The Insurance Subsidy Behind the Horrific Malibu/Ventura Fires

The fires in California are horrific, but few realize that much of the housing in the fire zones of Malibu and Ventura County has been encouraged by the insurance subsidies coming from the FAIR Plan. Fire Insurance usually is hard to come by or extraordinarily expensive in areas subject to high fire danger. 

However California has something called the FAIR Plan which stands for fair access to insurance requirements. The program was initiated in 1966 after the Watts Riots to establish an insurance facility for inner city neighborhoods. It was expanded to cover the hillsides after the 1968 Bel-Aire fire. As a result a program to help poor homeowners and small businesses became a subsidy program for the wealthy.

The FAIR Plan works like the assigned risk programs for automobile insurance. As a practical matter  all insurance buyers are assessed to pay for the high risk assets and it is run by a consortium of insurance companies. The maximum amount covered is $1.5 million, but homeowners with the first loss covered can then buy wrap around policies to cover any excess.

Just like the federal flood insurance program subsidizes coastal development in flood prone areas, the FAIR Plan subsidizes development in fire prone areas. Perhaps it is time for the California Legislature to take another look at the program in light of what Governor Jerry Brown calls the "new abnormal."