Last week, California Insurance Commissioner Ricardo Lara announced a plan to write new rules for pricing homeowners insurance. “We are in really uncharted territory and we must make difficult choices when the world is changing rapidly,” he said at a news conference.
Checking the Politician-to-English Dictionary, California edition, I can translate this for you. It means, “Insurance premiums are going up a lot, really a lot, very high, but we’ve all agreed to blame climate change.”
Lara negotiated with insurers who have limited or stopped the sale of homeowners insurance policies in California. The agreement he reached allows the companies to consider climate change and other forward-looking risk assessments when pricing insurance policies in the state. The current regulations allow insurers to consider only the past history of a property, not the potential future risks.
The agreement also requires insurers to write a specified number of policies in areas of high fire risk so those policyholders can come off the state’s FAIR plan, the last-resort insurer that has been overloaded with customers.
The problem here is that these new regulations won’t do anything about the cause of the rising costs.
It’s not really climate change that has increased the size and severity of wildfires, and it’s not climate change that has raised the cost of construction when homeowners have to rebuild.
The cost of construction has been increased by inflation, but California does its part to add regulatory and permitting costs that make everything more expensive.
The size and severity of wildfires, and the costs to insurers that have increased because of it, are the result of policy choices in California that relate to the state’s environmental priorities and ambitious climate goals.
Before 2000, it was common to see firefighters managing prescribed burns, planned and controlled fires that cleared a section of land as a firebreak. But then the California Air Resources Board issued smoke regulations that made it much more difficult, if not impossible, to use that longstanding practice aimed at limiting the size and spread of wildfires.
In addition, state law and policy pushed investor-owned utilities to invest heavily in renewable energy and to build out charging infrastructure for electric vehicles. To the extent that this mandatory investment crowded out funding for maintenance of existing electrical equipment and for mundane activities such as tree-trimming near transmission lines, the risk that a fire would be sparked by equipment was increased.
Because of land management policies in California that restricted the cutting of trees and the prescribed burns that had successfully limited the size of wildfires for generations, wildfires sparked by utility company equipment turned into uncontrolled infernos that did massive and costly damage.
Because of a legal principle called “inverse condemnation,” investor-owned utilities in California that have been given the right to run power lines through private property are held to “strict liability” for all the damage caused by a fire that is started by their equipment.
All these things have consequences that play out over time. In the past, it was routine for the utility companies to receive permission from the California Public Utilities Commission to recover any costs for damages that were in excess of their insurance coverage by adding a surcharge to customer bills for a limited period of time. But in 2017, the CPUC told San Diego Gas & Electric to pound sand when the company sought to recover $379 million in uninsured costs by charging customers an average of $1.67 per month for six years.
Obviously somebody is going to get stuck for the cost of all the damage from the massive wildfires. The options are limited. It will be the taxpayers, the ratepayers, the insurance customers or the investors.
Because the state government wants and needs investors to keep buying the stocks and bonds of utilities in order to keep the money coming for the Great Transition to Renewable Energy and Electric Everything, you can cross investors off the list.
That leaves taxpayers, ratepayers and insurance customers, and by now you’ve figured out that they are all the same people.
Taxes, electricity bills and insurance premiums will only go up, but thank goodness climate change has agreed to take the blame.
Write Susan@SusanShelley.com and follow her on Twitter @Susan_Shelley
