View this article online: https://www.insurancejournal.com/blogs/2020/03/22/561982.htm
Californians statewide are huddled at home under a “shelter-in-place” order handed down March 20 by Gov. Gavin Newsom to stem the spread of the COVID-19 virus.
Unfortunately, nature does not take a break for pandemics. California also remains under wildfire threat from the Santa Ana wind season that last from October through April. After a brief one-month hiatus, the summer wildfire season will kick off in June and last until September.
With $565 billion in wildfire damages statewide over the past three years, coming up with an appropriate response had been at the top of the California Legislature’s agenda in 2020 before the coronavirus outbreak necessitated suspending the session until April 13, at the earliest. But the issue isn’t going away, and lawmakers cannot allow the current crisis to force them to lose focus entirely on those that are just around the corner.
Understandably, much of that focus has been on the availability and affordability of insurance coverage for the roughly one-third of California’s 13.6 million homes located in the wildland-urban interface (WUI), the low-density zone beyond the suburbs that faces the highest risk of wildfire. Exercising emergency authority granted by 2018’s SB 824, California Insurance Commissioner Ricardo Lara in December ordered a one-year moratorium on nonrenewing any of rough 1 million homes in ZIP codes adjacent to recent wildfire disasters.
With that order set to expire at the end of 2020, lawmakers have understandably been seeking a longer-term solution to a growing problem of nonrenewals. The most notable effort thus far has been AB 2367, sponsored by Assemblywomen Lorena Gonzalez (D-San Diego) and Monique Limón (D-Santa Barbara) and dubbed the “Renew California” plan. The bill, which also has support from Lara, would create a state Wildfire Resilience Task Force—comprising the insurance commissioner, state fire marshal and the governor’s Office of Emergency Services—that would set community wildfire mitigation standards. Homes within these communities that met the specified standards would be entitled to guaranteed offers of homeowners insurance and could not be involuntarily nonrenewed.
To its credit, AB 2367 places the focus where it belongs: on the need to reduce wildfire risk. Alas, as currently written, it represents more of a plan to make a plan. Rather than offering any substantive description of what kinds of standards would constitute a “fire-hardened home” or “fire-hardened community,” it leaves these details entirely to this executive branch task force that doesn’t currently exist.
It should be clear why it would require an awful lot of trust on the part of the state’s insurance community to get on board with such a broad delegation of authority. Already constrained in their ability to price risk by the onerous prior approval ratemaking system created by the state’s Proposition 103, California’s homeowners insurers were hammered by the $12.5 billion in wildfire claims in 2017 and 2018, paying out $2.01 and $1.76 cents, respectively, for every $1 in premium they collected.
It obviously isn’t that insurers wouldn’t welcome major public and private investments in wildfire mitigation. There’s precedent in Boulder County, Colorado, for a public wildfire mitigation program that operates in many respects like AB 2367. Property owners certified by the Boulder County Wildfire Partners Mitigation Program are entitled to premium discounts and guaranteed renewals under a voluntary program that has the support of several major national homeowners insurers.
The Renew California plan, by contrast, would not be voluntary. Which raises the question: if the goal of the task force is to encourage wildfire mitigation that would make properties in the WUI insurable, then why would they need to force insurers to write the business? The industry fears, not without reason, that the real goal is to force them to write coverage at unsustainable rates, and to lock in those contracts in perpetuity.
The threat of climate change is going to require significant changes both in where and how we live and in how we protect ourselves and our livelihood from risks that may be unavoidable. Perhaps the break in legislative action that’s been forced on us by COVID-19 will give all parties a bit more time to reflect on a more workable wildfire strategy for the future.