California Legislature is avoiding worsening state fire insurance crisis

It would be equally fair and cynical to say that the session will adjourn in September without effectively dealing with some very serious, even existential, issues that adversely affect the lives of those legislators are sworn to serve.

The housing crisis is one. Another session will end without addressing misuse of the California Environmental Quality Act to stall or kill much-needed housing projects. Newsom persuaded the Legislature to reform CEQA's effects of public works projects, but is apparently unwilling to take on the heavy lift of reforming its impact on housing.

As the housing crisis persists, it forces ever-more low-income Californians out of homes and apartments and into the streets, thus worsening the nation's worst — by far — homelessness crisis that the Californians put at the top of their concerns.

Legislators and Newsom, besot with ideological commitments to criminal justice reform, are loath to crack down on the criminals terrorizing merchants and residents of the state's major cities. One of the pending measures, Senate Bill 553, would compel employers to implement plans to mitigate violence against their workers, facing fines and potential lawsuits for failure. Business groups complain that it would wrongly blame employers, rather than criminals, for invasive attacks.

There are many other issues being ignored and one of the more important is a developing crisis in home insurance coverage as one-by-one, insurers shun the California market, saying that wildfires, construction costs and other factors are creating more financial exposure than they can cover with premiums.

As California homeowners become unable to find coverage from the private market, more are forced into the state's FAIR program as a last resort, with high premiums and limits on coverage.

Insurers complain the Department of Insurance doesn't allow them to include forward-looking catastrophic modeling in their rates, requiring them to base premiums only on past experiences. Nor are they allowed to include the costs of reinsurance, which insurers use to mitigate potential liability.

An Assembly committee conducted a hearing into the crisis and the viability of catastrophe modeling two months ago. A staff report noted, "Eight of California's top 20 wildfires have occurred in the last half-dozen years, burning 8,512 structures," with "the top three largest fires — the August Complex fire in 2020, the Dixie fire in 2021 and the Mendocino Complex fire in 2018 — burned a collective 2.45 million acres and destroyed 2,526 structures."

The list of disastrous wildfires didn't include the 2018 Camp Fire that was relatively small in acreage, but wiped out the town of Paradise, destroyed more than 18,800 structures, caused 85 deaths and resulted in more than $16.5 billion in losses.

Despite the peril posed by wildfires and the ever-worsening insurance availability crisis, the net result of the hearing was that everybody thought something should be done, but nothing concrete emerged.

One factor is a change in the Department of Insurance that voters decreed 35 years ago, making the insurance commissioner an elective office. The ambitious politicians who win the position feel pressure to keep premiums as low as possible, even if they drive insurers out of the state.

Consumer groups oppose forward-looking catastrophic modeling — which is used for earthquake insurance — because it would almost certainly boost fire insurance premiums.

It's a tradeoff between insurance availability and insurance costs that cannot be, politically, a win-win situation.

Dan Walters is a journalist and author who writes for CALmatters.org, a nonprofit, nonpartisan media venture explaining California policies and politics.