Why insurance bill hurts consumers, increases fire risks
But despite a remarkably effective response by the state’s insurers, in the midst of the most significant year for natural disasters in decades (losses totaling more than $100 billion, by some estimates), state Sen. Ricardo Lara, D-Bell Gardens, is proposing rigid command-and-control mechanisms that would harm most of the state’s tens of millions of policyholders.
The facts about climate change and the state’s dramatically increased fire risk are beyond dispute. Be it down south or up north, on the coast or deep in the woods, areas that could once be safely and sustainably occupied now place those that reside there at serious risk of ruin. Toward that end, it is imperative that politicians throughout the nation resist the siren call of populism and not pursue policies that subsidize unsustainably threatened development. Unfortunately, Lara’s recently proposed bill would do just that.
Lara, who plans to run for insurance commissioner this year, thinks the state should prevent insurers from dropping or non-renewing customers who experience wildfire losses. Under his plan, regardless how large a wildfire threat a home faces, insurers also would be barred from non-renewing any policy after a homeowner makes an effort to protect the home. The proposal would require insurers to seek permission from the California Department of Insurance before they would be allowed to limit their exposure in high wildfire risk areas, even if doing so would protect the overwhelming majority of policyholders from rate hikes.
Lara’s proposal is rife with practical problems bound to gum up its implementation. But the truly disappointing part is how such proposals suggest, even in California, lawmakers aren’t serious about tackling climate change.
By preventing insurers from adjusting their premiums to reflect risk, and by preventing them from non-renewing perpetually at-risk properties, the bill ignores the obvious fact that the level of wildfire risk is increasing and that the ways in which that risk is distributed are changing. Lara would demand that insurers ignore the substantial differences between more and less risky areas, forcing those who live in the latter to subsidize those who choose to live in the former.
Properly assessing the perils of climate change is something that insurers will have to do if they hope to survive in the 21st century. Lawmakers and regulators who are blind to that reality would harm both the industry and the state’s consumers.
But the larger problem with Lara’s ill-conceived proposal is that it would actively encourage Californians not to adapt to the effects of climate change. California’s wildfire situation is not unique. Following a different policy roadmap has already been demonstrably effective at reducing exposure to natural catastrophes.
Back in the 1980s, Congress recognized that it was subsidizing a game of chicken with the environment along the Atlantic coast, the Great Lakes and the shores of Puerto Rico by allowing builders to enjoy all sorts of federal subsidies that helped them to develop barrier islands and other sensitive coastal regions.
A bipartisan coalition decided that this was a bad idea and passed the Coastal Barrier Resources Act. That legislation effectively banned the use of any federal funds — from highway funds to participation in the taxpayer-subsidized National Flood Insurance Program — for any new development in the 1.3 million-acre Coastal Barrier Resources System. New developments could still be pursued in those high-risk areas, just not at taxpayer expense.
Today, with the benefit of three more decades of research about the impact of climate change, there’s some irony in noting that Lara’s proposal would have exactly the opposite effect. It would instead encourage Californians to live in the path of inevitable disaster.
More galling is that, while the proposal might superficially target insurers, the real effects would be felt by consumers throughout the state, who would end up paying higher rates.
Climate change poses a host of thorny questions for policymakers and for the public. One overriding goal we all should be able to agree on is to do no further harm. By encouraging more development in high-risk zones and dampening the incentives to move away from them, more harm is exactly what Lara’s bill would provide.