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The Need to Modernize California Wildfire Insurance Regulation with Climate Science

Journal of Science Policy & Governance
​Volume 20, Issue 01 | March 28, 2022

Op-Ed: The Need to Modernize California Wildfire Insurance Regulation with Climate Science

Anisha G. Singh
Stanford University, Applied Physics, Stanford, CA

​Corresponding author: agsingh@stanford.edu
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Keywords: wildfires; insurance regulation; climate science modeling ​
https://doi.org/10.38126/JSPG200108

Executive Summary

Recent fire seasons have been the worst in California’s modern history. Beyond causing unprecedented damage to property and loss of life, the California wildfire crisis has also exposed serious issues within the state’s home insurance market. State regulation prevents insurers from incorporating the projected climate change-driven increases in wildfire, in policy pricing. Unable to adequately price for wildfire risk, many insurance companies have withdrawn from wildfire-prone areas. Meanwhile, companies that concentrated their policies in these areas have gone insolvent, as they failed to diversify their wildlife risk. Lack of access to reliable insurance leaves many homeowners vulnerable to significant financial losses. To ensure a healthy insurance market that is resilient to climate change-driven disaster, California legislators should revise the insurance code to authorize the use of 1) catastrophic modeling and reinsurance costs and 2) modern climate data and forecasting techniques to rate set for wildfire risk. However, adoption of these new methodologies for rate setting must be accompanied with independent oversight to protect consumers and responsibly regulate new science-based policies. ​

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Background header image courtesy of US Air Force from Flickr

Anisha Singh is a PhD candidate in Applied Physics and is pursuing a graduate certificate in policy analysis at Stanford University. Anisha researches materials with unusual properties that could be used to create faster and more efficient electronics. She received her BA in physics from U.C. Berkeley and previously worked at Lawrence Berkeley National Lab. Anisha is interested in how policy shapes the scientific research environment in the US and impacts participation in our scientific workforce. In the future, Anisha hopes to contribute to federal policy to expand representation in our scientific workforce and promote the open access of scientific information

Acknowledgements
The author would like to acknowledge Luke Merrick for helpful feedback on earlier versions of this manuscript.

References

  1. Abatzoglou, J. T., and Williams, A. P. 2016. "Impact of anthropogenic climate change on wildfire across western US forests," PNAS 113(42). https://doi.org/10.1073/pnas.1607171113
  2. California Department of Forestry and Fire Protection. 2020. “2020 Fire Season,” State of California. https://www.fire.ca.gov/incidents/2020/
  3. California Department of Insurance. 2018. “Annual Report of the Commissioner” State of California 
  4. California State Senate Committee on Insurance. 2020. “Wildfires and Homeowners Insurance: Availability in High-Risk Communities” Informational Hearing, background report.
  5. California Senate, 2020. “Assembly Floor Analysis: Wildfire risk reporting,” SB-292.
  6. Cassesso, R. 2020 “States’ insurer of last resort should not become the primary insurance market,” CalMatters.
  7. Davies I.P., Haugo R.D., Robertson J.C., and Levin P.S. 2018. “The unequal vulnerability of communities of color to wildfire.” PLoS ONE 13. https://doi.org/10.1371/journal.pone.0205825 
  8. Ellis, T. 2020. “In Areas at High Risk for Wildfires, Relative Affordability Lures Homebuyers” Redfin
  9. Flavelle, C. 2020. “Wildfires Hasten Another Climate Crisis: Homeowners Who Can’t Get Insurance” The New York Times. https://www.nytimes.com/2020/09/02/climate/wildfires-insurance.html
  10. Frazier, R. 2021. “California’s Ban on Climate-Informed Models for Wildfire Insurance Premiums” Ecology Law Quarterly https://www.ecologylawquarterly.org/currents/californias-ban-on-climate-informed-models-for-wildfire-insurance-premiums/
  11. Karapiperis, D. 2018. “The Increasing Risk of Wildfire and Insurance Implications” The Center for Insurance Policy and Research Newsletter 
  12. National Association of Insurance Commissioners. 2018. “Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/ Cooperative Unit Owner’s Insurance Report" https://content.naic.org/sites/default/files/publication-hmr-zu-homeowners-report.pdf
  13. Nylen, N. G., Kiparsky, M., Owen, D., Doremus, H. and Hanemann, M. 2018. "California’s Fourth Climate
  14. Change Assessment." https://www.climateassessment.ca.gov/
  15. Quinton, S. 2019. “As Wildfire Risk Increases, Home Insurance Is Harder to Find,” Pew Charitable Trustshttps://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2019/01/03/as-wildfire-risk-increases-home-insurance-is-harder-to-find
  16. Scott, S. 2019. “Reshaping insurance to solve California’s wildfire insurance availability issue,” Milliman
  17. Wang, D., Guan, D., Zhu, S. et al. 2020. “Economic footprint of California wildfires in 2018,” Nat. Sustain. 4: 252-260.https://doi.org/10.1038/s41893-020-00646-7
  18. Westerling, A. L. 2018. “Wildfire Simulations for California's Fourth Climate Change Assessment: Projecting Changes in Extreme Wildfire Events with a Warming Climate: A Report for California's Fourth Climate Change Assessment,” California
  19. Energy Commission World Meteorological Organization. 2021. “Weather related disasters increase over past 50 years, causing more damage but fewer deaths,” World Meteorological Organization​

DISCLAIMER: The findings and conclusions published herein are solely attributed to the author and not necessarily endorsed or adopted by the Journal of Science Policy and Governance. Articles are distributed in compliance with copyright and trademark agreements.

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