California Disaster Insurance Act Passes Key Committee

March 26, 2019

Legislation by that could lead California to consider buying insurance in the private market to cover rapidly increasing costs of fighting wildfires due to climate change cleared a key committee vote Tuesday.

Senate Bill 290, called the California Disaster Insurance Act, was authored by state Sen. Bill Dodd, D-Napa, and is co-sponsored by Insurance Commissioner Ricardo Lara and Treasurer Fiona Ma.

It aims to stabilize state budget costs from major disasters. SB 290 would authorize the governor, insurance commissioner, and treasurer to enter into an insurance policy that pays out when California has unexpected disaster costs.

The bill passed the Senate Governmental Organization committee on Tuesday. SB 290 now moves to the Senate Committee on Appropriations.

Lara said the law if passes it would enable the state to officially engage with the insurance industry and figure out how to pay the state’s pay skyrocketing firefighting costs – solutions could be found through insurance, reinsurance, issuing a bond or creating a parametric product, according to Lara.

“It works like home insurance, but for the state,” Lara told Insurance Journal in February as the bill was first introduced.

Dodd said climate change has led to devastating wildfires and the need for a strategy to reduce the strain that puts on the state’s coffers.

“Unpredictable disaster costs require large budget reserves and threaten cuts to critical programs,” Dodd said in a statement. “Allowing the state to invest in an insurance policy will provide predictability and limit taxpayers’ risk of increasing disasters costs.”

The federal government, the World Bank, and the state of Oregon have all used insurance to reduce the risk to taxpayers following disasters. Oregon purchased insurance protection against wildfire costs for nearly 40 years – spending $61 million on premiums and receiving $102 million in insurance payments, according a 2017 University of Idaho report.

The high claim figures were pushed up by back-to-back years in which the policy limits were reached at $25 million in claims both in 2013 and 2014. The following year the state paid $3.8 million in premiums but no claims were triggered.

California has seen the cost of fighting wildfires grow to record levels over the past decade. California spent $947 million in 2017-18 through the emergency fund for firefighting – nearly $450 million more than budgeted, according to Cal Fire. The costs of fighting wildfires have overrun Cal Fire’s emergency budget in seven of the last 10 years. Since 2007, California has experienced 11 of the top 20 most destructive fires in its history.

California currently pays for wildfire disasters with available funds, and California Disaster Insurance will come from those same sources, according to proponents of the bill.

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