Start Date: February 13, 2025

If you speak with California firefighters privately they will share their agonies about the state’s mismanagement of land, in particular forest and brush clearance, lack of good water policy, and the homeless, who are the source of roughly 60% of fires addressed by the L.A. County Fire Department. Additionally, the recent catastrophic January 2025 wildfires were exacerbated by having almost 100 fire vehicles out-of-action while waiting for budget to repair them. This led to the tragedy of having available firefighters unable to work due to lack of equipment. Beyond comprehension, the newly minted CEO of the water utility deemed it an acceptable risk to have an essential reservoir be empty. Despite extreme weather warnings the mayor went to a party in Africa. The governor considered it a local problem, or a global one, i.e.”climate.”

However the WSJ recently displayed a chart of CA rainfall over 130 years [1]. It matched my experience over decades. Some years have single digit rainfall and some have 30 inches or more. But I also learned in my early years that if rain was minimal the public officials would claim that it would be a bad fire season because of drought. If rain was prolific they would predict fire because of the growth of brush to serve as fuel. The unstated reason being that the government agencies weren’t going to clear it. I can attest that the recent fires were in some of the coolest weather I’ve experienced in L.A. So if you don’t reduce the fuel, the fire starters (arson, old power lines, etc.), and provide for fire fighting, any season/weather can have a disaster.

Yet, for reasons that must involve some combination of corruption and foolishness, the state and city have adamantly refused to address what they can control, while blaming that which they cannot. Meanwhile expensive properties continue to be built and inflation increases the cost of rebuilding, and thus the risk to insurers.

Utilities are monopolies. You cannot select another power company to get a better price. As such they are subject to rate controls. Insurance companies are not utilities. They provide an important financial service, but there are many of them and they have to compete. So, absent mass collusion or over-consolidation, the market will normally function to set pricing which is based on risk.

This model fails if you live in CA where there is an insurance commissioner who has the power to set rates by denying rate increases. That may seem appealing but when you require a company to operate at a loss they will leave. If you had to pay your boss to come to work everyday you would quit. So the result of this policy has been the mass departure of home insurers from CA. They have stopped writing new policies and cancelled policies in high risk areas. Much of the 2008 financial crisis came from bad mortgage loans in CA. The sheer size of of the state allows it to drown the rest of the nation. Home insurers have to save themselves so they can still operate in other, more functional, markets.

California responded to the loss of insurers by creating a government backed insurer of last resort for those who could not find private insurance. The program dubbed FAIR (Fair Access to Insurance Requirements) is covering high risk properties and thus behaves they way a private insurer would. It has high premiums and low coverage.

Most bad social policies, such as lack of policing and lousy schools, are hardest on the poor. Wildfires themselves are slightly different. Dense urban communities are not filled with brush and trees and vast expanses of land. Think of the communities affected in recent fires: Pacific Palisades, Malibu, Santa Monica, Brentwood. Of course other communities and some long time owners are not wealthy. But one resident described a scene of miles of $20 million homes burned to the ground. A surprising number of these may be on the government FAIR plan because of the risk of their geography.

So the government plan will be inundated with claims for top tier properties. Like the public pensions in CA, this system is wildly underfunded for such a catastrophe. They must have known the risk given the departure of the private sectors companies.

But it is government, so unlike a private company, it will assign, they call it “assess”, one billion dollars of THEIR liabilities to the private sector insurance companies, who wisely declined to get involved with these properties to avoid just such losses. This seems to be theft, but the state can do it for a time.

To avoid widespread bankruptcy of the entire insurance industry, CA will now allow the private companies to pass on some of this assessment to their remaining policy holders, the ones who retained coverage because of being in lower risk areas.

So lower risk, often lower income, communities will experience huge increases in their premiums to help the government pay off people with 8-figure mansions that were destroyed, in part by CA mismanagement.

Once again the low to middle class communities will be hit by failed state policies. Eventually the state will be unable to force companies to conduct business in perpetuity in a place where they cannot maintain solvency, leaving the state with only government backed plans. The wealthiest will, if they choose to stay, manage. The poorest who live on government payouts have little options. Landlords will have to pass on costs or abandon their properties. So the working middle class and retirees will again be increasingly crushed or forced out of the state.

It really is Not FAIR !

REFERENCES

[1] The Editorial Board, “California’s Wildfire Climate Excuse”, The Wall Street Journal, January 13, 2025, https://www.wsj.com/opinion/california-wildfires-climate-change-water-storage-land-management-gavin-newsom-democrats-bd78d49a?mod=itp_wsj,djemITP_h