State Issues

It’s time to rethink how we insure woodland homes

Insuring buildings in our forests – like the Groveland Ranger Station pictured ruing the Rim Fire – might become impossible considering the losses from fires the past two years.
Insuring buildings in our forests – like the Groveland Ranger Station pictured ruing the Rim Fire – might become impossible considering the losses from fires the past two years. AP

The human toll of this month’s California wildfires is staggering – dozens known to have died and hundreds still unaccounted for, especially residents of Paradise.

The financial losses pale in significance, but they are also heavy – and it might take years to determine how they will be borne. Moreover, the financial accounting for this year’s infernos could set a pattern for what Gov. Jerry Brown has termed “the new abnormal” of wildfires.

We do not know yet what the financial hit will be on individual property owners, whether mobile home dwellers from Paradise or celebrities in Malibu, but it’s likely to be something beyond $20 billion.

A clue is that slightly less devastating fires last year, including the ones that torched sections of Santa Rosa and Redding, generated $12 billion in insurance claims.

RMS, a risk modeling firm, last week estimated insured losses from this year’s two big fires at $9 billion to $13 billion, but that’s just an estimate and doesn’t include uninsured damage.

We don’t know whether investor-owned utilities will be liable. There are strong indications that power lines downed by high winds could have ignited fires at both ends of the state.

If utilities are held responsible, insurers who will be paying the initial claims could recoup their losses, but even if they do, it’s uncertain whether the utilities’ stockholders or ratepayers would bear the ultimate burden.

Last year’s fires pushed the liability issue into the legislative arena, with utilities and their unions pitted against fire victims and their attorneys. Ultimately, Brown signed legislation that allows utilities to borrow money, via bonds, to pay fire damages, and then tap ratepayers over time to repay the loans. However, it applied to fires in 2017 and in 2019 and beyond, leaving a gap for 2018 fires.

PG&E appears to have the greatest potential exposure for the Camp Fire that virtually erased Paradise. Even as the fire continued to burn, the San Francisco-based utility’s stock plummeted and its credit rating declined over lender fears that it was headed for bankruptcy.

The stage is set for a renewal of the liability issue when the Legislature reconvenes in December and Lt. Gov. Gavin Newsom succeeds Brown in January.

An even greater uncertainty is the future of California’s insurance market if, as Brown and others contend, climate change means the state will experience a perpetual fire season – a constant threat to communities in the “wildland-urban interface.” Perhaps a quarter of the state’s 40 million residents live in such areas and fire danger might render their homes uninsurable.

“We’re not in a crisis yet, but all of the trends are in a bad direction,” Dave Jones, outgoing state insurance commissioner, told the New York Times. “We’re slowly marching toward a world that’s uninsurable.”

Democratic state Sen. Ricardo Lara, who narrowly won his race to succeed Jones, faces that thorny issue in January.

It might be time to explore a new model – some sort of statewide umbrella policy, financed by fees on all properties – to cover extraordinary wildfire losses beyond those borne by private insurance.

Florida has experimented with approaches to cover hurricane damages, and we have precedents in federal flood insurance and California’s state-sponsored earthquake insurance.

If this is “the new abnormal” that Brown describes, we cannot deal with its financial consequences normally.

Dan Walters writes on matters of statewide significance for CALmatters, a public interest journalism organization. Email: