FAIR Plan Insureds: Occupancy and Location Characteristics and Experience

Abstract

FAIR Plans were established primarily to make insurance available to persons, with property in urban core areas with riot potential, who could not secure insurance directly from individual insurers. In practice, the plans have been extended to cover locations other than urban core areas. Under these plans the insureds cannot be denied insurance because of environmental hazards. FAIR Plan insureds pay either the same rates charged standard property owners or higher substandard rates, depending upon the results of a property inspection. Properties with high internal hazards may be rejected or may have to be upgraded before they are insurable.' FAIR Plans insure properties representing various occupancies and locations. No accurate information is available, however, on (1) the extent to which the plans service the various occupancies and locations and (2) the loss experience of different occupancy and location groups.2 Consequently insurers and the public do not know whether the plans serve primarily the insureds in urban core areas or the owners of high risk occupancies such as bars and restaurants outside the urban core areas. They also do not know what types of properties have developed the more adverse experience. This paper sheds some light on the occupancy and location characteristics of Minneapolis and St. Paul properties insured under the Minnesota FAIR Plan. It also comments on the inadequacies of present FAIR Plan data and provides a model for further analysis.3