Author(s): Meghan Housewright. Published on March 1, 2018.

Ensuring Insurance

Helping policymakers in California and elsewhere promote wildfire risk reduction—and address the concerns of insurers

California’s 2017 wildfire season, one of the worst in state history, will likely have a long-lasting impact on the state’s embattled insurance market. That impact could result in any number of outcomes: it could prompt changes that improve wildfire safety, or it could create a crisis for millions of homeowners unable to find insurance. NFPA’s Fire & Life Safety Policy Institute was created to provide resources and expertise to promote the former while avoiding the latter as best we can.

Even before last year’s horrific wildfire season in California—with 1.2 million acres burned, scores of lives lost, and thousands of structures destroyed, capped off by January’s fatal mudslides—insurers were retreating from offering coverage in areas of high fire risk. According to a December report from the California Department of Insurance, “a significant increase in insurer-initiated non-renewals” began after the 2015 fire season, and the trend appears likely to continue. With an estimated 3.6 million homes located in the wildland/urban interface (WUI), it could be a looming crisis for California homeowners and their communities. But it could also be an opportunity.

California lawmakers will need to consider options for convincing insurers to stay in the state and offer affordable insurance to properties in the WUI. The insurance commissioner is to be commended for recognizing that mitigation should lie at the heart of these options. One of the December report’s recommendations to legislators is to require insurers doing business in the state to offer policies where the “property meets specific mitigation and defensible space criteria,” or similarly to make discounts available where such mitigation has been undertaken. This should make the message clear: if homeowners want to qualify for insurance, they will need to take steps to reduce the risk of their home burning during a wildfire, such as clearing combustible vegetation. Such steps would be complemented by improved community land-use planning, which is critical for ensuring communities are designed and built with wildfire in mind.

An example of what can happen when policymakers do a poor job incentivizing risk-reduction strategies is the National Flood Insurance Program (NFIP). The 50-year-old federal program was designed to provide flood insurance to homeowners where the market will not, and to reduce the risk exposure through better building standards and land use practices. Despite those goals, the number of “severe repetitive loss” properties has grown sharply over the past 30 years; many NFIP properties pay premiums well below their true risk; and the program is more than $20 billion in debt. So far, NFIP’s key takeaway seems to be that regulating insurance premiums to reflect true risk and incentivize its avoidance is politically fraught and often untenable.

California lawmakers face similar pressures as they seek to aid residents in the WUI. Ten bills addressing consumer protection measures have been introduced in the wake of the 2017 fires; while they may be important for making fire victims feel whole, they do not address the underlying insurance challenge posed by millions of homes in the WUI. For that, policymakers need to resist creating a state-run insurance program like NFIP and instead focus on mitigation and land-use planning strategies that reduce risk.

There are troves of information available on avoiding loss in the WUI, and helping policymakers put this knowledge into practice is a high priority for the Policy Institute. We are eager to explore ways that we can assist, including developing tools to communicate risk to citizens and building cost/benefit analysis frameworks to evaluate land use and property related regulations. The stakes are high—policymakers in California and beyond have an urgent need for solutions that help reduce risk, and the Policy Institute is a willing partner to help them bring about this critical change.

MEGHAN HOUSEWRIGHT is director of the NFPA Policy Institute.