L.A. Fires Place Enormous Pressure on Insurance Industry
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From KQED in San Francisco, I'm Alexis Madrigal. The fires in Los Angeles continue to burn. The wind still poses a major risk. And also the deeper meaning of the L.A. fires is starting to come into focus. The California home insurance market, on which the real estate of this entire state depends, may never be the same. Even before the fires, insurers had been pulling out of the state and our regulators had cut a deal to try and bring them back.

Now, both private insurers and what's called the fair plan run by the state are going to take a world historical hit. What's going to happen then? We're going to talk to experts and find out. That's all coming up next after this news. Welcome to Forum. I'm Alexis Madrigal. Home insurance is one of those things that if all goes well, you don't really have to or even want to think too much about it.

It's required to get a mortgage, so I think a lot of people had seen it as almost pro forma. You know, something goes wrong and some money maybe comes back to you from State Farm or Allstate or whatever. But that was a while back. Nowadays, home insurance has become wildly more complicated. For one, many insurance companies had been pulling out of California, particularly higher risk areas like, for example, the Palisades in Southern California, but many places in the Bay Area too, like Orinda.

The reasons for that are complicated, but last year the state insurance regulator cut a deal in an attempt to bring some of them back. And climate change and the broader set of our accumulated environmental deaths have created unprecedented risks, especially on the outskirts of our cities and suburbs. What happened in LA last week was the result of a never-before-seen confluence of climactic and weather conditions.

So here we are. The home insurance market may be broken in California. It may have been in the early stages of getting fixed, and then these fires hit. Here to discuss where we're at now, we're joined by Michael Wara, Policy Director for the Sustainability Accelerator at the Doar School of Sustainability and Director of the Climate and Energy Policy Program at Stanford. Welcome, Michael. Good morning. Thanks for having me.

Also joined by Dave Jones, former insurance commissioner with the California Department of Insurance and now director of the Climate Risk Initiative at UC Berkeley Center for Law, Energy, and the Environment. Welcome. Great to join you. We've also got Amy Bach, executive director and co-founder of United Policyholders, a San Francisco-based nonprofit that advocates for insurance consumers. Welcome, Amy. Thanks so much. Yeah.

Michael Wara, you've described the fire that swept through the Pacific Palisades as essentially hitting a bullseye for the insurance industry or maybe on the insurance industry to a place where companies could lose the most money in 24 hours. What led you to that conclusion about the Palisades?

Well, I was a consultant to the California Senate in the development of the Wildfire Fund, which is the utility kind of insurance mechanism that we have in California. And as a part of that work, used the models that the insurance industry and the reinsurance industry rely on to try to estimate how big the fund needed to be to have a decent chance of surviving for about a decade, which was kind of the stated goal at the time. And

I'll just tell you, Pacific Palisades and a community in Northern California, Orinda Moraga, really jump out of those models as the places where a lot of money can be lost by the insurance industry in a catastrophic fire that happens just like Pacific Palisades. The Palisades fire occurred where the first burn period is really one where all the firefighting agencies can do is try to get people out of the way, more or less. Yeah.

I mean, it's obviously still the early days of our understanding of the true level of damage here. But it does seem like the financial hit from this fire, it's going to bear out that thesis that this was really a tremendous, tremendous loss.

Yeah, I, you know, I think the thing, the place where I am right now is just a place of deep sympathy and empathy for the folks that are impacted down there. You know, having your community devastated in this way, kind of out of the blue sky one afternoon is just so hard to reconcile and manage. But, but I think, yeah, the financial loss in LA is going to be what is likely to be the largest wildfire related loss in

in U.S. history. And it's going to take a long time to recover. You know, Dave Jones, you held the job of commissioner for insurance from 2011 to 2018. And we've been seeing major insurance carriers pull out of California or fail to renew policies or write new policies in different places. You know, how has the industry response changed since you were a commissioner?

So first, I think it's important to be very clear that major insurers did not leave the state of California. A couple of small companies, a Berkshire Hathaway subsidiary, a Kemper subsidiary with 30,000, 40,000 policies left. But major insurers renewed the majority of their policies throughout the state.

They did pause last year writing new, new insurance. So if you were buying a home for the first time, you had a hard time getting insurance. If you're moving from home A to home B, you had a hard time getting insurance in home B. And they continue to accelerate their selective non-renewal of homes facing high risk. But I think it's also important to note that

In 2019 through 2023, the carriers made underwriting profits. And there's a false narrative that the substantial losses in 2017 and 2018, $15 billion in 2017, about $13 billion in 2018, which were substantial.

major earnings events for the insurers. They didn't make profits those years, but there's this false narrative that that wiped out the last 10 years of profits. Well, that's quote unquote erased a decade of profits. You see a lot, but, but, but it didn't. It's that's, that's absolutely inaccurate. It's not as though the insurance companies claw back the

the profits they've provided to shareholders and owners in all of the prior years. And they did make profits then too. No, instead, thanks to California's strong insurance regulation, premiums are set to enable them to make profits, but also have substantial reserves to cover catastrophic events like that in 2017 and 2018 and the event that's occurring right now. And

And so, yes, Michael's absolutely correct. This is going to be one of the largest, if not the largest, insured losses associated with a wildfire event. Some of the estimates are as much as $20 billion. Just to put that in perspective, you know, the losses in 2017 from the wildfires were only about $15 billion. But the insurers, thanks to California's strong insurance regulation, have sufficient reserves to cover those claims. And as Michael alluded to, the

The Department of Insurance in the state of California last year agreed to a whole bunch of regulatory changes at the request of the insurers, and the insurers said no.

In exchange for those changes, they would keep writing in California and lift their paws on writing new insurance. And as Michael also pointed out, the event of Pacific Palisades, tragically so, was not a question of if, it was a question of when. So these sorts of catastrophic events were and have been modeled by the insurers. And I don't think it should be a pretext for them to renege on the commitment to keep writing insurance in California.

And part of that deal, at least as I understand it, Dave, was to try to bring the big private insurers back into some of the higher risk areas, right? Because there were sort of two components of that. It was sort of being able to use sort of climate models and forward-looking projections of what their losses might be, not just historical losses and then all

Also being allowed to pass reinsurance costs on to consumers. Can you talk a little bit about those two changes and maybe kind of explain what reinsurance is for people who are not familiar with the industry? Reinsurance is insurance for insurance companies. And insurance companies increasingly purchase reinsurance in order to seed some of the risks they face and

to reinsurers and reinsurers are global enterprises um they're a natural oligopoly in the sense that you have to be really big have a lot of expertise and sophistication and a lot of capital in order to be a reinsurer so there are not many of them and they are price setters not price takers from an economic perspective and also they're seeing their global losses go up i mean the the

insured natural catastrophe losses associated with climate-driven weather-related events

is climbing, has been climbing for the last 10 years and is projected to continue to climb because we're not doing enough fast enough to transition from utilization of fossil fuels and other greenhouse gas emitting industries. So reinsurance is very expensive. So the insurance in California argued that they should be allowed to include their reinsurance costs and their rates. Now, historically, consumer groups in the Department of Insurance's position on that has been, well,

When you have losses, some of your losses are covered by the reinsurers. And when you come in for rate increases, we don't disallow the losses that have been paid for by the reinsurers. So you're getting credit for it in your new rate. And it would be double counting, so to speak, if you get credit for the reinsurance coverage in your rate as well as what you're paying.

But the insurers said, look, we're not going to lift our paws on writing new, new insurance until we get this. And so they got it. The other thing they asked for was the ability to use probabilistic models for the catastrophe load of the rate. Now, here's another thing that I think is important to note. Insurers have been using probabilistic models in California for rate segmentation.

That is to decide how much of the rate to allocate to risky versus less risky homes. So it's not that probabilistic modeling has never been allowed in California. It is allowed for rate segmentation. It hasn't been allowed for the catastrophe load of the rate. And so the commissioner decided to allow it because the insurers said, look, without that, we're not going to lift the pause on writing new, new insurance. But the third thing, and maybe even bigger is,

In terms of change that was requested by the insurers was to relieve their exposure to a shortfall at the fair plan. And that's a big deal. And basically, 35 states have fair plans. The fair plans provide that. You're insurers of last resort for people who are dropped by private insurance or otherwise can't get it.

That's right. States have set them up. They're not a state agency. They're not taxpayer funded. They're a state statutorily created involuntary association of the private insurers in the state. And the rationale behind them is to make sure the private insurers have skin in the game. They can't just cherry pick the great risks, make money, and then shove everyone into the wilderness, so to speak. So the states create these fair plans, 35 of them. That's where people can go to get insurance the private insurers want right.

But they're also structured to have enough reserves to cover a typical year. Why? Because they're covering the riskiest risks. And if they had to have reserves at the level of an insurance company, no one could afford it. So they have to cover a typical year. But they're also structured that if they run out of money –

Then they will assess all of the insurers in the market based on the relative market share. Kind of a rough justice, right? Keep the private insurers in the game. They can't just walk away from risk. They'll have some responsibility for the fair play if it is a shortfall. Well, that was the rule in California until last year. Now the rule...

is that if the fair plan has a shortfall after a billion dollars being covered by the member insurers, which is not much, then the policyholders are on the hook in the state. And that's a big change. And we're going to talk more about that when we come back from the break. We're talking about the impact that the L.A. fires will have on the state's

insurance industry with Dave Jones, former insurance commissioner at the California Department of Insurance, who's now director of the Climate Risk Initiative at UC Berkeley Center for Law, Energy and the Environment. Also joined by Michael Wara, policy director for the Sustainability Accelerator at the Doar School of Sustainability and director of the Climate and Energy Policy Program at Stanford.

Also joined by Amy Bach, who we're going to hear more from, executive director and co-founder of United Policyholders, a San Francisco-based nonprofit that advocates for insurance consumers. Of course, we want to hear from you, too. Has your insurance been dropped? Were you able to get new insurance? Have you survived a wildfire? Give us a call. The number is 866-733-6786. Forum at kqed.org. We'll be back with more right after the break.

You're used to hearing my voice on The World, bringing you interviews from around the globe. And you hear me reporting environment and climate news. I'm Carolyn Beeler. And I'm Marco Werman. We're now with you hosting The World together. More global journalism with a fresh new sound. Listen to The World on your local public radio station and wherever you find your podcasts.

Welcome back to Forum. I'm Alexis Madrigal. We're talking about the impact that the devastating Los Angeles fires can have on the state's insurance markets. We're joined by Michael Wara, Policy Director for the Sustainability Accelerator at the Doar School of Sustainability at Stanford. Dave Jones, former Insurance Commissioner with the state and now Director of the Climate Risk Initiative at

at UC Berkeley, as well as Amy Bach, Executive Director and Co-Founder of United Policyholders. Going to try and get to calls and comments from here on out. Has your insurance been dropped? Were you able to get new insurance? Perhaps your property is insured via the Fair Plan. Have you found that experience? You can give us a call. The number is 866-733-8667.

6786, [email protected], Blue Sky, Instagram, et cetera. We're KQED Forum. Amy, I wanted to bring you in here. Your organization helps people sort of recover and also prepare for wildfires and has an advocacy arm. Most people in California do have insurance, but in these really high-risk areas, what kind of coverage are they really getting?

So, coverage that's in many, many cases much thinner than what they had had in previous years. You know, people have been using all kinds of different strategies to try to keep their homes insured.

And, you know, some people have been going to the what it's called the non-admitted market. These are less regulated insurers whose forms and rates are really flying under the radar of the Department of Insurance. And so we don't know, you know, a lot of cases where...

what kind of language we're going to see in some of those policies. We've heard there's, and we know there are some out there that have wildfire deductibles. That's a no-no in the, you know, if you go through a standard company, they're not allowed to do that. We also know a lot of people have had to go to the fair plan. You know, my organization has been

holding shopping help webinars for the last few years, and we've been fanned out all over the state at public-facing events trying to give people advice and guidance, and we've stayed very close to the agent broker community to keep tabs on who's an option where. But at the end of the day, if any of these homeowners that were affected by this horrific event

catastrophe are with the fair plan, there's no question that they're going to have thinner coverage than they used to have with a normal company. You know, there's also been a lot of questions coming up about whether the fair plan has the sort of financial capacity to cover claims and how that might work out. Is that a concern your organization shares?

No. As a matter of fact, we are doing everything we can to dispel that kind of panic and that kind of rumor. Not only that, we are also really cautioning people to really take these predictions in terms of the total amount of insured damage here with a grain of salt. The Fair Plan has its own reserves.

It's got reinsurance, and then it has the financial strength of its member companies, and that's a very significant...

pot of money that survivors are going to have access to. But it's not a pretty picture, no matter how you look at it. There's never been an assessment of Fair Plan members in its history. So we don't know how that will go, if it even is going to have to go. And bottom line, spokespeople for the Fair Plan have been continuing to say they're fine, they're going to be able to handle this. Insurers that have been quoted in the media generally are saying the same thing.

Michael, what do you think? How stable do you think the ground under the fair play is? Well, I think the fair plan, you know, because of the clarifications that were provided last year that Dave Jones mentioned, is going to be fine. It will be able to pay claims, even if it has to assess on member companies.

the system as a whole will be able to pay claims associated with these fires and the insured losses will be covered you know the real question though is going to be how many people in these fire footprints were significantly underinsured or even lacked insurance because they didn't have mortgages and they faced rising prices um for her buying coverage

And so, you know, after the Santa Rosa fire, we saw tremendous amounts of underinsurance. And that problem will have gotten worse over the last five years as price and availability have increased. And I think we're, you know, it's going to be a difficult rebuilding process for some, maybe impossible for many, and they will be forced to sell. And I think that's just a really sad thing

of where our insurance market situation stands today. There are no easy answers here, but that's the level of under-insurance has really grown in California. And that's partly because

construction inflation the cost to build. Per square foot has gone up much faster than even the price of groceries over the last four years and oftentimes- people do not realize that maybe don't update their coverage on their policies but when a disaster like this strikes it really matters what your- your total insured value is.

And that's going to drive whether you can afford to rebuild, especially in a context where there's going to be a contractor shortage in Los Angeles. There already was. Right. It's not easy to get a general contractor to build a house in L.A. before this fire. After this fire, we're going to have 12000 people that want to rebuild. And that's that's a lot of work.

So, I mean, given climate change, given the economic dynamics that you just mentioned, I mean, do you think there's a way that as a state we wouldn't have gotten to this point with our insurance market? Could this have been managed differently? Do we see any states across the nation who seem to have navigated these waters? Mostly I hear bad stories like that Florida is in even worse shape than we are.

Oh, sorry. That was for you, Michael. Sorry. I'd rather hear Amy's response. Oh, yeah, sure. Amy, what do you think? Yeah. Yeah. I mean, we, we work in Florida. I, I, you know, stay in touch with the insurance commissioner there. We also have been, you know, keeping a very close eye on Colorado. You know, I think that I,

hindsight 2020 i i wish we had had you know we had had stronger non-renewal protections here in california but if we did insurers would have been campaigning you know to undo them as they have in louisiana and and i you know so i think um we are where we are you know florida um i'm hoping we don't follow uh their their strategy of allowing thinly capitalized startups to um

you know, to take people out of their version of the fair plan automatically. Like, I really hope we don't go there because that has left a lot of people high and dry when those companies run out of money and are not part of the state guarantee association. So, you know, there are lessons to learn. I mean, Colorado is really working hard right now to kind of head off the kind of crisis that we have been experiencing here. And, you know, they just started a fair plan.

And there have been some legislative adjustments made. But I think there's no magic wand here because, as Al Gore said many years ago, climate change is an inconvenient truth. And we have had a technological explosion that has magnified risk for insurers. So we really have some unprecedented conditions right now in the marketplace. Let's hear a little more about the fair plan from someone on it. Janet in Orinda, welcome. Thank you.

Thank you. Thank you for having me. Yes, we were dropped in November, and I was kind of irritated. I mean, I was really irritated when the insurance company, which I will not name, seemed to want the same amount of money but dropped the fire insurance, and we ended up spending about that much to get into the fare plan. So our insurance essentially doubled. Hmm.

Oh, man. And do you feel like you have the same level of coverage, or is it even, as Amy put it, thinner than it was before? It's thinner because it does not cover any detached buildings. I have an art studio. It's not covered. It's just no fire insurance. And, yeah. So I think I find it thinner, yes. Yeah.

Janet, one of the questions I've wondered is whether these changes have made you think differently about... I mean, Orinda is such a beautiful place, such an amazing area. Has it made you think differently about living there? Well, we were originally going to move out to Morgan Territory, and we didn't because of the fires. We didn't want to live out on one of those roads. That's an area behind Mount Diablo. And we felt that Orinda would be safer. And now...

Yeah.

Well, Janet, sorry to hear about that experience and appreciate the difficulty of some of those decisions. Edward in San Jose also wants to talk about kind of this property management and kind of what neighbors can do. Edward in San Jose, welcome. Hello. Hi. Hey, you're on. Go ahead. So my question has to do with something called FireWise.

We belong to a neighborhood association up in the mountains. And they asked us to participate in a program where you clean all the brush and loose and dead trees and low limbs from your property.

And then you sign a certificate and the whole neighborhood does this. And then once that's done, then you can apply to your insurance company, theoretically, for a reduction in rate amounting to about 5%, which we did. And I did apply, but I never heard back from my insurance company. But at least we did one good thing, and that is we cleared the area.

I think this program exists around the state. Do you know about it? Yeah. Amy, let's come to you on this. Thank you, Edward, for bringing that to people's attention.

Yeah, so I have been running a working group now for about five years, the Wildfire Risk Reduction Asset Protection Working Group. And this is people from all over the state that are working. We were working to restore insurance options for people by increasing the number of hardened homes and defensible space, you know, in communities all around the state. And so we've been seeking to sort of identify what are the obstacles to getting people to take the steps that experts recommend. We've been proposing

promoting that every community get the Firewise designation. But, you know, there's been a real struggle, you know, to get insurers to reward people for these things. And it's sort of been one step forward, one step back. You know, we have all these people who say, well, I did all these things and I still got non-renewed. And so, you know, we have been encouraging the legislature to consider, you know, mandating that if a property owner has a

completed mitigation steps that the insurer be required to offer them a renewal policy. But again, we're mindful that we're in this situation now where the legislature is afraid to impose any new mandates on insurers at a time when we are desperately trying to sort of hold them in the state. So we really have a catch-22.

Turning to a slightly different topic, one listener on the Discord writes, how are things like the fair plan and a ban on fire deductibles not just subsidizing society's failure to adapt to California's fire ecology? Is there a way in which these mechanisms abet adaptation to fire?

Dave Jones, let's start with you on that. I mean, you are director of the Climate Risk Initiative. The insurance industry does feel like a way in which climate risk really intersects with people's lives. So there's no question that mitigation helps to reduce risk. It doesn't eliminate the risk and the risk of wildfires growing because we're not doing enough to transition from fossil fuels and climate change is getting worse and fueling these catastrophic events.

But home hardening and defensible space, as Amy pointed to, makes a difference. And even the insurers own research institute acknowledges this. Beyond that, community mitigation like firewise communities where the community is reducing hazardous fuels. And then beyond that, landscape scale forest treatment projects using prescribed fire thinning and reduction of vegetation.

for which the state of California has appropriated $3.6 billion and homeowners associations are feeding their members to do and cities and towns are collecting taxes to do, that makes a difference too.

The problem, as Amy alluded to, is that the models the insurance companies use to decide whether to write or renew your insurance do not account for that. And that's outrageous. There's a small discount you can get on the rating side, but you don't get to the rate if they won't write or renew you the insurance. And so it's not...

difficult or challenging for the insurers to adjust their models. In fact, several papers have been published that shows how you can do this. There's no debate about whether you can do it. They just won't do it. So last year, there was legislation sponsored by the Nature Conservancy Senate Bill 1060, authored by Josh Becker, to require the models to account for mitigation that homeowners, communities, the state, the federal government are doing, and the insurance industry killed the bill.

And that is simply unacceptable. And the legislature ought to pick up that baton again, because it's frustrating for homeowners. They do all these things and they get absolutely no credit for it in the decision whether to write or renew their insurance. - Michael, thank you for that. - I have a different perspective on this issue. - Yeah, go ahead, Michael. - I actually disagree with something that Dave just said, which is that the reality is, the complexity here is that, well, I'll just take myself as an example.

I live in a Chapter 7a home, which means that it was built to the wildland urban interface code. You might imagine because of what I do, I am quite religious about maintaining fuels in our backyard. However, I live in a context, a neighborhood where fuels are not always well managed by many, many of my neighbors. Many of my neighbors' homes do not meet the wildland urban interface code because they were built earlier.

And what this means is that even though I control risk on my property, it is not enough. It does not mean that the home next door will not catch on fire in a wildfire and then ignite my home. And so I think the issues here are complex.

I absolutely agree that we need greater transparency into this data, but I also would say that the science is not clear about which mitigation measures actually produce the risk reductions that we've observed.

And it's also, you know, what we know is if you do everything, there is definitely a risk reduction. What we don't know is if you sort of take a menu approach, an a la carte approach, and you do a few things, but not everything, what the level of risk reduction is. That's a real scientific question that we're trying to answer. And we're also trying to answer how

How many homes in a community need to be prepared in this way in order to create community safety? How do we get to herd immunity? This is a lot like flu vaccines where they work, you know, 50%. But if everybody has the flu vaccine, then those 50% risk reductions add up to a big community level risk reduction. Well, Michael, let me ask you this, though. I mean, I took that discord question like slightly differently. It seemed to me to be asking, like, shouldn't

people not live in some places that are extremely prone to burn and that we know that historically have burned and that we know prospectively will burn again. And so what do we make of that, the situation that we find ourselves in of having built it? I'd respond to that question by saying we are not there yet. I mean, I think there may be some places that ultimately are, you know, end up being uninsurable because of the risk.

But before we actually try to build and maintain communities that are really resilient to fire, where fire can burn through the community and not cause an urban fire, you know, urban firestorm like what we just saw in Pacific Palisades or Altadena, we haven't really made the effort. And so what I would love to see is coming out of this horrible tragedy,

is a real commitment on this part of the state of California to really help communities and require them, but help them to be prepared so that they're more tolerant of the ember storm that will come inevitably. I agree with you. There are places in California, they're evolved to burn. They are going to experience fire, but that doesn't mean that all the houses have to burn down. That's the distinction. Yeah.

We're talking about the impacts that the devastating Los Angeles fires are going to have on people's ability to get insurance in the state and what's going to happen overall to the insurance industry and market. We're joined by Michael Wara, who's policy director for the Sustainability Accelerator at the Doar School of Sustainability and director of the Climate and Energy Policy Program.

there at Stanford. Dave Jones, former insurance commissioner with the California Department of Insurance, who's now director of the Climate Risk Initiative at UC Berkeley Center for Law, Energy and the Environment. And Amy Bach, executive director and co-founder of United Policyholders, a San Francisco-based nonprofit that advocates for insurance consumers. We're going to get to a bunch more calls after the break. If you can't get through on the phones with your experience or you have questions for these experts, try Forum at

kqed.org. You can find us on social media, Blue Sky, Instagram, etc. We're KQED Forum. Of course, there's always the Discord community as well. I'm Alexis Madrigal. Stay tuned for more right after the break.

Welcome back to Forum. I'm Alexis Madrigal. We're talking about the LA fires and the state's insurance market. Joined by Amy Bach, Executive Director and Co-Founder of United Policyholders. Dave Jones, now Director of the Climate Risk Initiative at UC Berkeley Center for Law, Energy and the Environment and Stanford's Michael Wara. Let's bring in Kathleen in Martinez. Welcome.

Hi, I recently, well, last year, last spring, my insurance was canceled or not renewed through. I don't know if I should say the insurance company, but I had to go through. I finally found Allstate would write me a policy, but it was.

Farmed out or a third party to Bamboo, which is a company out of Utah. And I Googled them to see if they were legitimate. And I got two different answers. One said, no, they were not. Absolutely not. And the other one said, yes, they are. How helpful. Yeah.

Yeah. It says, do not get bamboo. They are not in the insurance business, but are in a documenting business to deny legitimate claims. It will string you along for a year. Not what you want to hear. But...

Anyway, my, you know, I was so angry that my insurance company after 25 years would do this. And I live in a neighborhood, just a regular neighborhood. But it is close to Brioni's, which is, you know, a large park with lots of grass.

and trees so other neighbors have not been canceled through other insurance companies

Let's see. Farmers would take me, but I had to put a water regulation meter on my house, which would actually turn your water off when you're not using it. And then you have to train your app about your water usage. So I didn't really want to do that. So my question is...

Is Bamboo legitimate? Yeah, what do we make of these other companies coming in? I mean, Amy, you kind of made reference to this earlier. Kathleen, thanks so much for sharing your experience of these other companies that are not the big corporations that we are used to.

Yeah. And that's, that's, it's been a real evolution, you know, certainly, you know, companies like Bamboo or Hippo or Lemonade, you know, you worry, okay, they were, you know, they're entrepreneurial enterprises and, you know, collecting premiums seems like a great business model and, you know, having all that money to invest and, you know, and that you worry that the executives don't quite understand that there's, that can be claims that have to get paid.

So, you know, for a lot of these companies, we've started with, you know, that people have not heard of. You know, we always give people the link to AM Best and say, you know, you should check their financial strength and you should work with a broker agent that's really good and make sure that you take good notes of your communications with them. But for a lot of people, you know, in desperation, they have turned to these lesser known entities. I mean, I've heard...

you know, some better things about bamboo. But, but, you know, when people say who's good in the business, we always say, you know, there's a couple of insurers that stand out have stood out over the years as being quality, but for the most part, you know, a lot of them are very similar in terms of it really, you know, your experience on a claim varies with what adjusters get assigned and how, you know, how well they're trained. And then of course, you know, how tenacious you are as a,

as a claimant at making sure that you exercise your rights and then get professional help if you need it. Yeah. You know, Dave, I wanted to ask you, Steve writes, one of our listeners, it may be time for all for-profit insurance companies to be reorganized as pro-social nonprofit entities.

There's a built-in conflict of interest between collecting reasonable premiums for customers and paying out both fair claims and paying dividends to shareholders. Given the uncertainty of climate change on risks to property health, adaptive building, and refurbishing practices, there is little to—there's moral hazard in for-profit insurance companies.

I wonder, is this a moment, and let's call it the long moment, not just the L.A. fires, but perhaps beginning here, where we are reevaluating the very nature of insurance in this state and in this country?

Yes, I think this is the moment to do that. But I think it's also important to note that a sizable share of the insurance industry is organized as what are called reciprocal insurers or mutuals, which ostensibly from a legal perspective are supposed to be acting in the interest of their members as opposed to shareholders. And yet their behavior is every bit as profit maximizing as anything else. So, again,

Potentially, but I think, too, we need to deal with what we have and what we have is a system of private insurers and we need to make sure that they're able to get sufficient rate to provide coverage. But I don't think we're going to rate increase our way out of this. I mean,

Florida has done everything that California has been asked to do and then some, and yet the major national carriers aren't writing in Florida. Why? Because the risks and losses continue to grow due to climate change. Different peril. Got to be careful about apple and oranges comparisons there. But that is the trajectory we're on. And insurers can help.

us off of that trajectory. I think it's important to note that U.S. insurers invest $536 billion in the fossil fuel industry. This is the very industry whose emissions are driving temperature rise, which are driving these severe and extreme weather-related events, which are making it harder, insurers say, to write insurance. Why do states and governors allow them to continue to invest in this way when it's this very industry, the fossil fuel industry, which is driving

the challenge and potentially existential threat to the insurance industry. Let's bring in Bianca in Sebastopol. Welcome.

Hi there. My question is for the guests. They might comment on impacts they might see in the small business space in Los Angeles. I know that property insurance is oftentimes required to access any of the SBA loan products, including the EIDL disaster loan from COVID-19, which small business owners are still recovering from.

So curious if the guests can comment on commercial insurance for small business owners. Yeah. Dave, do you want to tackle this one? Well, I think Amy has a lot of expertise in this area too. But I mean, the Fair Plan does write property insurance for small businesses. I think businesses are having the same challenges as homeowners in areas of great risk. And they are also contending with the lack of availability of private insurance and having to go to the surplus lines market of the Fair Plan.

Yeah. Amy? Absolutely true. In fact, you know, we first got wind of a growing availability and affordability crisis for small businesses after the 2017 fires up in Sonoma, Napa, where a lot of wineries started losing their coverage. And, you know, we met with brokers who were flying over to London to basically beg, you know, Lloyd's of London to offer coverage to their customers. So,

You know, small businesses have been getting hit incredibly hard by this. As far as the SBA requirements and the, you know, there's been a whole kind of cottage industry in the nonprofit world of entities offering to help people with appealing services.

an SBA loan application denial. So more and more people and small businesses are having to rely on SBA loans after disasters, you know, because they either have a big insurance shortfall or

You know, they're underinsured or, you know, and they just need more access to cash. But, you know, it's sort of everybody talks about the impact on homeowners, but the impact on small businesses has been, I would say, just as challenging. Yeah.

You know, Bianca, I also just wanted to say that, you know, the EIDL program, the Economic Injury Disaster Loan Program, is something that we have been meaning to cover. And so thanks for that reminder of that. Let's bring in another caller. Let's bring in Russ. Welcome, Russ.

Well, yeah. Is that either? Yeah, I have a place in Arnold, California. I was paying $800 a year in insurance about 10 years ago. And then they raised it to $3,000 like five years ago. They told me to cut down a bunch of bushes. I did all that. And then they canceled me.

And so I went on the fair plan. Now I'm paying $8,000 a year on insurance. So what I realized is that in 10 years, it'll be $80,000 a year. So what I did is I put tanks in the ground all around my yard, like 500 gallons of tank water from the rainwater goes in there. Then I pump it.

all over their house, on the roof, all over the building. I think it would go through all that water pretty quickly. I haven't really tried it out, but I do with my phone. I just use a Wi-Fi connect. It's all battery backup. I click on it, and it'll water the whole entire house within, you know, three minutes, and I will not burn down. And I have to, you know, rely on that, not an insurance company, because I believe either they won't exist in 10 years or they'll be like $80,000 a year. Wow.

Russ, wow, fascinating what people are doing. You know, Michael Warr, do you see this as an increasing trend that essentially people say, well, listen, the old way used to be having this backstop of insurance, and now I need a physical backstop, which I think is what Russ is describing. Well, I think...

We need to be prepared in these wildland urban interface fires for the idea that there's not going to be a fire truck in your driveway. There aren't enough fire trucks to put in all the driveways. And that means that your structure needs to be able to survive, you know, essentially a windstorm full of flying, burning embers without catching on fire.

Now, there are, you know, you can imagine trying to do your own firefighting, I guess, you know, in that context. I think that raises real life safety concerns in these in these fire these firefights where, you know, one thing the firefighters are doing is just really trying to keep everyone out of harm's way, reduce loss of life.

But there's a lot we can do. And I think the most important thing really is to clear the space around homes of flammable debris. This is a requirement that's been under consideration by the Board of Forestry as an amendment to the defensible space rules.

It was actually supposed to be done in January of 2023, and it's taken longer for lots of different reasons. But the science says that is probably the most important step that people can take to improve the fire safety of their homes. That's the most important self-help.

If everybody did that, there's at least some evidence that that could make a real difference in terms of the kind of house-to-house ignitions that we have seen over the last few days. And it's also not that expensive, right? We're not talking about replacing all your windows or replacing your siding, but clearing that space right around your house is

is a big important step that people can take. And it's maybe not putting firefighting water tanks in the ground, but in your backyard, but I think it could be as or more impactful. Because most people don't want to stay in a fire like this. And most people, maybe everybody, I'm not going to comment on this particular caller, but most people should not stay when these fires approach a community. Yeah.

Yeah, Alexis, if I can, if I can jump in or sure, sure. Go ahead. Yeah, we learn a lot of every every time there's a horrible, horrible situation like this. We all learn a lot. Right. And and, you know, I learn a lot from United Policyholders volunteers who went through a wildfire, you know, learn the hard way.

I've been to many events over in the Oakland Hills, homes of people who burned down and rebuilt after that '91 disaster. And a lot of them have these giant batteries in their garages to keep power on because that's sort of a prophylactic that they now know they need.

listening to that caller, it's just fascinating, you know, to think about that ingenuity that people are bringing. And, you know, when we first saw after the 2007 wildfires in San Diego, I think that was when we first saw insurers hiring private firefighting corps. And, you know, there was a little bit of pushback in the media, is this unfair that, you know, rich people get

special treatment. And, you know, my reaction at the time was, well, if they can innovate, if they have the financing to innovate, um, in fire, um, prevention suppression, uh, let's, let's, you know, let's let learn from them. Um, and I think, uh, but I, you know, just like what Michael was hitting on, I think, um, you know, we don't, we're not going to expect people to do the kind of things that this gentleman did, you know, but, but certainly, um,

It's been decades of firefighters telling us the one thing that allows us to save homes is clear space around the home. Yeah.

Ben writes and says, "We were State Farm customers for 41 years and they canceled us last September due to our zip code. We were able to get fair coverage but our bill is now double for homeowners insurance. Since the fire uproar started due to PGE problems, why are they not helping us pay for the added coverage? Instead, my PG&E bill in '24 increased by almost 20% although we're using 10% less power."

There's the overall question of how these fires got started to Dave Jones. Is that going to have any impact on people's insurance situation? So, again, tragically, the fires in Los Angeles were not a question of if. It was really a question of when. And given what's happening vis-a-vis climate change and our failure to transition fossil fuels, it's only going to get worse. And I don't think we're going to

rate increase or modify regulations out of this problem. Although in the short and midterm, I think the regulatory changes, as the insurers themselves have said, should get insurance companies writing again. But what Californians can expect is that rates were already going to go up as a result of the regulatory changes. They're going to go up even higher as a result of the experience of these wildfires.

So what's the answer? I think that, yeah, I think the, I think the answer is we've got, we've got these fair plans. They're not state agencies. They're associations of the private insurers or a mechanism to keep the private insurers in the game. And I think we need to shore them up. I think a targeted program of federal reinsurance for fair plans to reduce their costs. I think at looking at making fair plans, increasing their ability to have access to other sources of capital in innovative ways. And then I think a federal or state,

premium subsidy program, much like we've done for the Affordable Care Act for health benefits exchanges, for those buying insurance in the fair plan makes sense. I don't think we should create some national scheme of taxpayer-funded all-disaster, all-risk insurance like the National Flood Insurance Program on steroids because the history of federal national insurance programs has not been great. They're hugely expensive. They require a lot of taxpayer money. They're regressive. They send the wrong risk signal. So I wouldn't do that.

I also don't think we should suppress insurance rates because they're sending an important risk signal. But I think we're going to need to look for ways to shore up fare plans because more people are going to be forced onto fare plans, not just in California but across the United States. Yeah.

Oh, man, I wish we could have an entire show just about that last point that you made there. You know, Amy, you know, preparation for people when it comes to insurance, you know, it wasn't our time in Northern California this fire season so far. What would you say? How would you want people to prepare for when fires do come back?

Real quick. Yeah, okay. Just, you know, try to get that five feet of clear space around your home. Make sure you've got screens over any openings to keep embers from flying in. Those are kind of two key ones. You know, follow either the Safer from Wildfires standards or...

or the IBHS wildfire prepared home centers, do what you can and pitch in in your community so that you can help your community get that herd immunity that Michael talked about because that's what insurers are looking at. They're not just looking at individual homes and did they improve? They're looking at is this community committed to long-term risk reduction.

Thank you so much. We've been talking about the impact that the devastating fires in Los Angeles are going to have on getting insurance here in this state. We've been joined by Amy Bach, Executive Director and co-founder of United Policy Holders. Thanks so much, Amy. Thank you. Had Dave Jones, former Insurance Commissioner, California Department of Insurance, and now Director of the Climate Risk Initiative at UC Berkeley Center for Law, Energy, and the Environment. Thank you, Dave.

Thank you. And great to be with Michael and Amy. Yeah. And Michael Wara, policy director for the Sustainability Accelerator at the Doar School of Sustainability and director of the Climate and Energy Policy Program at Stanford. Thank you so much for joining us, Michael. Thanks for having me on. And I totally agree with Dave's sentiment. Great panel. Thanks so much to our listeners and callers for those great questions. Stay tuned for another hour of Forum Ahead with Mina Kim.

Funds for the production of Forum are provided by the John S. and James L. Knight Foundation, the Generosity Foundation, and the Corporation for Public Broadcasting.