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FAIR Plan - Fair Access to Insurance Requirements

NCJ Number
P N Bard; M Birrittella; T G Bochan; T Brown; B R Bryson; L A Card
Date Published
8 pages
This paper examines the Fair Access to Insurance Requirements (FAIR) plan which makes insurance available for eligible urban properties otherwise thought to be uninsurable and concludes that the plan is not working as intended but is providing an incentive for arson.
Originally implemented to combat arson, FAIR has been operated by the insurance industry, reinsured by the U.S. Department of Housing and Urban Development, and regulated by insurance advisory committees in each participating State. After an owner applies for coverage, a building inspection is made to determine if the risk property is structurally sound. If the property is deemed insurable, a policy is issued upon payment of a one-year premium. Even if repairs are necessary, an applicant can become eligible for coverage by paying an increased rate until repairs are completed. Because the plan has been abused, the proposed amendment to the 1979 Urban Property Protection and Reinsurance Act would make it difficult for owners of property that has been previously destroyed by fire to receive FAIR coverage. The FAIR plan has investigated some claims to prevent fraud, but one official admitted that his office refused payment on very few claims because of the high cost of civil litigation. Recent studies have discovered a common fraud pattern involving buildings bought for reasonable prices in deteriorating areas. Through paper transactions using 'straw' organizations, a property changes ownership several times, and the price escalates with each sale. Insurance coverage is increased, the building deteriorates further, and finally is destroyed by fire with the owner collecting a sizable insurance payoff. FAIR plans are said to encourage these activities by providing insurance that exceeds market value. Moreover, a 30-day cancellation notice to policyholders is required before a policy can be terminated. Footnotes and 13 references are included.