California Wildfires Destroy Homes and Lives. Why Do Regulators Encourage Building in Fire Zones?

A toxic mix of bad insurance regulations and bad housing regulations ensure Golden State residents will continue to return to fire ravaged areas.



Some 50 people have died in the fires currently raging in the Golden State, with 48 perishing as a result of the Camp Fire in the northern, mostly rural Butte County, which has also destroyed 7,600 homes. This makes it the deadliest and the most destructive wildfire in California history.

In response to devastation on this scale, one would expect insurance premiums to shoot up, and for many of the affected residents to move away from fire-prone areas into larger, safer cities. But thanks to California's funky way of regulating insurance, this is likely not going to happen, says Ray Lehmann, an insurance policy expert at the R Street Institute.

"California makes it really difficult for the market to do what it would normally do in these cases, which is when assessments of risk go up, insurance rates go up, and a place becomes less attractive to build there," Lehmann says.

As with most of California's problems, its dysfunctional insurance market can be traced back to a decades-old ballot initiative—in this case Proposition 103.

Passed in 1988, Prop. 103 created an elected Insurance Commissioner, who is responsible for approving rate increases. The law also allows for extensive public input on any proposed rate hike. This makes trying to increase rates in response to increased risks a laborious, political process. As a result, insurers are slower to respond to risk, and less able to write policies that discount fire-safe practices on an individual basis, say, by charging less for having a stone porch instead of a flammable wood one.

In addition, California regulators are forbidden from setting policyholder rates based on future risks (like increasing incidences of wildfire due to climate change, for instance), or the increasing cost of reinsurance (which is insurance on insurance). Insurers are being squeezed as reinsurers raise their prices to reflect growing wildfire risks, but they can't raise policyholder insurance rates to reflect the risk that all parties have identified. In essence, insurers—not the insured—have to pay for that risk, which defeats the entire purpose.

The consequences of this system are two-fold. The first is that, as the state's Department of Insurance noted in a lengthy report from January, some people are having trouble finding any insurance at all for properties in very fire-prone areas. Because insurers can't sell them policies that reflect the likelihood of their houses burning down, they won't sell them insurance at all.

The second consequence is that those homeowners who are getting insurance are not paying what they should considering the likelihood they'll lose their home to fire, which means they have no incentive to rebuild their properties in a way that would reduce their risk.

"There is not an incentive when they rebuild to rebuild to a better standard and use better practices. That's the bigger concern," says Lehmann.

The issue is compounded further by the polar opposite ways in which California state law and localities treat development.

In those cities and counties affected by wildfires, regulators are quick to waive zoning laws and permitting requirements post-disaster. These redevelopments are also exempt from the California Environmental Quality Act (CEQA)—which mandates expensive pre-construction environmental reviews, and which can stall projects for years.

In other parts of the state, CEQA is in full effect and restrictive zoning codes and permitting requirements make it incredibly difficult to build more residential housing. This is particularly true in large (and largely wildfire-free) urban centers. Indeed, the number of structures destroyed by the Camp Fire alone is a little less than twice the number of residential units San Francisco managed to add last year.

In short, California is encouraging people to build where they should not, and discouraging them from building where they should.

Incentives are aligned in such a way that it makes more sense for property owners who've lost a home to fire to rebuild in the same spot rather than move to a location where their homes would most certainly never be at risk of burning down.

And this is why so many Californians live in fire-prone areas, and are likely to face ever deadlier and more destructive fires.

Of the 20 largest California fires—measured by acres burned—recorded in the last 100 years by the California Department of Forestry and Fire Protection, three occurred in the last two years. However, in the ranking of the top 20 most destructive fires—measured by number of structures burned—seven are from the last two years, as are five of the 20 deadliest fires.

The monies the state has had to expend on fire suppression has also skyrocketed. In Fiscal Year 2010, Cal Fire spent some $90 million on fire suppression. In Fiscal Year 2017, spending was up to $773 million—a state record.

Far from looking for fixes to this problem, California politicians are doubling down on their current approaches to both housing and insurance.

A crop of insurance bills landed on outgoing Democratic Gov. Jerry Brown's desk this year, and almost all of them make it even easier for folks to cover themselves in the event of wildfire, and harder for insurance companies to avoid renewing their policies or limiting payouts.

As for housing, the state has punted on a number of promising reforms that would have made urban development easier.

Even if there were political reform, the fact that California's insurance regulations were set by ballot initiative—and thus would have to be undone by ballot initiative—makes that a daunting task.

Sadly, this means Californians can look forward to more unnecessary property destruction and fire-related deaths.

NEXT: Georgetown 'Tree Killer' Fined $53,000 for 'Excessive Pruning' on His Own Property

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  1. Because insurers can’t sell them policies that reflect the likelihood of their houses burning down, they won’t sell them insurance at all.

    There, the market finds a way.

    1. Except:

      “A crop of insurance bills landed on outgoing Democratic Gov. Jerry Brown’s desk this year, and almost all of them make it … harder for insurance companies to avoid renewing their policies or limiting payouts.”

      I do agree the market will find a way. I expect insurance companies to restructure and put CA home fire insurance into a separate company that then goes bankrupt and out of business. But I also expect the CA politicians have already outlawed this, so we’ll have to wait for the insurance companies to pull out of CA, so the CA courts have no jurisdiction and means to force them to selling money losing policies.

  2. Why would risk assessment go up? All the underbrush has now been burned away…

    1. In one sense, the risk has gone down for the areas that have already burned. As you say, the underbrush has been burned away. On the other hand, our knowledge of the risk is now higher because presumably whatever factors allowed the underbrush to build up and/or made it hard to stop this fire once it started are unchanged.

      But in the larger sense, the risk has now demonstrably gone up for all the nearly-identical places that haven’t burned yet.

      1. Sure but those aren’t likely to be the ones hiked.

    2. It won’t take many years before that underbrush regrows.

  3. And don’t even get me started about building in the Yellowstone Caldera!

    1. That will not yield any insurance payments…

    2. Supervolcanos are exempted from insurance coverages.

      So are floods but that is why taxpayer subsidized flood insurance is so cheap.

  4. Q: Why Do Regulators Encourage Building in Fire Zones?

    A: Because the regulators can get rich from all those wonderful and generous kickbacks.
    After all, isn’t that why government regulators were put into office in the first place?

    1. Most of California is semiarid which 99% of the state and country has forgotten.

  5. Gives moonbeam an excuse to bloviate about how he’s saving the world from climate change.
    Tired old piece of crap owns a closet full of hair shirts and wants to make sure we all get fitted with one.

    1. I wonder how much carbon is released when their wooden McMansions are burned up?

  6. “Incentives are aligned in such a way that it makes more sense for property owners who’ve lost a home to fire to rebuild in the same spot rather than move to a location where there home would most certainly never be at risk of burning down.”

    How many building have been burned down after they were rebuilt? Please.

    1. I don’t know of any really good statistics on fires but this phenomenon is very well documented in the context of rebuilding in known flood zones. And like the California fire insurance problem, the flood rebuilding trend is a direct result of government interference in insurance pricing.

  7. Compensate by enacting another edict, forbidding evacuation. You must stand & burn!

  8. BTW, great succinct reporting, Mr. Britschgi.

  9. No different than the millions of homes that are already built or being built in flood-prone areas. When catastrophic events don’t happen for a few decades in a particular area, people begin to rationalize how their new building and site development plans have either “negated” the risk or made it “acceptable”. Then Mother Nature lets loose with all her fury and overwhelms anything man can build.

  10. The OP probably under-describes the extent to which insurance practices encourage unreasonable risk. But a very active political player behind all this abuse is always the real estate industry.

  11. Maybe tomorrow I’ll have time to refute all the BS in this article if you want to limit where people live based on hazard in it then you’re not a libertarian And find me a place that is not hazardous you can’t

    1. Did you actually read the article? It’s not saying to restrict where people live. Instead, it’s saying to remove government regulations which distort market prices (in this case for insurance) via taxpayer subsidies.

      If you want to live in a hazardous place, go for it. But if you want insurance, be prepared to pay the market rate.

  12. How much does it add to the cost of a typical house to make it relatively proof against wildfires?
    Use non-flammable materials for siding, roof, windows, doors, and decks.
    Clear the land around the house so there is little to burn or use plants that are hard to burn.

    1. No materials can survive a fire burning at 1800 degrees. Wildfires are just like the Dresden firestorm. They get so hot the air catches fire.

      1. Adobe/Concrete for the walls, protection under the eaves to prevent fire intrusion there, metal or tile roofs, metal roll shutters that can be pulled down over windows/doors to prevent fire from intruding into the living space if the windows/doors fail.

        The concrete walls are only slightly more expensive compared to wood. The roofing and shutters is where higher cost would occur, especially if you wanted tile instead of metal.

        1. I’ve always thought if there’s a wildfire nearby that might approach, to put one or two sprinklers on the roof to keep the whole outside of the house wet. Anyone know if this would work?

  13. But the reason there are fire prone areas is because they don’t properly manage the forests. Logging dead trees and controlled burns would prevent the whole thing.

    1. Except multiple environmental lawsuits made it illegal and this is the result

  14. I hear many people around me lamenting the costs and loss of life. Why don’t we stop them from living here there are forest fires, they ask? They ask this whilst sitting five miles from the San Andreas fault.

  15. Before adopting Democratic talking points and blaming the fires on “climate change”, I really wish people would step back and look at a rainfall map for California. If they did they will discover that in reality, the majority of the state is either a desert or a semi arid region that gets less than 10 inches of rain a year. The majority of the water in California is from spring runoff when the snow in the mountains melt. Before the 1990s, much if this water was captured in reserviors in Northern California and moved, via aquaduct, to central and southern California. In addition, the forest service used to aggressively manage underbrush and old trees to reduce the fire danger. However in the 1990s, environmental lawsuits forced the draining of reserviors and scaled back forest management. As a result you have a much higher fire risk and no water to fight fires when they happen. These fires are manmade but not due to climate change. They are the result of shortsighted stupidity.

  16. Yes, when catastrophic events don’t happen for a few decades in a particular area for coming…

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