Reason.com

Free Minds & Free Markets

Hey, California: Stop Encouraging Building in Fire Zones!

The so-called Camp Fire in Butte County, California, has led to the deaths of 85 people and destroyed 13,972 homes, making it the deadliest wildfire in the state's history. Sadly, California law makes it likely that another fire will soon claim that dubious distinction.

Thanks to the state's funky way of regulating insurance, residents in fire-prone areas have little reason to move out of harm's way after the last ember has cooled, 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," he says.

As with many of California's problems, its dysfunctional insurance market can be traced back to a decades-old ballot initiative. Passed in 1988, Proposition 103 expanded the mandate of the insurance commissioner, who is responsible for approving rate increases. The law also allows for extensive public input on any proposed rate hike. 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.

Craziest of all, California regulators are forbidden from setting policyholder rates based on future risks (increasing incidences of wildfire due to climate change, for instance) or the increasing cost of the reinsurance on which property insurers rely to protect themselves. Insurance providers are being squeezed as reinsurers, acting rationally, raise their prices, but the primary insurers can't increase their own rates to reflect the risks that all parties have identified.

The consequences of this system are twofold. First, as the state's Department of Insurance noted in a lengthy January 2018 report, some people are having trouble getting insurance in the first place for properties in very fire-prone areas. Because insurers can't sell them policies that reflect the actual likelihood of their houses burning down, they won't sell them insurance at all.

The second consequence is that those homeowners who do get insurance are not paying what they should—and since they're insulated from the true cost of the risk, they end up building in areas they shouldn't.

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

It gets worse, however, because this isn't just an insurance issue. In 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 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) city centers. Indeed, the number of structures destroyed by the Camp Fire alone is almost twice the number of residential units San Francisco managed to add all last year.

With such absurdly strict urban rules, it's no wonder so many Californians live instead in fire-prone areas, which recent trends suggest are likely to face ever-deadlier and more destructive fires over time.

Of the 20 largest California fires—measured by acres burned—recorded in the last century by the California Department of Forestry and Fire Protection (Cal Fire), three occurred in the last two years. However, of the 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.

State spending on fire suppression has skyrocketed. In fiscal year 2010, Cal Fire spent some $90 million on fire suppression. In fiscal year 2017, spending was up to $773 million—an eightfold increase and 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 harder for insurance companies to avoid renewing policies in risky areas or to limit future payouts.

As a result, more unnecessary property destruction and fire-related deaths are still to come.

Photo Credit: USDA Forest Service

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • MatthewSlyfield||

    If CA wanted to discourage building in potential disaster zones (fire, earthquake...), they would have to evacuate 3/4ths of the state.

  • Mickey Rat||

    Is there any land in California near its population centers not a disaster of one sort or another waiting to happen?

  • Rob Misek||

    It's a pretty good analogy for capitalism's effect on an economy versus common sense regulation.

    Capitalism encourages building in fire zones where the weather and scenery is great. High housing prices. When a fire destroys everything, it all must be replaced at mostly the sheeples expense. Everyone working harder, consuming. A booming economy. Why not destroy everything? Maybe that's the end game already. Make the rich, richer.

    Except there is no progress and no future. The economy is running in place wasting labour and resources at increased rates just to hold in place, stagnant. Common sense says those homes should last 100 years or more. The infrastructure even longer. Live like locusts, die like them.

  • MJBinAL||

    Did you even read this article?

    Capitalism wants to raise insurance rates in fire prone areas ...
    GOVERNMENT prevents this from happening
    Capitalism is increasing re-insurance rates causing insurance to be unavailable in the most fire prone areas ...
    GOVERNMENT is planning action to require that the insurance be provided at a loss.

    The rest of your post is meaningless, whining blather.

  • a ab abc abcd abcde abcdef ahf||

    He's either trying to be a bad parody of OBL or he's just rambling away like nobody's business. That's one disjointed piece of nonsense.

  • Kreel Sarloo||

    Not seeing any parody here, Rob Misek is just exposing himself as the fascist that he truly is.

  • Unicorn Abattoir||

    Misek's not a parody. Just an idiot.

  • kd6rxl||

    I thought Reason was a Libertarian rag. I would have thought that building a house where you want without much gubmint regulation was the essence of libertarianism.

    Also, Reason writers, like Democrats, favor open borders for all the world's 7 billion people to move to California tomorrow if they feel like it. That definitely means more 'sprawl' into wildfire zones.

  • MJBinAL||

    Subsidized insurance rates for your house built in the high risk location you want is not libertarian. Libertarian, is to pay for your own chosen risks.

  • a ab abc abcd abcde abcdef ahf||

    Someone else who didn't read the article and has no common sense. The open borders comments reminds me of people who think you need land zoning to keep slaughterhouses and skyscrapers out of residential neighborhoods. Hyperbole beyond rationality only makes your cause look dumber.

  • loveconstitution1789||

    Fire insurance rates should be based on risk just like every other insurance policy.

    If you live in a high fire area, your home needs to be nearly fire proof. That may involve roofs that are fire proof, walls of brick, fire shudders, sprinkler systems, etc.

    If you live anywhere in a 100 year flood plain, your home should be flood resistant. That may include off-the-ground house, flood drainage design for soil, etc.

  • apedad||

    OK, who's preventing people from fire proofing or flood resisting their homes?

    Or are you stating govt should mandate this?

  • I'm Not Sure||

    Nobody is preventing people from fire proofing or flood resisting their homes. Government mandates are discouraging them, however.

  • Ron||

    not true fire resistance construction is built into the building codes and homes built to those standards in the last six years survived the fires. Where the government gets in the way is through environmental regulations not allowing as much undergrowth and dead tree removal which used to occur when logging was allowed. Note about the camp fire the trees did fine it was the houses too close together and people not maintaining their own property and wooden fences that led the fires from house to house and a whole lot of other issues. I've been studying the studies by academics on the subject and they don't agree but each has pieces of info that can be utilized, none are completely right or wrong

  • I'm Not Sure||

    This [government mandate] isn't true?

    Craziest of all, California regulators are forbidden from setting policyholder rates based on future risks (increasing incidences of wildfire due to climate change, for instance) or the increasing cost of the reinsurance on which property insurers rely to protect themselves.

  • Ron||

    Nobody is preventing people from fire proofing or flood resisting their homes. Government mandates are discouraging them,"

    Your words that i responded to, the building code is a mandate if you want to build

  • Rossami||

    Ron, your response about building codes being a mandate is an optimistic description of how zoning is supposed to work. As evidenced by the situations described in the article above, that is very, very rarely how zoning actually works.

    Nor is it in evidence that zoning works better than capitalism even when not hampered by California corruption.

    To answer Apedad's original question, government is making it economically illogical for people to fire-proof or flood-resist their properties. Consider:
    A. I have a $100k home that I spend another $50k to make fireproof. A fire sweeps through but I am unharmed. Life is good but I'm out $150k.
    B. I have a $100k home but don't spend any money to make it fireproof. The fire sweeps through, destroys the home but government policies mandate that insurance companies give me my home back. I'm back at the same place but I've only spent $100k. Life is even better, right? Well, except that my second house got paid for by a bunch of anonymous suckers (taxpayers) who will also have to pay for my third, fourth, fifth, etc iterations of the same house. All because those government policies took away my incentive to spend the $50k necessary to make the house fireproof.

  • Ron||

    Nobody is preventing people from fire proofing or flood resisting their homes. Government mandates are discouraging them,"

    Your words that i responded to, the building code is a mandate if you want to build

  • Robert||

    No, what you really need is for your house to be cheap. Sacrificial. Self insure by planning to replace it every so often. Like the hurricane discussion. Simply don't put anything expensive there.

  • ClosetedConservative||

    Exactly! Trump was harsh about it, but he was correct!

  • Longtobefree||

    "The so-called Camp Fire in Butte County, California"

    What 'so-called'??
    It was officially named the Camp Fire.
    Journalism 101.
    It is what it is.

  • Dan S.||

    It's a dumb name. It sounds too much like "campfire". Maybe his point was that we don't have to consider foolish names assigned by government agencies to be the "real" names of things.

  • Anastasia Beaverhausen||

    It was "officially" named by a government agency. That means diddly-squat in the real world. You do realize this is a libertarian publication?

  • Brandybuck||

    In California it's a sacred moral right for the people to vote on insurance rates.

  • Kreel Sarloo||

    See also Florida.

  • Ron||

    lets deny everyone the right to build where ever there is anything not safe which means no houses anywhere ever. not very libertarian

  • Kreel Sarloo||

    No one said anything about not building. The point is that if you build somewhere you should accept the risks of doing so and not expect to get bailed out if your suffer a loss.

  • Ron||

    by taking insurance away through excessive cost then you can't get a mortgage thus you can't build. I would be fine with eliminating that requirement but what bank would be stupid enough to give a loan without insurance. The State already has a massive housing crisis and living in the forest is sometimes a more economical choice. now if you eliminate the code book which as a designer I'm in favor of, more people could build affordable homes that would be cheaper and a cheaper home is more economical to replace something our present code does not allow. we have created a self defeating construction code mechanism by trying to eliminate all potential hazards which is an impossible task.

  • Presskh||

    The cost should be based on calculated risk. I have a vacation condo on the gulf coast and pay relatively high insurance premiums because it is in a zone with a higher risk of hurricanes. I consider this fair, however, and just think of it as a cost of having a vacation home.

  • I'm Not Sure||

    How is pricing insurance based on risk an excessive cost?

  • Kreel Sarloo||

    "...but what bank would be stupid enough to give a loan without insurance."

    That's the point. Banks don't require insurance because of some state law, they require insurance because otherwise they will not take the risk. You are perfectly free to build and live in a home without insurance, you are just not free to do it with someone else's money. That should include taxpayer assistance when you get burned out, flooded or blown away.

    As for higher insurance premiums for higher risks, free market advocates recognize them as signals of what is or is not rational behavior.

  • Ron||

    the largest problem with the so called fire risk is that fire risk is actually very small from mother nature. 95% of all fires are human caused by either vagrants letting fires go, vandalism, government interference, or in the Camp fire fire it was a power line that people want to blame on the provider yet they are over looking the fact that the transformer that started the fire had been shot at multiple time, a rarely reported fact.

  • XM||

    If an arsonist set a trash can on fire in the middle of Irvine, the fire won't spread beyond a city block, if at that.

    The fire risk prone communities are in more remote, windy areas that are closer to dry grass. These places have been burning since the 70's or 80's. We've known for a long time that these places are vulnerable to widespread fires.

  • Hank Phillips||

    Aldous Huxley's house burned down in one of those fires. This was way before Global Warmunism or Saracen Berserker arson became fashionable.

  • Jimbino||

    Ideally, fire insurance for homeowners would be outlawed in California. Furthermore, "California regulators are forbidden from setting policyholder rates based on future risks" shows awful grammar. In real English, we say, "California regulators are forbidden to set policyholder rates based on future risks." Check your KJV Bible for examples.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online