Wildfires

Dozens Died in California Wildfires. Why Is the State Forcing Insurance Companies To Ignore Risks?

The state's insurance commissioner forbids the canceling of policies for homes in risky areas.

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California was besieged by wildfires all summer, torching more than 4 million acres of land, leaving thousands without homes and 31 dead.

While wildfires are a common occurrence in the Golden State, 2020 is wrapping up to be the harshest in modern history, a result of a mix of climate change, poor forest management, and citizens' insistence on moving into wooded areas prone to fires.

Unfortunately, California seems hellbent on prohibiting market solutions from fixing that third problem. The state's insurance commissioner has announced that the state is mandating that companies that provide fire insurance cannot drop coverage of properties within the areas affected by wildfires. This is the second year in a row he has done so.

This counterintuitive announcement by Commissioner Ricardo Lara is the result of a state law passed in 2018 that forbids insurance companies from canceling or refusing to renew policies of a residential property for a year after a declaration of emergency on the basis of the property being in an area in which a wildfire has occurred. Lara was actually the primary sponsor of the bill when he was a state senator, so while his hands are technically tied here, he's directly responsible for this legal state of affairs.

This is a terrible law and an unethical one at that. The marketplace has efficient tools for discouraging building homes in dangerous environments. When insurance companies refuse to insure people who live in places prone to fire, flooding, or other natural disasters, the market is sending consumers a very important message: "It's not safe to live here. If you make the decision to ignore this warning, we're not going to be fiscally responsible for your choices."

Lara's law subverts these market signals and turns insurance into, essentially, a form of state-enforced financial subsidy. The consequences for bad outcomes are both likely and well-known. Requiring insurance companies to continue covering these properties will encourage people to continue to live and build in places where it's dangerous. Again, 31 people died as a result of these fires, and Lara's primary interest is making sure that homeowners apparently don't learn anything.

Lara's press release trumpeting the moratorium is clear that the goal is to keep people living in these places, even if they're at risk from future wildfires. The announcement features quotes not from insurance companies, but from consumer advocates who don't think it's fair to lose their fire insurance coverage just because they're at increased risk of having their homes catch fire.

"This moratorium ensures that families whose homes survived the flames do not lose their homes because insurers refuse to continue their coverage. With insurance, we pay year after year even though we hope never to need it, and California law helps make it a fair deal by saying that insurers cannot suddenly drop us just because a fire got close," said Douglas Heller, of California's Consumer Federation of America, in Lara's press release.

A "fair deal" for whom, exactly? It's not a fair deal for the insurance companies, who are now essentially being forced to subsidize dangerous practices. But this is a consistent problem with the role insurance is supposed to play in the market (assessing risk and pricing protection and recovery assistance accordingly) and what consumers think the role of insurance is supposed to be (a piggy bank you pay into that will then cover all expenses in the event of disaster).

The Los Angeles Times notes that these demands from California are causing insurance providers to "spike premiums or flee the marketplace altogether." Reports from the state's Department of Insurance determined that there's been a tripling of the number of people complaining about getting dropped by their insurance companies in areas prone to wildfires and complaints about premiums increasing have jumped more than 200 percent between 2010 and 2016.

And yet, the paper notes, people continue to build homes in parts of the country that are prone to wildfires. A report from the National Academy of Sciences found a 41 percent growth in housing near areas of wildland growth across the United States from 1990 to 2010.

People who decide to move to or live in areas that are at risk of wildfire should be free to do so, but it's not the role of the government to shield them from an appropriate market assessment of the risks of doing so. California's actions are actually fostering dangerous housing choices—ones which may lead to more deaths down the line—by getting in the way of very important market signals.

NEXT: The Man Who Finished Last

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  1. Progressives seem to a think that we live in a world that is as they think it should be, rather than what it actually is.

    If they think something is bad, it can and should be changed, and consequences are of no concern.

    1. Eff wye tee dubya.

    2. Nor feasibility, cost, or Constitutionality.

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  2. Hurricanes, anyone?

    1. Hurricanes?

      My homeowners insurance gets jacked after every storm. *shrug*

    2. Sharknados?

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  4. >>prone to wildfires

    difference between policy-created and Mom Nature.

  5. This will cost one life!

  6. The answer to every question that starts with “Why is california..” is : Because california is run and populated by goddamned morons.

  7. Private insurance is like a fair weather friend – always taking your money when times are good and gone when there are losses. Industry needs tight regulations if they are to pay for any kind of real losses.

    Which is why private insurance is a TERRIBLE MODEL for covering the old and sick with health care.

    1. Sure, if you define insurance incorrectly, it’s terrible. What else you got up your sleeve?

      The difference is that socialism only looks good when you define it incorrectly, and not just any incorrectly; you have to misdefine it in the one correct way to make it look good. All other definitions, correct and incorrect, show it correctly as bad.

      1. Yes, indeed, private insurance sucks for paying for medical care. Like not covering pre-existing conditions. What the fuck do I need insurance for if I’m not sick? Why can’t I wait until I keel over with a heart attack before I buy insurance that covers heart attacks? It’s so unfair, it’s like people don’t even know what insurance is – it’s a way to make other people pay for your free shit.

        1. When Jonathan Gruber talked about the need to lie to the American people to get Obamacare passed, I think he was mainly talking about the fact that all of the young and healthy people who wanted to see pre-existing conditions covered were the ones paying for the relatively old and unhealthy people’s medical care. That’s what the individual mandate was about.

          1. Insurance is all about cherry picking. As corps gain and control all our private information, the more that is certain and their risk/payout is minimized so their profits are maximized. Of course when this happens they become wasteful and inefficient regarding covering losses (but efficient in making profits).

            Insurance are great WEALTH EXTRACTION MACHINES, when they cherrypick low risk.

            1. If it is lucrative go start an insurance company. But here’s the profit margins you’ll be dealing with.
              The insurance sector’s net profit margin (NPM) for 2019 was roughly 6.3%. Life insurance companies had an average NPM of 9.6%. Property and casualty insurance companies averaged 2.7%.Apr 27, 2020

              1. Yeah, and his is after their admin fee.? What is there admin fees?

              2. Yeah, and his is after their admin fee?….. What are the admin fees?

            2. If you think insurance cost too much then don’t buy it, or choose to live in a low risk area. It is not fair for the government to force low risk insurance customers to subsidize high risk customers. In the end the market always wins, insurance companies forced to take on high risk policies either go bankrupt or move out of the state. Unless the government bails them out…

        2. Why can’t I wait until I’m in an auto accident to buy collision insurance?

          1. yuo CAN.. for your NEXT wreck. But now your damage/loss is done, YOU gotta come up with the scratch to set things right. Insurance is a bet on the future. Not a price on the past.
            Of course, now we KNOW you are capable of getting INTO prangups with your car, we also KNOW you are a higher risk now than you were before the crunch. Thus we will whack you harder each month on the known increase in likelihood we WILL have to pony up for your crazy driving……

          2. What we need is a system that ties into vehicle sensors and cell service. If it detects an imminent crash, it immediately searches for the lowest priced policy and purchases it. Just in time coverage.

        3. Insurance makes money by running away from risk to minimize payouts and maximize profits. An especially terrible model for a health care system. Look at time before medicare and you will see only 8% of people 60+ yo had insurance.

          Of course insurance companies want to take your money when you are young and healthy. When you old and sick they send you to the taxpayers to pay.

          1. Tonto
            November.10.2020 at 7:55 pm
            “Insurance makes money by running away from risk to minimize payouts and maximize profits. An especially terrible model for a health care system…”

            Lefty bullshit =/= argument or evidence, it is nothing other than bullshit from a lefty who is, obviously, an ignoramus.

            1. Stop the rigth wing BS..if you cant say it you dont know it.

      2. He thinks insurance is someone else paying for your stuff.

    2. The reason “private insurance” is a poor model for health care is because people don’t buy health insurance they buy health maintenance policies. There is no such thing as health insurance other than the catastrophic kind which comes with largely nothing included. My car insurance doesn’t include a prescription for four quarts of oil every 7,000-15,000 miles or a new battery or tires every so many years so why should health insurance include little blue pecker pills, birth control pills, or much else for that matter.

      I can buy a policy that covers oil, tires, batteries, etc. but it sure as shit isn’t an insurance policy.

      1. Note, I get they call it “insurance” but they might as well call it “two eels fucking in a bucket of snot” – which would be actually be more accurate given one eel is the government and the other is the healthcare industry.

        1. Oh and the “snot” is actually your money.

        2. This wins the “Analogy of the Day Award”. Noice.

    3. “…Which is why private insurance is a TERRIBLE MODEL for covering the old and sick with health care…”

      Post lies, claim it proves lefty bullshit; got it.

      1. I buess there is a reason so many countries use private health insurance LOL..

        https://en.wikipedia.org/wiki/List_of_countries_by_health_insurance_coverage

        If you cant say it you dont know it!

  8. The government is always taking your money but comes back for more when there are losses.

  9. Take away the building regulations so people can build homes at a minor cost that doesn’t require a mortgage and thus does not require insurance since the value is easily replaceable. this can be done but we are not allowed. the permits alone for a 500 square foot house is greater then the materials alone. I’m in the trade this is a fact.

    1. This is a good point. Always say if you want to end government rent control then its only fair to end the government zoning regs that limit supply. Obviously wealthy landowners use zoning regs to restrict competition and usually fight zoning changes.

      1. In my town wealthy landowners have been fighting regs just to build. it takes ten years to get a subdivision of more than four homes approved. because of that now only big corp home builders can build in subdivisions since they are the only ones who can sit on land that long with the legal hurdles.

      2. Tonto
        November.10.2020 at 2:08 pm
        “This is a good point. Always say if you want to end government rent control then its only fair to end the government zoning regs that limit supply…”

        You mean like the lefty SF gov’t zoning regs, lefty shit?

  10. It’s almost like these EVIL insurance companies are telling people it’s a bad idea to live in places that catch on fire every year.

    1. In reality the number of fires in the state is a small percentage of total houses. that said my town has burnt down three times in history pre insurance. Its so over grown with tress now a fire would walk through.

      1. Of course, by insisting that insurance is provided against the wisdom of the insurance companies, and at unrealistic rates, the gov’t is mandating that people who CAN’T afford a home deep in the lovely woods pay higher rates than they should, to cover the inevitable losses. Fucking great.

    2. How dare private companies tell people they can’t have everything they want for free.

      That’s the government’s job!

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  12. On the bright side the ones who died were californians

    1. 0.00021% of the population of California more people die in cars, lets outlaw cars and stop insuring cars.

  13. How does not letting insurers drop coverage for people already in these areas inhibit the market from discouraging new people from moving there? It doesn’t. This whole article is pretty sloppy.

    “citizens’ insistence on moving into wooded areas prone to fires.

    Unfortunately, California seems hellbent on prohibiting market solutions from fixing that third problem. The state’s insurance commissioner has announced that the state is mandating that companies that provide fire insurance cannot drop coverage”

    1. Think a little deeper. If they knew they could be dropped they would not have moved there or would move from there.

    2. “How does not letting insurers drop coverage for people already in these areas inhibit the market from discouraging new people from moving there?”

      Ah, well what about purple?
      Try constructing sentences in English; your inability to think clearly is evidenced by your inability to post clearly.

      1. People that always attack the persons instead of the arguments usually cannot.

        If you cant say it you dont know it.

  14. Personally, I don’t see a problem with saying insurance companies must insure all applicants regardless of risk, provided the insurance companies are free to price that risk as they see fit.

    Of course the next logical step is price controls and/or subsidies, as in the federal flood insurance program, assuming that California doesn’t already have them in place (and I’d bet they do).

    1. Yes it is unfair to have a company be forced to pay for risk, which is why insurance is such a TERRIBLE MODEL for a health care system.

      Companies have to compete and best way to keep premiums low is to jettison the old and sick because they have choice who they cover. Before medicare the old either kept working for insurance or could not afford premiums and relied on charity care.

      1. You and other like minded people could take care of them. Hop to it.

      2. “Yes it is unfair to have a company be forced to pay for risk, which is why insurance is such a TERRIBLE MODEL for a health care system.”

        Are you an adolescent or merely posing as one? Or perhaps just stupid.
        Insurance companies do nothing other than monetize risk, collecting premiums from those of us (prolly not a lefty shit like you) wise enough to understand that the risk and pay for it before high costs are required.

  15. Of course, insurance companies can keep people from building in those areas. Just don’t provide insurance in the first place. There is no worry about non-renewals or cancellations.

    Or provide insurance with provisions that loss from wildfire is not covered.

    If a lender is willing to put out money in a fire prone area with no Home Owners Insurance, go ahead.

  16. I think it was about ten years ago Portland Oregon had some record breaking rains, and many of the newly built high end luxury homes that were hanging on to the steep hillsides to the southwest of Portland itself quit hanging on, and slid on down into the bottoms, to have all the mud washed off them by the deep fast rivers. Insurance companies had to pay out huge amounts to replace those homes.. but warned the owners that the new coverage would be SCARY expensive because of the now-proven high risk living on those steep hillsides. Many just took the money and bought elsewhere and sold off their now empty lots.

    The City decided to emply a government solution: they ceased granting building permits for homes in those steep hillly areas prone to mudslides. Someone threatened to sue if they denied the building permit, saying I KNOW THE RISK and I don’t care, I still want to build THERE. So Portland eventually caved and began issuiing permits after VERY through studies of the lots…… so some building began again.

    Then some dimbulb short about fifty watts got their permit built, and had the house destryed in another flood/landslide. They sued the city. “YO approved the structuure on this lot designed the way it was, and thisnfailed to protect me from my own self-aggrandised image so the loss of my home is YOUR fault.

    I believe they had their lawyers draw up some legalese mumbojumbo nnsense that, once the permit application was duly signed, the city was now immune from any adverse legal action. YOU demanded the permit, WE gave it to you, now YOU bear the risk. YOU paid the engineers to make their call, they did, and we’re only paperpushers, WE do NOT provide any guarantee of your safety or security.

    1. “I believe they had their lawyers draw up some legalese mumbojumbo nnsense that, once the permit application was duly signed, the city was now immune from any adverse legal action. YOU demanded the permit, WE gave it to you, now YOU bear the risk. YOU paid the engineers to make their call, they did, and we’re only paperpushers, WE do NOT provide any guarantee of your safety or security.”

      Sounds good to me; the taxpayers ducked a hit.

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  18. Moral hazard. Incentives affect behavior. Negative rights versus positive rights. — We’d be better off if more people understood these few, not-too-complicated ideas.

  19. “wildfires are a common occurrence ”
    Actually wildfires are an intrinsic aspect of California’s ecology.

  20. If Commissioner Ricardo Lara cares so much he can cover them. he and other like minded people. But I guess he’d rather coerce Other People’s Money to pay for them. The new OPM of the Masses.

    1. The commissioner gets to claim personal accomplishment at no cost to himself; what more could a lefty shit hope for?

      1. Fuck yeah. A bit of performative virtue, costing him nothing, mostly benefiting members of the campaign contributor class and striking a blow against the unseemly profit-seeking of some capitalist enterprise? Perfect.

        The “likes” on the Tweets announcing his own Solomonic wisdom were just icing on the self-congratulatory moral cake.

        God, I hate these lefty fucks.

  21. Indeed it is out of line to have an organization be compelled to pay for hazard, which is the reason protection is such a terrible model for a medical care framework.

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  22. Insurance is not a difficult concept to understand. A pool of people, in this case homeowners, share the risk. The risk is shared by your premiums. If California makes even high risk areas share risks by law, everyone’s premiums go up. Good luck to any Californian buying affordable house insurance after this policy. The proper policy would be do deny homes in high risk areas, limiting building of those homes in high risk areas to people that have the money to rebuild, or are willing to gamble on losing everything.

    Sometimes you have to wonder if Californians are the dumbest people in the world? Like suing the power company, bringing blackouts in hot weather and higher rates so the power company can pay off their lawsuit judgements. Now they encourage people to build in high risk areas? Well, those people are still gambling with their lives.

  23. Good. Fuck insurance companies. Now do away with mandatory insurance for cars, house loans, etc.

  24. Well, living in downtown Pville, CA, I can attest that I was cancelled even though I am less than 100′ from a fire hydrant and my shit cleared, as well as my neighbors. There is no reason that us in town should be cancelled; understandable if you live in outlying areas and choose to not protect yourself. Some say I should move if I don’t like it but I was born here and this is home. Insurance companies just lump a whole county together. Like the dbags who say all from CA are lib retards. Plus, no one wants us moving to their states, so we send out the lib losers that masquerade as hillbillies.

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  26. Democrats’ answer to jobs which don’t pay enough: ban them.
    Democrats’ answer to insurance companies fleeing high risk markets? Force them to write policies.
    This on top of suing PG & E into oblivion.

  27. Same thing goes for flood insurance.

    Could a smarter legislature write a “one strike and you’re out bill allowing reimbursement for one disaster but not for a subsequent rebuild in the same dangerous area?

  28. I could see an argument for dissalowing the cancelation of insurance DURING a state of emergency – having the insurance cancelled just as a fire approaches kinda defeats the purpose of having insurance. (Though realistically that should realy be covered in the insurance contract anyway.) What I don’t understand is preventing the cancellation of policies AFTER the state of emergancy is over.

    Maybe some protection with regards to direct effects of the fire/natural disaster – eg fire damaged trees fall on your house a week after the state of emergancy is over and they canceled your policy the day the declaration was recinded – but again this should realy be covered in your contract.

  29. About half of the things written on Reason as stupid or with an eye towards self-centeredness, this article is not one of them.

    Fire insurance and flood insurance. Both should be dropped from govt’s portfolio of problems to solve. While undeniable, individual property owner would be a significant disadvantage against free-market insurance, the price-control on risk is producing an perverse incentive to continue bad behavior.

    But lets be honest, these is a bipartisan problem, Dem and Rep alike. Indeed, when Obama tried to reform national flood insurance, it was “free-market” GOP (along with Dems) that huffed and puffed and hyperventilated. Even today, GOP state admins (TX, MS, AL, FL) are secretly seeking Fed funds for climate change mitigation while simultaneously denying the existence of climate change and permitting more construction in high-risk areas.

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