“If you look at the general public and you tell them, ‘We’re letting insurance companies just raise their premiums to whatever they want,’ from a political standpoint, you're not going to win a lot of favor,” he said. “Because the consumer is going to go, ‘Well, you're not protecting me. You're protecting the insurance companies.’ Because they don't have an actual understanding of how this is operating.”
For the time being, brokers have to prepare homebuyers for the possibility of pricey insurance premiums, especially if they are forced to go with the FAIR Plan. Nurani said they started changing the way they calculate insurance a couple of years ago to calculate expenses more accurately.
“About two years ago, when we started pre-approving people, we increased the amount of premium that we were calculating for,” Nurani said. “Five years ago, we were estimating premiums to be around $1,200 a year for a single-family residence. That was an estimated $100 a month. Right now, depending on where they live, anywhere between $200 and $300 a month is what we're calculating, because that's what the premium actually is.”
Mortgage broker Matt Gouge says high prices and rates are causing buyer hesitation, especially in California, but underlying demand remains strong.https://t.co/8rvCRZ2LYt
— Mortgage Professional America Magazine (@MPAMagazineUS) July 30, 2025
The risk to brokers and homebuyers of getting that estimate wrong could end up tanking a deal. While Nurani hasn’t heard of it happening frequently, he has seen where home purchase contracts fell through because of the extreme cost of the FAIR Plan policy.
“It’s not crazy frequent, because we already hedge for it on the front end by calculating,” he said. “There was one specifically that we had to cancel the contract on that sticks out to me distinctly. The California FAIR Plan policy priced at $6,000 a year, $500 a month, for insurance on the home. It killed the deal.
“Not only did they not qualify, or they would have had to pay down a bunch of debt to qualify, but who wants to pay $500 a month for insurance? It's absolutely caused pressure on homebuyers, and consequently on home sellers. Because if their homes can only be insured by a FAIR Plan, that's going to deter some buyers, possibly because they don't qualify.”
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