California's Wonky Insurance and Land Use Regulations Make the State's Wildfires Deadlier and More Destructive

The state has made it exceedingly difficult to build in fire-safe cities, while also making insurance rates in high-risk areas artificially cheap.


California is burning again, with some 26 million people under red flag warnings, and another 250,000 being forced to flee their homes.

The increasing intensity of these fires, which have grown deadlier and more destructive in recent years, has prompted demands from the public for better control and prevention.

So far, the focus has been on reforming the state's utilities, whose equipment continues to spark wildfires. That's left them with massive financial and political liabilities as fire victims demand compensation and politicians demand blood.

Rep. Ro Khanna (D–Calif.), for instance, has called for the state to take control of Pacific Gas & Electric (PG&E), the state's largest utility which was forced into bankruptcy after its equipment was found to have caused last year's deadly Camp Fire in which 85 people died.

"It's time for the state to take ownership of PG&E, and make sure that they are doing what they need to do to keep the power on and keep people safe," he told CNBC on Tuesday.

Last week, the state's top utility regulator also approved the creation of a $21 billion wildfire fund—paid for in equal part by utilities and their customers—that will cover wildfire damages caused by utility company equipment so long as the utility was not negligent.

Another solution gaining support is restricting development in fire-prone areas. The Los Angeles Times on Monday published the results of a June poll finding that some 75 percent of respondents were somewhat supportive of restricting development in susceptible areas.

Lost in the mix, however, is the way that existing development restrictions in fire-safe regions have encouraged home-building in high-risk areas, while perverse insurance regulations have shielded property owners from the true costs of living there.

"Ultimately there are people living in high-risk zones who cannot afford to bear the full risk of the places they've chosen to live," says R.J. Lehmann, an insurance policy expert at R Street Institute. "They didn't have accurate information through market signals."

A lot of these problems, he says, can be traced back to a 1988 state ballot measure, Prop. 103, that created an elected insurance commissioner who must approve rate increases proposed by insurance companies.

"It's unpopular when insurers either raise rates or don't renew policies so [the insurance commissioner] follows those politics even if the market conditions or the environmental conditions would recommend otherwise," Lehmann tells Reason.

In addition, Prop. 103 limits the types of risk and cost increases insurers can use to justify rate increases. That includes the costs of reinsurance (insurance on insurance) as well as future risks like climate change or changing forest conditions.

This means that insurers aren't able to price their insurance policies to accurately reflect the risks homeowners in fire-prone areas are facing. Property owners aren't seeing the full risk of their homes burning down reflected in their insurance policies.

In the absence of being able to charge market rates to consumers, one would expect that insurance companies would decline to cover folks in areas at high risk of fire. There's some evidence that this is happening: The California Department of Insurance (DOI) reports that non-renewal rates have increased following fires in 2017 and 2018.

"If you do want to continue to do business in California, but not in those areas, then the commissioner has a lot undefined authority to make it difficult to not renew policies," says Lehmann.

California law requires insurance companies to provide a policyholder with a reason for not renewing their policy. It also gives consumers the right to have their policy's non-renewal reviewed by the DOI staff.

Last year, the state legislature also passed several bills making it harder to not renew policies for people affected by wildfires. Insurers must renew policies by another year for people in fire-affected areas whose homes were not destroyed. They must renew policies for two years for those whose homes were destroyed by wildfire.

All these things raise the costs of doing business on insurance companies, while protecting customers from price hikes.

Insulating both groups from the costs associated with wildfires is a California legal doctrine that holds utility companies wholly liable for fires caused by their equipment, even when they weren't negligent and followed all state safety regulations.

"The fact that utilities end up eating the costs of wildfires, that has an effect on what the rates are for property insurance because property insurance has been able to discount that," says Lehmann.

By contrast, if insurance companies had to pay out to homeowners in the event of a utility-caused fire (where the utility has not been negligent), they would have to raise their rates to cover this added risk. The knock-on effect would be that building and living in fire-prone areas would become more expensive and less attractive.

There have been several proposals to reform utilities' liabilities for fire damage along these lines.

In June, Gov. Gavin Newsom's office put out a 57-page report on how the state could better respond to wildfires that included a range of proposals, including having the state adopt a fault-based standard for utility liabilities—basically, companies would only be liable for fire damages caused by their equipment when they've been negligent.

That same month, the state's Legislative Analyst's Office (LAO) suggested the same thing in its own report. The change, reads the LAO report, "might encourage insurers to make their coverage or premiums contingent on risk reduction activities undertaken by the homeowner" or even make them less willing to insure homes in high-risk areas.

Absent the ability to find affordable private insurance, some homeowners would likely be forced to move out of high-risk areas.

Higher premiums might also make clear-cutting forests near housing developments to lower the risk of fire and therefore insurance premiums—something often loathed by environmentalists—more politically palatable.

So far, however, the idea of shifting legal liabilities from unpopular utilities to homeowners has attracted little support.

Nevertheless, the incentives created by higher property insurance premiums—and the price signals that would send about building and living in fire-prone areas—would likely mean less destructive, less deadly wildfires.

It would also, of course, mean making housing more expensive in a state that is already suffering from crippling affordability problems.

Lehmann suggests land use reform be coupled with changes to insurance regulations.

Loosening development restrictions in cities would, the thinking goes, lead to more home construction and therefore lower housing costs. That would, in turn, give people who are priced out of fire-prone areas (following insurance reform) safe and affordable places to move to.

"People have to live somewhere," he says. "Where it is low-risk, we have to massively increase the amount of housing you can build."

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  1. The watermelons also ran the logging industry out of the state; the industry which managed the forests pretty well, since that’s where their profits were found.
    And then, the state totally ignored the management, allowing huge accumulations of dead and dried fuel.
    And moonbeam, one of the prime agents of that disaster, blames climate change, claiming it’s a ‘moral imperative’.

    1. That’s basically it. If “the state” owns something, nobody has any interest in keeping up with it. I’ve always said if you REALLY want to protect the Amazon rain forest…sell the fucker. Give somebody a reason to give two shits.

      CA is unwilling to deal with the underbrush so they will constantly have these problems. And, of course, they will not ever learn.

    2. This is the actual problem. California needs to keep the forest thinned or the environment will thin them itself. This isn’t new knowledge.

      Also “paid for in equal part by utilities and their customers,” that just means paid for by their customers.

      1. paid for in equal part by utilities and their customers
        That just means there will be a line item on the bill for the customer’s part. The rest will be included in a hike of the base rate.

        1. They might not be able to hike the rates too much more – they are a state-granted monopoly, remember, with all the attendant meddling that entails. They’ve only gotten away with hiking rates as much as they have because the hairshirt-wearing environuts support almost any effort to make civilization more expensive (particularly for other people). But they’re not numerous enough, and even Californians will put their foot down if their utility bill gets too outrageous.

    3. I looked into what it would take to thin out my 20 acres. Hire a timber professional to file a harvest plan, all taking a long time and costing more than I would make from selling the logs, and all no doubt subject to every two-bit whiner who thinks trees are precious and must be preserved at all costs.

      Meanwhile, there are several times as many trees per acre as there were before the gold and silver miners clear cut them, meaning that each tree gets a lot less water than its ancestors, making them all the more susceptible to beetles and ready to burn.

      And PG&E apparently told to prioritize paying for solar roof electricity over upgrading and maintaining their equipment.

      1. There’s a book called “Fire in the Sierra Nevada Forests: A Photographic Interpretation of Ecological Change Since 1849” by George E. Gruell. It’s out of print and expensive as a second hand purchase but it’s an enlightening “Pictures are worth a 1000 words” type of book.


        1. $1000! You ain’t kidding about that. The conspiracy theorist side of me thinks that is the eco-freaks pricing it high to keep the truth expensive 🙂

          1. $1000???? Wow!!! I usually see it for about $75 – $100 from 3rd party sellers on Amazon.

  2. A state filled with idiots.

  3. and the racket proceeds …

  4. Shouldn’t it be called wanky?

  5. In the early part of last year, papers up in the area of the “Camp” fire were reporting on the push-back that PG&E was getting from local residents when they tried to get onto private property to clear brush away from lines. There were also people complaining that all of this was being done without the utility having gone through all of the required “environmental impact” research and reporting.

    I’m pretty sure most of that abated at least a little bit when the area went up in flames due to the brush that wasn’t cleared, but I wouldn’t put it past NorCal residents to still be pissed about how the responsible precautions bother them (although I’m sure they’d figure out how to blame “Big Pharma” or someone if the same fires were started by the same lines owned by a municipal/gov’t run utility).

    How anyone who’s seen CalTrans try to build/maintain transportation infrastructure thinks that putting the State in charge of the power is a solution with a hope for success escapes me. I’m sure Ro Khana’s main concern is that the union dues of the workers on a public utility would be funding automatic campaign money for himself and his party at every level, though.

  6. “California’s Wonky Insurance and Land Use Regulations Make the State’s Wildfires Deadlier and More Destructive.”

    On the other hand, it keeps a lot of citizens of California warm at night when these fires occur.

    1. They gotta have something during the blackouts, after all. Who says Mother Nature doesn’t provide?

  7. Say all the bad things you want to about California, it may have the worse roads, the most littered roads in the country, some of the worse schools, the highest number of homeless, the most human excrement in a city and the greatest wealth inequality, but at least it has some of the highest sales and income taxes in the nation.

    We all know that high tax rates are good because they give politicians more money to do nice things for us.

    WTF, I think I have been in the state too long..help!

  8. My two bits – free to all you….

    I think that PG&E is doing the electrical shutdowns for reasons that exceed the obvious which is limiting liability. They are also tired of being raked over the coals by a bunch in maniacal politicians who need to hang someone in the public square and PG&E is a big, fat for-profit company, well sort of except for the PUC.

    California government has “forced” PG&E to invest in the complexities of “renewable” energy. This isn’t cheap. There are a lot of complex issues and high costs that come with maintaining a grid 24/7 and at the same time dealing with peaking requirements. So, instead of putting resources into line maintenance, it’s going into “renewable” support.

    PG&E, as the whipping boy, has little political say in this matter and has finally decided to let the consumer know how dependent they are on electricity but shutting down transmission lines to avoid starting fires that could have been prevented with resources spent on maintenance had the whole renewable fiasco not occurred in the first place.

    From what I have seen so far, it’s apparent that most people do not have a clue how dependent they are on 24/7 electricity. These shutdowns in a perverse way are a good thing if they wake up a bunch of voters to realize that this isn’t just PG&e’s fault, it’s politicians promoting brain-dead “new energy” programs.

    1. “So, instead of putting resources into line maintenance, it’s going into “renewable” support.”

      Kind of like how the government takes gas tax money to spend on things that don’t benefit drivers.

      1. Kind of like how the government takes gas tax money to spend on things that actively go against drivers interests.


        Things like bike lanes that cost more than handing everyone a free Prius.

  9. “It’s time for the state to take ownership of PG&E, and make sure that they are doing what they need to do to keep the power on and keep people safe,”

    Really, now? SO they can mangle, er, squeeze me, manage, it like they’ve done water storage and distribution, flood management and abatement, highway maintainance, the prisons, unlicensed/uninsured drivers being let in and coddled as a “precious resource”, high speed rail, distribution of “road use taxes” which go for everything else but, state forests, security and crime reduction, gun rights, welfare……….. ya shoor yoo betchya we make a gud t’ing uff it…….

    And I gots me a pet chikkin can fly to the moon and =back in a week, all by herself.

  10. Wait… You’re telling me that the redwood forests and oak savannah of California, which are heavily adapted to wildfires, and in fact require fire for proper maintenance, are prone to wildfires, and shouldn’t be built in?

  11. Holy crap! Look at all those plastic straws utterly demolishing the environment. Thankfully though – we saved all those trees though.


  12. There is a real problem in insurance across the country. In California its fire insurance, in other areas it is flood insurance. There is a real problem with people wanting to live in areas that are best not lived in. I agree another problem is building codes that limit building in more hospitable areas. I would also throw in a housing industry that pushes sales and wants to build in these less hospitable areas. The building industry has political clout because of money and the building code restriction are fueled by NIMBY. What is left for politicians but to mandate underfunded/overgenerous insurance. No a good situation.

  13. Easy to say, just move when rates get to high, but I see places up here that have been for sale over a year. People simply can’t get insurance. Ironically, most of the fire damage has occurred down in the low lands, not in the forests.

    1. So save a personal ‘insurance pool’ and actually pay for the house. I know the idea of actually “paying” for ones house is an outdated concept thanks to politicians advertising “everyone gets a free house” but really; Are all CA banks going to burn down too?

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