Supplementing the FAIR Plan with E&S and DIC Policies

As the costs of homeownership continue to rise, many homeowners, especially in places like California and Florida, are finding that obtaining traditional homeowner’s insurance is fast becoming impossible.  This fact is borne out in the numbers of Americans forced into the assigned risk pool for homeowners, known as the Fair Plan.  In Florida today, fully 20% of homeowners are in the assigned risk pool.  The number of homeowners in California moving the FAIR Plan has doubled since 2023.  Sadly, this trend is just starting to hit middle America, too.

For those unfamiliar with the FAIR Plan, it’s a last-resort policy for homeowners unable to obtain homeowners insurance in the voluntary market.  To qualify, most states require a denial from at least one licensed insurer (some states require more) before an application to the state’s FAIR plan can be made.  

The FAIR Plan is designed to offer basic insurance to homeowners unable to procure a policy in the voluntary market.  This is usually due to a home’s location – as in too close to tidal water or fire-prone areas.  To a lesser degree, frequency of catastrophic claims  and home condition can force a homeowner into the FAIR Plan, too – especially in high-crime areas of inner cities.

For these homeowners, the FAIR Plan often becomes the only way to obtain basic insurance coverage.  While the FAIR Plan offers an essential safety net, it provides significantly less coverage than a standard homeowner’s policy.  In fact, the policy typically only covers fire-related perils (fire, lightning, internal explosion) and excludes theft, liability, water damage, and loss-of-use coverage.  The policy also excludes liability protection – something no homeowner should be without.  Now there is an endorsement (add-on) whereby an insured can purchase additional property coverages for a FAIR Plan policy known as the EC Perils (Extended Coverage Perils).  

The EC Perils include such coverages as riot and/or civil commotion, windstorm, hail, external explosion (as opposed to just internal explosion).  The EC Perils also include damage caused by aircraft and vehicles, although there are limits to vehicle damages based on who was driving the vehicle.  Lastly, the policy covers smoke damage – although, again, there are differences between friendly and hostile smoke.  As you can see, even with the EC Perils included, the FAIR Plan policy isn’t very good.

So, is there anything a homeowner can do to mitigate the lack of must-have coverages from a FAIR Plan policy?

Well, there are several things a homeowner can do to mitigate the risk, but be forewarned, it can get expensive to go this route, and even then, you’ll still end up with a policy that doesn’t provide the full range of coverages of a traditional policy.  But, for those unable to obtain coverage in the voluntary market, it may be your only choice – especially if you have a mortgage on the property.

Let’s look at how a Difference in Conditions (DIC) policy can help a homeowner with limited options for home insurance.

A DIC policy is specifically designed to fill the gaps left by FAIR Plan coverage.  These policies, issued by private insurers, work alongside the FAIR Plan, covering what the FAIR Plan excludes. Together, they approximate a traditional homeowner’s policy, though often at higher cost.  But coverage wise, the plan is quite broad and includes coverage for liability claims, theft and vandalism, water damage from broken pipes and accidental leaks in addition to the basic perils of the FAIR Plan policy.  Additionally, a DIC policy can also be used to cover exposures for Loss-of-Use to help pay for temporary housing while an insured property is being repaired.

Another approach to obtaining coverage outside of the traditional market is to use the services of an Excess & Surplus Lines company, commonly called E&S carriers.  So, who are these carriers?

Well, they’re insurers not licensed to do business in a particular state.  Now, normally, unlicensed insurers are unable to operate in a state without a license.  That’s true most of the time.  That’s because unlicensed insurers aren’t subject to a state’s regulatory oversight – meaning there’s nobody to ensure compliance with a particular state’s insurance laws.  

However, sometimes people and businesses are unable to obtain a particular type of insurance from a licensed insurer in a state.  In those cases, it is perfectly legal to go to unlicensed insurers – like Lloyd’s of London.  E&S policies are frequently purchased by athletes and dancers to protect valuable body parts – a baseball pitcher’s arm, or a singer’s voice, for instance.  These types of insurance just aren’t readily available from licensed insurers in America.  

So how can an E&S carrier help?  E&S carriers have more flexibility to insure high-risk properties that standard insurers refuse to cover.  While E&S policies can be more expensive, they often provide broader protection than the FAIR Plan alone.

Homeowners may use an E&S carrier in two ways:

• Standalone E&S Homeowners Policy: In rare cases, the E&S market may be willing to insure the entire property without needing the FAIR Plan, although this is rare.
• Supplemental Coverage: More commonly, E&S carriers offer specialized endorsements or policies that supplement a FAIR Plan—similar to a DIC, but with broader and more detailed customization.

The trade-off is that E&S policies are less regulated, meaning premiums and terms can vary widely.  In addition, since states have no right to audit an unlicensed carrier, there is an increased risk of an E&S carrier being unable to pay for a claim – and the state’s guaranty association will not PAY the claims of unlicensed insurers.  

Still, for many homeowners, E&S coverage is the only way to restore the full protections of a traditional homeowner’s policy.  Just be sure to use well known and financially strong E&S carriers – like Lloyd’s of London and others.

For homeowners relying on the FAIR Plan, DIC policies and E&S lines coverage are essential tools for restoring meaningful protection. While more expensive and sometimes complex, these supplements allow families in hard-to-insure regions to safeguard their homes, belongings, and financial security.  Until the private insurance market fully stabilizes, combining FAIR Plan coverage with DIC and E&S policies remains the most practical strategy to achieve comprehensive protection until a homeowner is able to obtain regular insurance in the voluntary market.

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