The Need to Modernize California Wildfire Insurance Regulation with Climate Science

Abstract

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 Unable to adequately price for wildfire risk, many insurance companies have withdrawn from wildfire-prone areas.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.