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.
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