Up until very recently, California had laws that prevented insurers from factoring in climate change, reinsurance costs (most home insurers get insurance themselves), and modeled results.
This is great for consumers in the sense that it keeps insurance costs low. It's bad in the sense that it underprices the risk in fire-prone areas by a lot. Historical losses don't work well for a tail-driven risk like wildfire or hurricane, where losses are infrequent but massive. California already allows modeled results for earthquake for similar reasons.
Accurately pricing tail risk is difficult for people to understand, because it looks overpriced for 10 years and then has all of the profits for the decade wiped out because of a single fire.
Now, are insurance companies saints? Of course not. They're trying to get as much money as possible from you. But it's a pretty competitive market, so if nobody wants to give you a policy, that says something.
I'm a little torn here, because I'm not sure that climate change has much to do with this. In other states like Oregon sure, climate change might be reasonably blamed, but in California the insane policies that prevent sufficient controlled burns probably has far more to do with the current crisis. Idiotic forest management since at least 2007 ( https://law.justia.com/cases/california/court-of-appeal/2007... ) is to blame here with climate change playing second fiddle.
The causality doesn't have a whole lot to do with the underlying economic problem, which is that you can't "rent-control" the insurance markets; insurance premiums have to float with actuarial risks, or insurers have to leave the market. Rather than climate change, it could just be terrible siting or building standards or regulations; whatever the cause, if an insurer can't put a price on their prediction your building will stay standing, they can't provide you with insurance at all.
I have no objection to that, the risk needs to be accurately assessed for the model to work. What I object to is how it's being framed as some collective failing of society at large, and therefore nothing can be done. Ideally the small number of people who pushed for these policies would be held liable, but in lieu of that the state government should cover the difference. This would have the benefit of putting pressure on them to enact appropriate forestry and fire management policies, and spread the pain out over the voters who allowed this to happen against widespread expert advice.
Other states figured this out a long time ago, there is no magic here.
Why should states provide taxpayer-funded subsidies for people to site homes in places that are so expensive to insure that insurers literally can't offer insurance under the statute?
Two more reasonable outcomes:
1. States forbid construction in those places.
2. States allow construction, but you're on your own re: insurance.
Of course, the ideal outcome would be:
3. States allow construction, and insurers are allowed to underwrite.
I think the state should subsidize insurance for an issue their negligence and political tribalism have allowed to reach predictably disastrous levels. I don't think that the cost of the home should be a factor, the homeowner played no role in the aforementioned disaster unless it's a policy they voted for. I would be personally shocked if "forestry" was at the top of many voter's issue list, more likely those policies just came along as a package with others.
It's also worth saying that in your 3 scenarios the outcomes are:
1. Fires still start there because the conditions which cause those fires have little, if anything, to do with the presence of that construction. Said fires would move far more rapidly through the usual untended scrub brush than it does through large, built-up areas. Now you have the same fire problem, but in a slightly different area.
2. That seems like a recipe to make it into even more of an exclusive enclave for the super-rich. Who else can afford to eat that sort of risk, shrug, and rebuild?
3. Then we're back at the start, where the negligent policies of a series of state governments produces a terrible outcome for homeowners who are not the cause of the problem.
I propose a more functional response: Let the state pay for its mistake, and require that they follow the plans of states like Oregon, Texas, and Florida, and use controlled burns appropriately! They'll be incentivized to do so as a means to keep their liability to fire insurance down, and as a bonus homeowners won't have to live through cycles of being burned out and returning.
And again, just because THIS time the fire primarily impacted the rich, doesn't mean that's how it always has been or will be.
You're saying "the state", but what that really means is that taxpayers who chose to live in places insurers can underwrite will subsidize the homes of people who chose to live in places so dangerous insurers literally can't underwrite. There's no bogeyman you can isolate and punish here; when the state subsidizes things, redistributive policy occurs. This seems like a deeply broken redistribution!
How about a simpler response: let insurers underwrite.
These fires happened (at least originally) in the hills of LA where lots of rich people live. You aren't getting them in dense urban areas where more normal people can afford to live.
I don't think we should be subsidizing that. Yes, if you want to live in LA foothills like Bel Air (not affected by the current fire, but hit by fires before), you are going to have to pay more for fire insurance. It just goes with the price of the view.
Nobody forced builders to build those homes. Nobody forced people to buy those homes. Forestry policies, while clearly not helping, are not the cause of wildfires in general.
In addition, California does kind of subsidize these locations. They offer insurance through the FAIR plan, which is (by most accounts) woefully undercapitalized.
- In the case for CA if the companies are forced to charge a real price for the risk, costs would go up. Maybe the millionaires can afford it, but in a crunched housing market the average person will feel the strain.
- If they are forced to not up their prices (or their increases are capped) and provide polices even though their risk calculations says they will lose money. The insurance company will then look to get the profits elsewhere, ie raise rates for those who are not effected.
- If the insurance company goes under then the government might bail them out, which means effectively every tax payer will be forced to pay for that policy.
If the state provided this insurance, then they would be incentivized to properly assess and mitigate the risk. Where in today's market insurance companies just put a yearly amount on the risk of a home. They have no direct levers to reduce the risk.
Average people will feel the strain. And? The one party in this situation that can't ignore externalities and risk is the insurer. If the place you're building a house is so dangerous no insurer will underwrite it, maybe you should be a millionaire to build a house there.
As the house price thereabouts is determined by location desirability and affordability, an economist would say that higher insurance cost should just decrease the house price so that the same people will still be able to buy it after the insurance price hike.
There is a common misconception that prescribed burns are a magic bullet, and that if you could just magically burn all the things all the time you wouldn't have major fires. They wouldn't have mattered at all as far as the Palisades fire is concerned.
LA had a ton of rain in Feb-Mar 2024 which resulted in massive fuel growth. That rain stopped in a hurry, plunging the region straight into drought.
That fuel has since cured over summer and become available to fire. Once it ignited, it was driven by extreme winds and there was no stopping it.
Given the circumstances, when do you suggest prescribed burns could've been conducted?
This might sound insensitive but if you own a house in California, which millions of people in the US and around the world would give a leg to afford to be a homeowner in, you're probably well off and I'm not sure why we would lose sleep over these fires.
What’s the argument here exactly? Wealthy people’s misfortune isn’t worthy of our attention? Should the US cease reporting on itself as it is a wealth nation and a much better state than many others?
Who is this “we”? The rest of the world? I don’t think the rest of the world is being asked by America to care. It is Americans caring about Americans or Californians caring for Californians at the very least.
At the end of the day, having your house burned to the ground, having to escape a deadly fire, have you seen everyone go a bit mad and crazy, fearing for your life? These people can be the richest people in the world, and I’d think it’s inhuman not to sympathize with them somewhat. It is a situation every person could find potentially life-destroying and traumatic.
The magic bullet is armies of goats comping away at some of the fuel. Especially after so much rain. It’ll take time but if they’re working on it 24/7, they could probably make a meaningful dent in the fuels.
The insurance crisis in California highlights the impact of underpriced wildfire risks due to regulatory limits and poor forest management. Platforms like lawyergist.com can help navigate legal complexities arising from such challenges. Addressing the issue needs reforms for risk-based pricing, better wildfire mitigation, and public awareness of living in high-risk areas.
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[ 3.8 ms ] story [ 48.7 ms ] threadUp until very recently, California had laws that prevented insurers from factoring in climate change, reinsurance costs (most home insurers get insurance themselves), and modeled results.
This is great for consumers in the sense that it keeps insurance costs low. It's bad in the sense that it underprices the risk in fire-prone areas by a lot. Historical losses don't work well for a tail-driven risk like wildfire or hurricane, where losses are infrequent but massive. California already allows modeled results for earthquake for similar reasons.
Accurately pricing tail risk is difficult for people to understand, because it looks overpriced for 10 years and then has all of the profits for the decade wiped out because of a single fire.
Now, are insurance companies saints? Of course not. They're trying to get as much money as possible from you. But it's a pretty competitive market, so if nobody wants to give you a policy, that says something.
Other states figured this out a long time ago, there is no magic here.
Two more reasonable outcomes:
1. States forbid construction in those places.
2. States allow construction, but you're on your own re: insurance.
Of course, the ideal outcome would be:
3. States allow construction, and insurers are allowed to underwrite.
It's also worth saying that in your 3 scenarios the outcomes are:
1. Fires still start there because the conditions which cause those fires have little, if anything, to do with the presence of that construction. Said fires would move far more rapidly through the usual untended scrub brush than it does through large, built-up areas. Now you have the same fire problem, but in a slightly different area.
2. That seems like a recipe to make it into even more of an exclusive enclave for the super-rich. Who else can afford to eat that sort of risk, shrug, and rebuild?
3. Then we're back at the start, where the negligent policies of a series of state governments produces a terrible outcome for homeowners who are not the cause of the problem.
I propose a more functional response: Let the state pay for its mistake, and require that they follow the plans of states like Oregon, Texas, and Florida, and use controlled burns appropriately! They'll be incentivized to do so as a means to keep their liability to fire insurance down, and as a bonus homeowners won't have to live through cycles of being burned out and returning.
And again, just because THIS time the fire primarily impacted the rich, doesn't mean that's how it always has been or will be.
How about a simpler response: let insurers underwrite.
I don't think we should be subsidizing that. Yes, if you want to live in LA foothills like Bel Air (not affected by the current fire, but hit by fires before), you are going to have to pay more for fire insurance. It just goes with the price of the view.
In addition, California does kind of subsidize these locations. They offer insurance through the FAIR plan, which is (by most accounts) woefully undercapitalized.
- In the case for CA if the companies are forced to charge a real price for the risk, costs would go up. Maybe the millionaires can afford it, but in a crunched housing market the average person will feel the strain.
- If they are forced to not up their prices (or their increases are capped) and provide polices even though their risk calculations says they will lose money. The insurance company will then look to get the profits elsewhere, ie raise rates for those who are not effected.
- If the insurance company goes under then the government might bail them out, which means effectively every tax payer will be forced to pay for that policy.
If the state provided this insurance, then they would be incentivized to properly assess and mitigate the risk. Where in today's market insurance companies just put a yearly amount on the risk of a home. They have no direct levers to reduce the risk.
LA had a ton of rain in Feb-Mar 2024 which resulted in massive fuel growth. That rain stopped in a hurry, plunging the region straight into drought.
That fuel has since cured over summer and become available to fire. Once it ignited, it was driven by extreme winds and there was no stopping it.
Given the circumstances, when do you suggest prescribed burns could've been conducted?
Who is this “we”? The rest of the world? I don’t think the rest of the world is being asked by America to care. It is Americans caring about Americans or Californians caring for Californians at the very least.
At the end of the day, having your house burned to the ground, having to escape a deadly fire, have you seen everyone go a bit mad and crazy, fearing for your life? These people can be the richest people in the world, and I’d think it’s inhuman not to sympathize with them somewhat. It is a situation every person could find potentially life-destroying and traumatic.
https://www.bbc.com/future/article/20230922-these-la-goats-h...