Property owners in high-risk fire zones should pay more for fire insurance
Confronted by a historically unprecedented year of wildfires, Placer County Supervisor Jennifer Montgomery, who represents the county’s 5th district which stretches from Auburn to Lake Tahoe, has teamed up with Sen. Ricardo Lara, D-Bell Gardens, a candidate for insurance commissioner, to spearhead the creation of an expansive wildfire risk subsidy regime sure to leave the state less prepared to respond to disasters than it is today. (“As California burns in December, this legislation could protect homeowners,” Viewpoints Dec. 26).
The two want to prevent insurers from considering wildfire loss experience in the creation of property insurance rates and to restrict the ability of insurers to protect their policyholders by limiting their exposure in areas of heightened risk – moves sure to drive up insurance rates of those living in less risky areas.
California’s natural environment is changing and becoming more fire-prone. But insulating those at risk from the impacts of this shift from the true cost of the risks that they now confront cuts against California’s otherwise enlightened approach to climate awareness championed by policymakers like Lara.
In Placer County, where wildfire risk is high, there is simply no doubt that property owners should pay more for insurance than those in low risk zones, a state of affairs which is a matter of principled personal responsibility that the electoral conservatism of Placer County should stoically embrace.
But Montgomery’s op-ed in The Sacramento Bee fails to differentiate between the severity presented by the risk to different areas. She makes the case that those residents who do the right thing and defend their homes against the threat of fire should – by right – receive a discount on their insurance rates. Yet she calls for rates to be frozen and high-risk products to remain in place in the event of a wildfire.
In other words, Montgomery is demanding that businesses extend discounts, while restricting their ability to recoup the costs. The only way that the state can allow that to occur without stumbling upon a constitutional takings challenge is for insurers to charge non-risk-based rates to others elsewhere. That arrangement is the personification of the subsidies that Placer County policymakers regularly rail against.
Montgomery is on to something when she states that “insurance providers must be required to set and adjust premiums based on an understanding of the real risk to the properties they insure.”
The largest obstacle to a scenario in which insurers can actually set rates based on the real risk to properties they insure is Proposition 103. That 1988 law has stifled product innovation and flexibility in a manner that effectively forestalls insurers from adjusting rates in a way that could serve consumers in areas of high wildfire risk. Because of Proposition 103, what can be made to work imperfectly in other states will have a hugely costly effect on the Golden State.