As Watts burned, insurance men beat the National Guard to the scene by a full day. Entering the still-smoldering Los Angeles neighborhood to gauge the insurable damages, these were capitalism’s first responders. After tallying the $40 million in losses, the industry sharply reduced the supply of insurance in Watts and other neighborhoods of color. In those areas, many property owners could no longer access insurance, and even when they did manage to find coverage, premiums were at least double—and often many times more—what they had been a short while before. Insurance redlining was nothing new; it had limited investment and indemnity in neighborhoods of color for decades. But following Watts, it intensified, and the area’s insurance market collapsed almost entirely. In an effort to restore access, California’s commissioner of insurance assembled the “Watts pool,” joining together 110 insurers to share in the losses or gains from writing insurance in the neighborhood.
Two years later, amid unrelenting rebellion across American cities, President Lyndon B. Johnson convened the National Advisory Commission on Civil Disorders, better known as the Kerner Commission, to propose nationwide remedies for the unrest. An insurance-related offshoot of the Kerner Commission saw the Watts pool as an important prototype for what became the FAIR Plan, a government-organized pool of all property insurers operating in a given state. Established on a state-by-state basis beginning in 1968, the FAIR Plan was Washington’s answer to the deepening crisis of insurance redlining. By increasing access to property insurance in “riot-prone areas,” federal policymakers hoped the FAIR Plan would help douse the flames engulfing American cities.
Though the FAIR Plan increased insurance access for some, it did little to address the root causes of the nationwide rebellion: police violence, increasing unemployment, and deeply entrenched inequities in housing, jobs, and education. Instead, the program merely protected the real estate and insurance industries from the risks posed by those systemic problems. This would prove to be a deadly error. As American cities entered the 1970s, the FAIR Plan buffered landlords and insurers from the growing urban crisis, introducing perverse incentives that led landlords to burn down their own buildings for insurance payouts. Though created to quell the uprisings, the insurance program ended up sparking a firestorm far more destructive. By 1977, at least one insurance leader had realized that with the FAIR Plan, “we have jumped out of the frying pan into the fire.”