It’s no mystery why Californians keep losing their homes to wildfires. They keep building in the most flammable areas.
State Insurance Commissioner Ricardo Lara is doing his part to keep it that way.
His new regulation will effectively force ratepayers and taxpayers across California to subsidize the cost of living in predictably combustible corners of the state. And, most troubling of all, it will encourage more construction in those risky regions.
In late December — just a couple weeks after Malibu burned and a couple weeks before fires decimated Pacific Palisades and Altadena — Lara introduced the following rule:
Insurers wanting to do business in the Golden State, he decreed, will have to provide comprehensive policies to homeowners in fire-prone areas.
“Californians,” said Lara, “deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change.”
The regulation, which is a piece of his larger Sustainable Insurance Strategy, requires carriers to boost their coverage in wildfire-plagued parts of the state by 5% every two years until they reach the equivalent of 85% of their statewide market share. That means if a company has a tenth of California’s policies, it must insure 8.5% of the most “wildfire-prone regions”.
Deputy Insurance Commissioner Michael Soller says the intention behind this rule is “to expand coverage options for existing homes.”
But Lara’s rule doesn’t limit itself to already-built, already-occupied homes. And while new homes, following the latest, most stringent building codes, are indeed more survivable, the law of numbers says putting more people in predictably fire-prone zones guarantees greater risk.
Lara might mean well. But, ultimately, his new regulation greases the wheels of the state’s suicidal building machine, ignoring the very clear message the insurance market is trying to tell us: Stop building in high-risk areas.
Ignore with peril
Insurers have been retreating from the California market — and with good reason.
They’re in the business of making money, and they have seen the writing on the wall. Climate change is real, and that means homes in California face rising risks of wildfires, floods and mudslides, all of which threaten insurers’ already-tightly state-regulated profit margins.
Accordingly, in recent years, major carriers like State Farm, Allstate, USAA and The Hartford have stopped issuing new policies or renewing existing ones.
And, as it turns out, their actuaries are prescient.
Seven months before the Palisades Fire burned more than 23,000 acres, destroyed nearly 7,000 buildings, killed 12 people and surged into California history as one of the most expensive disasters ever, State Farm canceled the policies of around 1,600 Pacific Palisades homeowners, not to mention another 2,000 policies in two other high-risk Los Angeles zip codes.
Lara’s policy change, now in effect, will undoubtedly endear him to homeowners in high-risk areas (read: voters) and to realtors, mortgage bankers and builders (read: donors) whose revenues all suffer when large swaths of the state are deemed uninsurable deathtraps.
But every other Californian — be they homeowner or renter — should dread Lara’s ostensibly innocuous, seemingly magnanimous insurance tweak.
Why?
For starters, in exchange for increasing coverage to homeowners in fire-prone zones, Lara’s regulation lets insurance companies pass on their costs of taking on more risk to Californians who don’t live anywhere near fire-plagued areas.
In fact, insurers are already trying and, it seems, succeeding.
In early February, just days after Lara’s new rule become official, State Farm requested the Department of Insurance approve a 22% rate hike for homeowners statewide.
According to an interim agreement struck in March between the insurance giant and the insurance commissioner, State Farm could conditionally start raising renters’ and homeowners’ premiums by 15% and 17%, respectively, beginning as early as June; however, an administrative law judge has yet to give the final green light, obscuring the ultimate tab for Californians.
Whatever spike ratepayers ultimately see in their premiums will come on top of the near-certain $1 billion burden of bailing out the FAIR (Fair Access to Insurance Requirements) Plan. The state-mandated, privately-run high-risk insurance pool’s solvency is in question after the damage wrought by the Palisades and Eaton fires. To prop up that teetering program, it’s expected, if not inevitable, that homeowners far from high-risk wildfire zones will, in part, shoulder the bailout.
Playing with fire
But that’s a short-term concern. The far more significant consequence of Lara’s new regulation is the reckless, near-nihilistic incentives it creates for years to come.
As a team of researchers at the National Science Foundation National Center for Atmospheric Research recently found, the global area burned at the intersection of human development and wildland vegetation — technically called the wildland-urban interface, or WUI — rose by about 35% from 2005 to 2020.
Tragically, it’s in that most predictably dangerous area where California has been building — and burning.
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No other state has so many homes so dangerously located, and no state faces as much risk.
The science is clear, but California doesn’t want to learn any new lessons.
Without home insurance, banks won’t lend and construction won’t start in these predictably combustible areas on the outskirts of our cities and at the edge of nature.
Conversely, under Lara’s plan that effectively encourages that construction, more insurance-induced infernos are invariably in the pipeline.
Californians can blame the commissioner’s good intentions.
Reach Deputy Opinion Editor Max Taves at [email protected].
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