Finding commercial property insurance in California has become increasingly challenging due to the heightened wildfire risks and tightening of the insurance market. Property owners may need to consider the state’s high-risk insurance pool, known as the California FAIR Plan, which provides fire insurance when traditional carriers refuse coverage. Here, we break down what property owners need to know about securing FAIR Plan coverage for commercial properties.
What is the California FAIR Plan?
The California FAIR (Fair Access to Insurance Requirements) Plan is a last-resort insurance program designed to provide basic fire insurance coverage to individuals and businesses unable to secure policies from private insurers. Contrary to popular belief, the FAIR Plan is not a state-run program; rather, it is funded by insurance companies that are licensed to operate in California. These carriers share the risk for high-risk properties, including commercial buildings in wildfire-prone areas.
What Does the California FAIR Plan Cover for Commercial Properties?
The FAIR Plan for commercial properties offers coverage for losses resulting from:
- Fire
- Lightning
- Smoke
- Internal explosions
However, it’s important to understand that the FAIR Plan provides only basic fire-related protection. Businesses should be aware that the plan does not cover:
- Theft
- Water damage
- Earthquakes
- Falling objects
- Business interruption
To fill these gaps, businesses will often need to purchase additional policies, such as a Difference in Conditions (DIC) policy, which provides more comprehensive protection, including coverage for theft, liability, and water damage. A Commercial General Liability (CGL) policy may also be necessary to cover business operations-related risks like slip-and-fall accidents on the premises.
Commercial Risk Mitigation and the FAIR Plan
One of the biggest changes to the FAIR Plan in recent years is the focus on risk mitigation. As wildfire risks increase, business owners may be required to take steps to reduce their property’s vulnerability. Some of the most common mitigation requirements include:
- Installing fire-resistant roofing and vents.
- Creating defensible spaces around buildings by clearing brush and debris.
- Updating outdated electrical wiring or HVAC systems.
In return for these improvements, some properties may qualify for discounts on their FAIR Plan premiums.
Proposed Changes to the FAIR Plan Impacting Owners
The California Department of Insurance (CDI) regularly reviews the FAIR Plan, and there are several proposed changes that could directly affect commercial property owners:
- Increased coverage limits: The coverage limits for commercial properties were recently raised to $3 million, and further increases could be on the horizon as property values and risks continue to rise.
- Wildfire damage coverage: Recent expansions now include coverage for smoke damage and damage caused by fire suppression efforts, which is crucial for businesses affected by nearby wildfires.
- Potential coverage for cannabis-related businesses: AB 741 is currently under consideration, which would require the FAIR Plan to offer coverage to cannabis-related businesses, a growing sector in California.
Conclusion
The California FAIR Plan offers a critical safety net for property owners that struggle to secure property insurance. However, it is not a complete solution for most commercial property owners. It’s essential to supplement FAIR Plan coverage with additional policies tailored to your business’s unique risks. If you have questions about how the FAIR Plan works for commercial properties or how to get started, please do not hesitate to reach out to me.
