What is difference in conditions (DIC) coverage?
- Difference in conditions (DIC) insurance is designed to offer a more 'complete' property coverage by covering perils that California FAIR Plan will not.
- California FAIR Plan covers fire and smoke, while the DIC policy covers liability and other types of losses
- It's available for 'difficult to insure' high brush and wildfire risk properties only).
Homeowners insurance typically protects your property against covered perils like fire, smoke, wind, and theft. If you’re having difficulty finding a homeowners insurance policy due to your brush risk, or have been non-renewed for this reason, you may need to look at alternative policies.
We’ve previously described the difference between admitted and non-admitted (also known as surplus lines) carriers and how they work. Another approach is a Difference in Conditions (DIC) policy, also called a “Wrap”. This provides a blended option with 2 policies combined together to act as a “regular” homeowners insurance.
This article discusses:
What is California FAIR Plan?
The California FAIR Plan was established in 1968 to offer property insurance to CA homeowners who are unable to find insurance in the traditional marketplace. It is an insurance pool comprised of all insurers licensed in property and casualty business in California. It’s meant for hard to insure risks, like homes in high brush areas, homes in coastline areas, or homes with multiple prior losses.
Due to the consecutive wildfires year to year and the non-renewals happening across the state, many people have turned to the FAIR Plan to insure their properties.
FAIR Plan policies are '“named peril”, meaning you only have coverage if it’s listed as a covered peril in your contract. Some of the key coverages include:
Fire
Lightning
Internal explosion
Smoke
Vandalism or malicious mischief (this is an optional coverage)
Extended coverages: windstorms, hail, explosion, riots & civil commotion, aircraft, vehicular damage, and volcanic eruptions (this is an optional coverage)
The California FAIR Plan coverages are limited. What about water damage, theft, and liability? This is where the supplemental DIC policy would come into play. DIC insurance policies are offered from preferred carriers and will add on these coverages (depending on the policy purchased) to offer a more “complete” property coverage, similar to a regular homeowners insurance policy. The DIC policy excludes the perils covered by the California FAIR Plan, so it’s important to maintain both policies and keep them in good standing. You will also still be eligible for package discounts if you insure your auto and umbrella with the same DIC carrier.
A DIC policy can either be primary or excess coverage, depending on the cause of loss. In an example:
If the cause of loss is from a fire, then the California FAIR Plan policy will be the one handling the claim.
If the cause of loss is from water damage, then the DIC policy will be the one handling the claim.
A DIC policy can only be purchased with a California FAIR Plan policy.
Our agency represents around a dozen insurers that offer DIC and we aren’t limited to just one company. We will run quotes to see which would offer you the best coverage at the most competitive premium.
Though California FAIR Plan will cover against fire and smoke damage, it excludes many other perils common to a regular homeowners policy, such as:
Falling objects
Water damage
Theft
A DIC policy will typically offer “special form” coverages, which means all is covered unless what’s specifically excluded in the policy wording. Exclusions would include fire and smoke since these would be covered by California FAIR Plan. Other exclusions include coverage for losses against falling objects, water damage, and theft.
Note: exclusions such as wear and tear, earthquake, and flood are still excluded on both FAIR Plan and DIC policies. Earthquake and flood must be purchased separately.
California FAIR Plan can only cover up to a maximum of $3 million (this would be combined for dwelling, other structures, personal property, loss of use or fair rental value). If your home requires higher coverages, then the FAIR Plan and DIC may not meet your needs. The best alternative would be non-admitted or surplus lines if unable to find an option in the preferred marketplace.
DIC coverage is crucial if you live in a fire prone area and must resort to California FAIR Plan to cover your home. If you are seeking a more “complete” policy without gaps in coverage, then you will want to add on a DIC insurance policy.