Insurers of last resort are failing households

As climate disasters mount, more American homeowners find they can’t get insurance or that their insurance won’t pay out — and that’s leaving families and whole communities without the help they need to recover.  When private carriers pull out of risky markets, millions of families are left exposed, forced to rely on state-level “FAIR plans” that were meant to be the safety net of last resort.

A few months ago, my organization, the Climate and Community Institute, released a report showing that those safety nets are badly frayed. The report reveals that the system designed to protect homeowners is now controlled by the very industry it’s supposed to fix.

FAIR Plans were created in the 1960s as a temporary public policy response to a market failure. When insurers refused to cover urban neighborhoods - often after those areas were redlined and disinvested - the federal government and states stepped in to shore up access to basic property insurance. The federal government incentivized insurers to participate in new state-level FAIR plan programs in which private insurers shared in profits and losses, under the idea that risk should be spread fairly and home insurance is an essential service to which everyone should have access.

The idea was sound, but in practice, the model has enabled the insurance industry to keep squeezing profit out of the home insurance business even as households are bearing more and more risk. Our report finds that at least 86% of FAIR plan governing boards nationwide are dominated by representatives of the insurance industry – not state officials, not consumer advocates and not members of the public.

This matters because these boards set the policies, premiums and priorities that determine whether homeowners are protected or left vulnerable. When insurers control the backstop, they can design it to serve their own bottom line rather than the public good.

And that’s exactly what’s happening. Across the country, FAIR plans are undercapitalized, slow to pay claims, and structured to limit coverage rather than expand it. They often provide bare-bones protection — subtracting wear and tear from the full cost to replace your home — while charging higher rates than the private market. The result is that homeowners forced into these programs pay more for less, all while carrying the burden of escalating climate risk. Owners of multifamily rental properties – key providers of affordable housing – have even fewer options, with some state FAIR plans not offering any coverage for this type of housing.

FAIR plan enrollment surged

The scale of this problem has exploded. As climate disasters grow more frequent and severe, FAIR plan enrollment has surged. In some states, exposure has multiplied several times over in just a few years. Yet the underlying structure of these programs hasn’t changed since they were created more than half a century ago. They were never designed to operate at the scale or intensity that accelerating climate-driven weather disasters now demand.

Worse still, this model socializes losses while privatizing control. When major disasters strike, states can end up responsible for losses that exceed the FAIR plan’s reserves, costs that ultimately fall to taxpayers or are passed back to policyholders through special assessments. Meanwhile, the same private insurers that offload risk onto these plans continue to profit elsewhere, shielded from accountability.

And for the broader system, they provide an illusion of stability — which masks the deep unfairness in how we share the climate risk burden and fragility in how we finance it. The “insurer of last resort” is quietly becoming the insurer of only resort, but without the oversight, funding, or mandate to operate at the necessary scale. This is not a sustainable foundation for the U.S. housing system.

Our report lays out a clear path forward. The home insurance crisis demands action that tackles climate risk, corporate accountability and public capacity head-on. Policymakers can start by reforming state FAIR plans to make insurance markets more stable, sustainable, and fair to homeowners and housing providers.

States should update FAIR plan financial models to reflect actual risk, involve other market actors that depend on a stable insurance system, and ensure resources are used responsibly and with transparency. Plans must offer robust, affordable coverage rather than bare-bones policies that leave families exposed. To do so, they need real oversight, adequate funding, and a shift in focus — from protecting insurers’ balance sheets to safeguarding families and neighborhoods.

Ultimately, these programs should serve the public interest: protecting communities and stabilizing housing markets in the face of accelerating climate risk.

FAIR plans were born in an era of redlining and market discrimination. Today, they’re holding up the weight of a global climate crisis. Unless we rebuild them for this new reality, the next wave of disasters will expose not just homeowners’ vulnerability, but the fragility of an entire system that was supposed to protect them.

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Moira Birss is a fellow at Climate and Community Institute. Contact her at [email protected].