Special Episode: California Insurance Crisis – What Next?

CAPITOL WEEKLY PODCAST: This Special Episode of the Capitol Weekly Podcast was recorded live at the California Insurance Crisis, which was held in Sacramento on Wednesday, May 14, 2025

This is Panel 3: What Next?, featuring Sen. Roger Niello; Alex Hall, UCLA; John Norwood, Norwood Associates; and Denni Ritter, American Property Casualty Insurance Association

 Moderated by Rich Ehisen of Capitol Weekly

 This transcript has been edited for clarity.

RICH EHISEN: Alright, thank you Tim. Welcome to this panel and we are taking a look ahead.

A lot of ground has been covered in these first couple of panels, and I really want to express my appreciation to all the panelists and folks who’ve come and lent their great insight to this. You know, at the risk of grossly oversimplifying this situation, our insurance crisis that we’re experiencing in California, I think can really be broken down into two main categories: affordability and availability. We’ve heard those two words a lot today.

I’m really happy to be moderating this panel because I like to always be focused forward on what happens next. So, appreciate this panel too.

So with all that in mind, let’s start with those two availability and affordability. And you know, maybe just a very general question, which do you see, among our panelists here, as being the bigger issue right now? And which is most likely to be the major issue as we look into the future over the next few years?

I’m going to start down at the end. Again, I’m not going to introduce the panel because they’re all in our in our bios. But John Norwood, who of course…. You can introduce yourself really briefly if you would, please.

JOHN NORWOOD: Afternoon, John Norwood.  We have a lobby firm in Sacramento, we represent a number of insurance interests, as well as other companies and associations and business groups. Probably our oldest and longest client is the Independent Insurance Agents and Brokers of California. And I just want to say on behalf of them, I’m upset, mad and frustrated as well.

So I just wanted to follow the Insurance Commissioner on that point, because our members don’t have product to sell. And it’s been this way, way beyond… or way before March of ‘23 when State Farm said that they were taking a pause and people all of a sudden decided that we had an insurance crisis.

Companies that… our members, right, started bailing out of California after the ‘17 and ‘18 fires. And so it’s been a long road for our members. They are parts of their communities, they grew up with many of the people they insure from a personal line standpoint as well as a business standpoint. Again, they don’t have product to sell. They’re trying their best. And basically what they have to do is go in the FAIR plan or the Non-admitted market, because the companies they do have are restricting the number of applications they can file under threat of deleting their agency authority.

So, you know, when we look at it, so, you know, that would all go to availability right now. But the bottom line is the FAIR plan is available. So I think that the biggest problem right now is affordability. The market is the FAIR plan – quite a bit more expensive than people are used to or going into the Non-admitted market, which is maybe sometimes multiples of that. Non-admitted market is basically picking the best risks right now. FAIR plan has to take just about everything. And you know, so that’s, I think, where the issue is right now.

RE: Senator Niello.

ROGER NIELLO: So if you ask me, the question, is the bigger problem affordability or availability? My answer is yes. [laughter.]

Right now, obviously availability is the acute issue. But when we move out a couple of years, assuming we’re able to see some movement on the availability, affordability is most definitely going to be an issue.

“’We would be willing to pay more for insurance. We just want to have access to it.’”

And I just point out that there are things that we need to do to try to address affordability, like forest management and the like to try to mitigate the impacts, and home hardening and all of that, which I think we’ll talk about a bit later. But once we if we achieve the availability that we’re looking for, I don’t think we can expect to all of a sudden see prices go down. Because kind of what we’re seeing is, is a price control situation where a product is being statutorily, if you will, priced below the market.

If that weren’t the case, we wouldn’t have the availability problem, right? And if you’ve ever seen the operation of price controls, they work for a little while and then they’re taken off. When they’re taken off, prices balloon back up to where the market should be. And unfortunately, that’s probably what we’re going to be looking at with regard to insurance too.

“I know no one wants to hear this, but California is actually really underpriced compared to the rest of the country when it comes to homeowners insurance” – Denni Ritter

So right now availability is crucial. And in order to address that, we need to see that the market is priced legitimately according to the risks that are involved. And the fact of the matter is, it’s not going to be as inexpensive as it was five years ago.

RE: Alex, I don’t know how you feel about answering this question because it’s a policy question, but if you have a thought, please weigh in.

ALEX HALL: Yeah, no, I’m a I’m a scientist on the panel, from from UCLA.

California Insurance Crisis, Panel 3: What Next? Rich Ehisen, Capitol Weekly; Denni Ritter, American Property Casualty Insurance Association; Alex Hall, UCLA. Photo by Ellie Appleby, Capitol Weekly

I would I would just add that it is a non-stationary risk environment that we’re in. And, you know, from the scientific perspective, we we’re not making enough progress on the forest management. We’re not making enough progress on the ignition control. And we have a changing climate that is, that is proceeding, you know, unfortunately at a rapid pace. We’re not controlling emissions globally. And so I think that the hazard is increasing. And if we do have an environment where we’re trying to control costs through price control measures, then that really does create the recipe for a very irrational market. So yeah, I just I just wanted to insert that the hazard is, is changing over time.

RE: I think we can all agree with that.

AH: And go, Bruins. [laughter.]

RE: Yeah. Ms. Ritter.

DENNI RITTER: Thank you very much for having me. Denni Ritter, I’m here on behalf of the American Property Casualty Insurance Association. So, we’re a national trade [group] that represents home, auto insurers, commercial insurers, worker’s comp. Really every line of insurance except for health and life insurance.

I am going to focus a little more that currently our struggle appears to be rooted in an availability crisis. I think when you look at the growth of the FAIR plan that shows us that the admitted market is not showing up in the way that it would in a healthy market. And I think if you listen to the town halls that follow some of these events… I’ll go to Orinda, for instance. There were a large number of policies that were canceled in Orinda last year, and there was a town hall to discuss it. And several folks there said “we would be willing to pay more for insurance. We just want to have access to it.” And I’ve heard a few Assembly members say that during hearings.

So I think there’s a recognition that insurance prices need to increase to meet the risk that we’re covering. But I think in the future you will be looking at an affordability challenge. And I know no one wants to hear this, but California is actually really underpriced compared to the rest of the country when it comes to homeowners insurance. I mean, in what other sector can you say that that California is the most affordable? That’s that’s remarkable.

I read a shortly after the fires in the LA area. Reuters came out with an interesting story about the cost of insurance in California compared to the rest of the country, and one of the stats they shared was that for policyholders in the Palisades, they were actually paying less for insurance than 97% of other ZIP codes in the US.

We knew that was a risky area. It’s certainly an expensive area, and I think that just shows how underpriced we are in California right now.

RE: But, you know, we’ve heard a lot about the FAIR plan today, and I definitely wanted to ask a couple questions about the FAIR plan, but I think I’m going to moderate on the fly because even I didn’t have the numbers right. I think it’s even bigger than I realized it was coming into all this.

California Insurance Crisis, Panel 3: What Next? Alex Hall, UCLA. Photo by Ellie Appleby, Capitol Weekly

There’s all these efforts legislatively to maybe bolster the FAIR plan. Let’s just talk about the sustainability of the FAIR plan. Given efforts to, as I said, to bolster it, to prop it up to, to keep the money flowing. You know, Denni, let me start with you. We’ll work back this way this time.

What really, looking forward needs to be done to two things: To make sure that the FAIR plan is viable… And also part of that is we’re seeing so many people go to the FAIR plan that don’t even live in areas that are considered high risk. How do we bolster the plan while also discouraging people from taking advantage of it? That shouldn’t be in that plan.

DR: That’s an interesting question. I don’t think people are going to the FAIR plan because they want to I think that they’re going to the FAIR plan because that’s what’s available to them. I do think that – and this is not to pick on the agents at all –  I think that there is an addition to the admitted market. There is a surplus lines market, and I won’t get too deep into the weeds into that unless you want me to. But certainly there are companies there that could also help take some of those customers off the market.

I think the other thing that is important to consider is the FAIR plan, again, no one wants to hear this, is also underpriced. They went to the Department of Insurance in 2021 and the indicated rate was 70%. They didn’t ask for a 70% rate increase… I think they knew that would be eyebrow raising… they asked for a 40% rate increase. This process took two years, and in 2023 they were given a 15% rate increase.

“The fundamental problem we have with the insurance market and with the operation of the FAIR plan is Proposition 103” – Sen. Roger Niello

So when we talk about the sustainability of the FAIR plan, I think first and foremost, it needs to be accurately priced so that it’s not competitive with the admitted market. And so that when there is a large loss like we saw in LA, they can cover those losses. I think that’s probably the number one thing that needs to be done.

And then, of course, if you make the admitted market healthy, which I know is the intention behind the Sustainable Insurance Strategy, and we are really optimistic that that is going to stabilize the market. Our hope would be that that, just by its very nature of having a healthy, admitted market, will depopulate the FAIR plan. Long term.

AH: I’m going to give the floor to my more qualified colleagues to talk about this. 

RE: Roger… In specific to you because you’re currently in the leg…. So I know there’s some some proposals over there right now. So just looking forward to maybe those or anything else that could be done in this regard.

RN: Well, first of all, the problem that we’re seeing with the FAIR plan is proof that the market is in crisis. It was established back in the ‘70s, I think, to be an insurer of last resort when people can’t get insurance, and it was viewed to be an exception at the time. And it’s important to know that all of the insurance companies doing business in the state are on the hook for the FAIR plan. So, if they don’t achieve rates to keep their reserves up where they should be and they’re not able to make claims, well, the FAIR plan doesn’t go broke. It puts its hand out to other insurance companies.

And so that then contributes to the availability problem that we have here in the state. So there is that fundamental issue. And the Sustainable Insurance Strategy was mentioned. And I just have to say, I heard that the Insurance Commissioner spoke earlier and he was talking about what he’s doing that prior insurance commissioners didn’t do. And he’s right about that…. But this crisis didn’t just pop up in 2024. We’ve known it since he’s been insurance commissioner and acutely in the last 2 or 3 years.

And it took him that long to come up with the Sustainable Insurance Strategy. And I would point out he hasn’t implemented any of it yet. It’s just a document.

So that is… I’m happy to see that that hopefully will make a difference. But the fundamental problem we have with the insurance market and with the operation of the FAIR plan is Proposition 103, which was passed by the narrowest of margins about 40 years ago, I think, authored by the man that started Consumer Watchdog, who plays the role of intervenor in terms of the rate process, which is part of the difficulty of getting adjustments in rates and why sometimes it takes so long.

And the real problem with with reforming Prop. 103 is it has to be done by a proposition, going back to the voters. And the insurance industry isn’t going to sponsor that, because that would automatically defeat it in popular minds. And if we were able to have a reform of Proposition 103, well, the whole system has enriched Consumer Watchdog because as an intervenor, they get paid for that. Consumer Watchdog has made literally millions of dollars over the course of time, and they have plenty of wealth to completely defeat any proposal for Proposition 103. So that’s a very serious issue.

“When you really look at the Commissioner’s program, there’s nothing revolutionary there. It’s what every other state in the union allows” – John Norwood

Hopefully the Sustainable Insurance Strategy can make a difference. Hopefully we can address the availability problem. Hopefully we can do some of these mitigation things that can help to keep rates from getting too high. But it really is a challenge in the market because of Proposition 103.

RE: Roger, I want to just clarify one thing, John first… there is language…. I mean, you can reform Prop. 103, but my understanding is the language of it makes it almost impossible to do in the legislature. Correct?

RN: It has to be, first of all, three quarters majority in the legislature. And also the legislative change has to be consistent with the intent of Proposition 103, which of course would be subject to interpretation, which of course Consumer Watchdog would most definitely oppose.

JN: Yeah. On the FAIR playing point, probably in the short term, most important thing right now is to get AB 226 enacted and signed by the governor. That bill would allow the FAIR plan to issue CAT bonds to deal with their cash flow. There’s already been one $1 billion assessment from the FAIR plan. If you look at all the numbers and the way the reinsurance is structured, there’s liable to be 1 or 2 more in order to make.. to moderate the effect of that on insurers and the public. These cat bonds would allow the FAIR plan to raise money to… and then stretch out the payments over a period of time.

That’s exactly what we did with the California Insurance Guarantee Association in the early 2000s, when 30 workers compensation insurance companies went insolvent, claims were in some months $100 million a month, and they didn’t have the cash flow to deal with it. So they issued cat bonds and they were able to then spread out the assessments over 10 or 15 years in order to be able to deal with it. And so I think that’s the most important thing in the short term.

California Insurance Crisis, Panel 3: What Next? John Norwood, Norwood Associates. Photo by Ellie Appleby, Capitol Weekly

Long term, obviously, we’ve got to make the market healthy again and get people back. Once we do that I think, you know, there’s all these carriers that are not writing the property insurance on… for customers, but they’re writing their difference in condition policies so they know those policies. Most of them used to write the property insurance on those policies, so the carriers can go back to meet the standard. The Insurance Commissioner has indicated in his program to go back and rewrite those policies, pull them out of the market, and that can happen quickly. So that’s, I think, where we have to go.

RE: John, let me stay with you for a second here, because we have talked a lot today, too, about the Insurance Commissioner’s Sustainable Insurance Strategy proposal and reforms. A couple of those are really interesting to me. We’ve talked a little bit about catastrophe modeling, but also being allowed to factor in the cost of reinsurance. And I think reinsurance is a really hazy thing for a lot of us out there in the consumer world. How big of a factor is that in the Commissioner’s proposal, looking forward in terms of what other rates are going to end up being.

JN: Sure. Well, the Independent Insurance Agents Association Commission work to be done on what factors could help insurers come back into the marketplace. And that work indicated that the biggest factor was to be able to include the actual cost of reinsurance in your rates. And that’s because the reinsurers are already all using CAT modeling and have forever, so their rates are already what they need. The problem is that you know, the admitted companies can’t afford the reinsurance because the admitted companies aren’t getting the rate that reflects CAT modeling or the cost of reinsurance. So that was the biggest factor. And I think that’s still true.

RE: So you see that as something that could have a really big impact. Yes. Okay.

JN: Yeah. No. Absolutely I mean two big things you’ve got you’ve got to include that. I mean, when you really look at the Commissioner’s program, there’s nothing revolutionary there. It’s what every other state in the union allows, you know, companies to do. What he’s done is said if we allow you to do that, you also have to write insurance and you have to meet the 85% standard or whatever the case may be.

So you know, I think it’s it’s really critical that we get, you know, that program implemented and unfortunately, it’s not yet. But once we do, we think that that will help alleviate the marketplace and hopefully bring back a competitive marketplace, which is going to be positive for everybody.

RN: Allowing for reinsurance is a huge piece of the functioning of the market. Insurance companies are basically risk managers. And they will manage their risk by trying sometimes to spread it around if they can. Currently they’re limited in that. But to be able to have reinsurance for insurance companies to have reinsurance protection is an extremely important part of their risk management strategy.

RE: Alex, I know this is a policy thing is not what you want to weigh in. But as John mentioned, the reinsurers have been using CAT models for a very long time. Are they any different than what we’re talking about using now?

AH: The way I interpret the new regulations is that the reinsurers who are using the CAT models and then the, the current insurers would be allowed to use CAT models. And so there would be a consistency then in the way that these two different entities are evaluating the hazard. So I think that would create, I guess, a self-consistency. Right? In the way that the hazard is evaluated.

RE: And it’s really quickly to are most of the reinsurers offshore or not are the biggest ones like in Europe?

DR: Yes.

RE: Okay.

DR: Yeah. Or Bermuda.

RE: Okay.

JN: I mean, the problem… Insurance and capital for insurance is worldwide, and it’s all connected. You know, in terms of who are the reinsurers, who’s the non-admitted market, you know the ability to capitalize new companies. I mean, it’s all connected in terms of people that are willing to put their money on risk. And so, yes.

RE: I was not making a tariff reference, by the way. So

DR: I would just add… I mean, I get asked a lot, you know, why do you, why do companies use reinsurance? Reinsurance is incredibly useful and very necessary. And I’ll just underline why that is. Insurers obviously have to have a certain amount of capital or money in reserves for every policy dollar that they’ve written. So if they have reinsurance and then thus the amount of reserves that they have access to is larger, they can write more policies. It allows insurers to cover more policies in the state of California. So reinsurance is a good.

“We can have access to CAT modeling. We can have the ability to use reinsurance, but if it takes a year or more to get your rate approved and it’s already undervalued by the time you get it approved, that’s a problem'” – Denni Ritter

The other thing I highlight is, I just saw this morning that reinsurers out of Bermuda are covering $10 billion in the losses that occurred earlier this year. That’s just as of right now. That’s they are already contributing heavily to our recovery efforts.

So reinsurance is not a scary or a bad. It’s insurance for insurance companies. It’s kind of boring. But the fact of the matter is insurers have been paying these costs in California for years. They have to. It’s just a part of doing business. But under the Sustainable Insurance Strategy, they can finally pass along a portion of those costs to consumers, because that is part of the business that they’ve had to cover themselves and eat for years. And when you look at the losses that insurers have borne over the last, you know, over a ten year period in California… ou know, the the popular number, we referenced, the NAIC numbers you know, for every $1 that insurers are collecting in premium, they’re paying out $1.14 in homeowners coverage here in California. And claims reinsurance is a huge part of that cost.

And being able to have that recognized in your rate filings is really huge. And our ability to continue operating and growing here.

RE: Is there anything else? And I’ll stay with you here in the Sustainable Insurance Strategy from the commissioner that we’re paying attention to, that I didn’t mention here because I mentioned reinsurance and the cap models. Is there any I know it’s a it’s a lot of stuff. What else are you guys really paying the most attention to going forward? Watching for implementation?

DR: I’m really afraid that this phrase is going to be on my tombstone someday, I say it so much, but insurers need adequate rates in a timely manner. That is the that is what it comes down to.

And so the rate filing process and the time that it takes to get a rate approved in California is a huge issue for insurers. We can have access to CAT modeling. We can have the ability to use reinsurance, but if it takes a year or more to get your rate approved and it’s already undervalued by the time you get it approved, that’s a problem.

You know, insurers in California have long operated under Prop. 103, which is a lengthy process and always has been. But in the highly inflationary environment that we were coming out of following Covid and appear to still be in, you know, when the things that insurance is paying for lumber, new cars, rental cars, when all of those things have gone up 30, 50% over the last five year period, if insurers can’t have that reflected in their rates, or it takes them a year to get a rate approved from the department, that’s a huge barrier to their ability to write in California, to grow in California.

And California is a huge outlier. We’re not the only prior approval state, meaning, you know, in California under Prop. 103, in order to sell insurance, increase rates, decrease rates. We have to file with the department. It’s a prior approval state. There are other prior approval states. And we’re truly in a league of our own for how long it takes. If you look at New York, 62 days. If you look at Texas 68 days. The average time to approval in Florida is 158 days. California is over a year. That is remarkable.

And so when we look at the Sustainable Insurance Strategy, one prong of that that was mentioned in the governor’s executive order and in the original unveiling of the Sustainable Insurance Strategy, was this notion that this process needs to be faster. And so that’s something we’re we’re really watching and hoping for some movement on.

JN: Yeah. If I can reiterate that every insurance company has a story where they’ve had a rate filing for two years or three years. I think the average was after 2020, the number of filings were cut in half. The average time for an approval was doubled. So that’s what companies have been dealing with. And that has to change. As the Commissioner said himself, Prop. 103 had a 60 day deem rule. If the if the rate hadn’t been approved, it would be deemed approved.

“A lot of people are just mad at insurance companies. And they’re mad thinking that their average $1200 – 1400 homeowner’s insurance policy at some point is going to go back to that rate. And it’s not.” – John Norwood

And you know, the department for many, many years now has forced companies to waive that Deem rule and so then you’re at, you know, really at the at the risk of the department, I mean, you just, you know, the department can continue to ask questions, continue to challenge your policies, all kinds of different things that have gone on and hopefully that will change. And I think under the Commissioner’s program, he intends to have that changed. And you know, I think we have kind of a four month program now that is going to be the standard.

RE: We’ve been talking a lot about Prop. 103 for a very good reason. Roger. You you know, you noted how difficult changing it’s going to be. It makes me think a little bit of Prop. 47 which seemed to be sacrosanct here too. Actually one passed overwhelmingly and then an attempt to reform it was rejected overwhelmingly. And it was a done deal. It will never change. And then last year, Prop. 36 tilted everything up on its axle. Right?

I’m kind of curious just looking ahead. Given the nature of this crisis, do you think we might actually see a Prop. 36 type of effort aimed at Prop. 103? Where against the odds, I guess you know, we could see another ballot measure that addresses some of these things. And is that a good thing to go about it that way? I’ll start with you. Well, I can see John is just dying to weigh in on that.

RN: I will grant that it was not a good thing to pass Proposition 103 in the first place. So continuing to jiggle it with propositions could seem to be questionable. But the problem is we have an insurance market that is not working, and a good deal of the reason why is because of the tennets of Proposition 103.

Now, to the point of it, a phenomena developing, as did with Proposition 36, and previous tries. Proposition 36 was written somewhat different than previous tries, number one. Number two, there became a consensus among the population of California that we had a problem with crime, and that we have a problem with substance abuse significantly greater than it was before Proposition 47.

That consensus developed, and therefore 70% of the people voted for it. I don’t think we’re there with Proposition 103, because, I hate to say this, but a lot of people think the problem is the insurance companies. And I experienced that in discussions that I have with people. And I try to explain to them the effect that Proposition 103 has on the marketplace and therefore on the insurers’ ability to do business. But I have to say that I have not been very successful at changing minds, so there is not a consensus on that.

If there could be a consensus that this dysfunctional marketplace is because of a proposition that we all passed, well, maybe 50.02%, I forget what the difference was, but it was very narrow… that that percentage of the people thought it was a good thing. The problem is, a whole bunch of those people aren’t even alive anymore. And most of the voters we have today weren’t even voters then. So it’s it’s a tough one.

RE: John, you’re dying to go in. Please.

JN: To Proposition 103 passed by 0.6% of the vote because people were mad at insurance companies about auto insurance rates. There was a lot going on also with competing initiatives and things like that. So maybe that had some mistakes, if that hadn’t happened, maybe it wouldn’t have passed. But it did pass for that reason.

And we’re looking at a situation right now where Senator is right. A lot of people are just mad at insurance companies. And they’re mad thinking that their average $1200 – 1400 homeowner’s insurance policy at some point is going to go back to that rate. And it’s not.

I mean, when you look at California, is now a catastrophic state, just like Florida, Louisiana, Oklahoma, Texas, Kansas, Colorado, those types of things. And when you compare what they pay for homeowners insurance Florida 5500. Louisiana 4200. Oklahoma 4700. Texas 3700. Kansas 4600. Colorado 3000. What we risk here in California is another 103, but this is an initiative that won’t it’s not going to help the insurance companies. I mean, I think that’s the risk out there.

People are not going to be happy when they see their new rates, even when, you know, hopefully the market becomes so competitive that these numbers go down. But they’re going to be quite a bit higher than they used to be.

RE: Denni, did you have a thought on that?

DR: I appreciate the thoughts on our popularity, Senator. [laughter] Yeah, I, I think we’re under no delusions that we’re in a position to run a proposition to reform Prop. 103. I think the conditions that led to the passage of Prop. 36, we haven’t maybe reached that point for Prop. 103. I certainly hope we don’t. But I just don’t think the voter sentiment is quite there. And I would agree that I think at this point, there’s a lot of there’s more fervor for how do we make these companies stay here and write, than, well, what reforms are needed to actually make this a functioning market?

RE: Alex, I promise I’m not ignoring you on purpose. I want to start talking about climate change. So this is I’m going to throw I’m going to throw the lifeline to you here because I’m not a scientist, but you are.

So we’ve been talking a lot today about about mitigation and incentives to for homeowners and commercial operations to, to mitigate their risks. So let’s talk a little bit about that and what that actually looks like. And one of the things that we the question I guess we have here is things like changes in precipitation as an example, something you brought up to me, and how it affects the fuels of fires. How changes in temperature affect things like moisture level in the air and just all of these things that are very scientific.

California Insurance Crisis, Panel 3: What Next? Rich Ehisen, Capitol Weekly; Denni Ritter, American Property Casualty Insurance Association; Alex Hall, UCLA; Sen. Roger Niello; John Norwood, Norwood Associates. Photo by Ellie Appleby, Capitol Weekly

How do we go about quantifying the impact of some of these things? And feel free to add anything else to this, because I know you offered me some other good suggestions. How do we go about quantifying this in a proper way, so that the companies and the policyholders are all getting a fair shake when it comes to considering the reality of climate change and the possibility, you know, the likelihood, of it getting much worse in the near future?

AH: Yeah. So I think that the, you know, we want to we want a market where we can quantify the hazard, and in an accurate way. And the difficulty is that we can’t really fully do that right now. And I think even different CAT models have different outcomes and different quantifications of, of the risk.

And so if you look at some of the factors that are that we know are changing, it’s the changes in the hydrologic cycle in California. So, probably we’re getting a little bit more precipitation in each storm right now, even now. So that means that we’re getting a little bit more accumulation of fuels during the wet season. And then we have our typical hot, dry summers which are drying out vegetation and probably doing that quite a bit more than they used to. And that’s probably an effect that we’re very confident in.

And when fire season rolls around, that means that we have a little bit more fuel and it’s drier and that’s a recipe for a bigger a bigger fire. At the same time, we know that when the fires do occur, the behavior of the fire is sensitive to how hot it is. And so that means that these fires are larger just because when the fires are occurring, it’s warmer on average.

Those are some of the factors that are changing. And I think we have quite a bit of confidence in the warming component of that. At the same time, we know that wildfire risk is shaped by other human factors like fire suppression in forests has led to a buildup of fuels over a century. And that means that’s another reason why the fires are bigger, probably in the forested part of the states.

In Southern California, we have a totally different dynamic where we have too many, have had too many ignitions in a region that has very few natural ignitions. And so we have a fire surplus in Southern California, but that the excess human ignitions means that we also have a lever there to pull. So, I think going forward, we can think about reducing wildfire risk by better forest management, by reducing our fuels. And we can also think about in shrublands and in urban areas in Southern California, reducing human ignitions.

Those factors would, I think, reduce our overall risk. And that’s another way… another way to mitigate this whole crisis is to mitigate that overall background risk. But we don’t fully you know, I think we’re still trying to quantify that.

RE: How do we incorporate some of this this data into these models. And I’m thinking about it from a policy perspective because, you know, Senator, you sit down and look at legislation and, you know, you’re working off a set of data, let’s say. But if that data is going to change rapidly all of the time, how does somebody like Roger introduce effective legislation when everything he’s working with right now, kind of like AI, could change tomorrow or the next day? Right? So how is it even possible for us to accurately incorporate all of this data in a way that’s going to have some longer term use? Or is this something we’re just going to have to factor into changing all the time and updating these models all of the time?

RN: Well, I often say that we legislators know a little bit about a whole bunch of things and a whole lot about not a lot of things. So we need really good advice, number one.

With regard to climate change. This is a tough one because it’s kind of an exercise of “the faster we go, the behinder we get,” because, of all of the greenhouse gas emissions reductions that we’ve achieved in California, which is what AB 32 charged the Air Resources Board to do, and they’ve done a great job of that. It’s had no effect on the atmosphere.

That’s why we’re continuing to see climate change progress. How fast? We don’t really know. But California accounts for a little bit less than 1% of global greenhouse gas emissions. Just the coal fired utility plants in China, just those emit about 70 to 75% of the greenhouse gases that are emitted by the entire US economy.

So we’re leading the world, and that’s great. But it has economic consequences. And I’m not saying do nothing. Some people say, well, that just means we’re not doing enough. We cannot cure climate change by ourselves. It is most definitely a global challenge. But every measure that we take to reduce greenhouse gas emissions has economic consequences.

And those economic consequences have consequences on our ability to pay for mitigation, forest management, water storage, all of those things. So, this is a vexing challenge among an environment where climate change continues to march on, no matter what we do about our greenhouse gas emissions, no matter what. So, I hate to be pessimistic. Kind of like reforming Proposition 103. And our scientist may have a comment about what I’ve just said.

DR: I am not a scientist, but I do. I do have a thought. I’m going to mess up the exact date and everything. This is what happens when you tell a story you weren’t planning on telling. But I was at a conference, and they were talking about how one of the world fairs in the early 1900s, they unveiled the light bulb. And, you know, electricity.

And initially the insurance industry said, well, this is a fire risk. How could we possibly, you know, allow this in homes? And, you know, we may be known for being boring, but we are innovative. And we knuckled down and created Underwriters Laboratory, or we created what became Underwriters Laboratory and, and established standards for the use of light bulbs and electricity in our homes. And I, I think we’re still leaning into that. How can we deal with this, this new risk that we’re facing via climate change?

And that’s why IBHS is so important and their work is so important and it is evolving. And I think from our perspective, that’s why it’s so important that when the legislature looks at this, rather than being overly prescriptive, that, you know, “these five things need to be done, this is the list,” and then trying to revisit that every year with new legislation. You know, from our perspective, the wiser thing would be to, you know, allude to standards that are being created and will be updated by entities like Cal Fire, like IBHS, so that this can be a living document. Because to your point, we don’t know all the ways that the risk is going to evolve, but we need to be flexible.

JN: You know, climate change, I think if you look at the legislature and bills that have been considered for the last five, ten years, climate change has got to be the number one issue in California, in the legislature, maybe followed by homelessness.

“We’re in fire surplus in Southern California. And that’s because we have 20 million people there who are doing things, and we have power lines causing fires, and we have fireworks and vehicles sparking, and gender reveal parties and you know, all kinds of things that are causing fires” – Alex Hall

But I’ve actually written an article that said wildfires, or fires in general, whether it be wind driven wildfires or wildfires, should be the number one issue… because right now, the state of California is foisting billions of dollars of cost on taxpayers and residents of this state in the name of climate change. And making changes, whether they be electric cars or you know, furnaces or whatever the case may be. But in order to, you know, reduce greenhouse gases.

But, you know, the 2017 fires alone wiped out 20 years of reduction of greenhouse gases. And you can imagine what all these other fires have done. So, loss of life, the loss of property, the health effects, the effect on housing the insurance costs, you could go on and on. Resiliency is the big, big elephant in the room in terms of what the state has to do. And I think it’s going to have to be the federal government, the state and local governments that have to do the hard work first. And the money’s not there to do it. We’re talking about something that’s not a sexy subject. That’s going to cost arguably a couple billion dollars a year. You have to go back every year to do it.

And if you look at kind of the numbers so far, we’re not we’re not getting to or achieving the goals set even by Jerry Brown ten years ago on prescribed burn or forest thinning. The, you know, the budget, even in our surplus time, we had $100 billion budget. The state had budgeted 2.8 billion. I think they increased it by 1 billion to 3.8 billion, for resiliency issues over three plus years. And that money hasn’t been spent.

So we have to do more and more of that. I’m really heartened by the fact that of the four wildfire packages that were introduced this year that represented over 90 bills. Most of those bills went to resiliency issues, planning issues, water issues, things like that. I think the message is finally trying to get there. The governor has a state of emergency on that now, but it’s a tough one in a deficit budget situation because it takes a lot of money and it takes a lot of people to continue to do this. I think the Pro Tem has a bill that would keep the temporary fire crews employed year round to do fire breaks and other resiliency work, and that’s essential to do.

RE: You read my mind because I was just about to ask you if you were referring to that. Alex, please.

AH: I was just going to jump in. You know, I think that, yes, we can’t do a lot about global climate change. I think we’re subject to other countries’ decisions there and including our own. But I do think there are there is a lot of room for innovation in resiliency.

I’ve been so heartened to see my colleagues do really jump in and do innovative research in response to the fires that we had in LA. So ,some folks are working on this issue – I mentioned the ignitions issue and how we’re in fire surplus in Southern California. And that’s because we have 20 million people there who are doing things, and we have power lines causing fires, and we have fireworks and vehicles sparking, and gender reveal parties and you know, all kinds of things that are causing fires during fire season.

So, you know, one group of folks is creating a Santa Ana classification system, much like our hurricane system, where we can really identify the types of Santa Ana events that are very likely to produce very large fires and in which locations so that we can do things like shut down power, shut down access to wildlands. You know, really make sure that we are we are controlling ignitions occurring in those places. So that’s an example where I think we can, we can take measures to try to reduce the [risk].

DR: ….add to that I think… Nicole is it KB homes?

Audience: Yes

DR: Sorry to call on you. I’m really heartened to see some activities that, like the builders have undertaken in California. They’ve really leaned into this idea that, you know, new communities that they’re building need to be resistant to wildfires. So, you know, there was a demonstration, I think, last month down in San Diego area. KB homes development – I’m in no way affiliated with them, I’m just giving them a plug – they they built a community that, you know, they believe that adheres to all the science that we have right now on preventing you know, the spread of wildfire. And they also have pointed out that this community could be a buffer to other communities that, you know, are existing communities that may not have the same stringent protections in place. Because from what I understand, building new communities to these standards is actually not that much more expensive than building communities to, you know, not… below the standards. Buit it’s getting existing homes and communities to undertake the investment, and that is where the state investment is going to be really crucial to that.

RE: You know, I’m really glad you brought that up, because I did want to talk a little bit about maybe the role that the home building industry plays in all of this. You know, it’s funny, my wife and I are looking we’re in the home market right now, and we were meeting with our real estate agent last night, and everything’s all good. And then we brought up insurance and, hadn’t even occurred to me what a role that is playing in new and existing home sales.

So it made me think, okay, well. All right. What role maybe does the development industry have to play in this insurance crisis that we’re having here? I mean, am I out of left field here or, you know, I mean, whether it’s building in greenfields or emphasizing infill or having standards there that would help make the property more insurable? I mean, is this a realistic thing to look at going forward? And John, let me start with you.

JN: I’m not an expert on that at all. But I did hear in the aftermath of LA fires some discussion of how we protect existing communities. So the… you know, the discussion was around homes that are very close together. And if there’s anything you can really do to keep fires from going from one house to the next house to the next house. And one of the discussions was, we can’t do anything about changing the lot lines of those homes, but we can try to encircle those communities like a moat, you know, with projects, whether they be condos, apartments, this and that, that are hardened. So that the fire will stop at some point.

Now, you know, that’s all hearsay for me. It’s the only thing I could come up with in response. But I think that that’s the kind of science and that’s the kind of thought process, you know, we’re going to have to build into, planning of communities and hopefully something like that works and on. On the real estate market, I think just like when interest rates go up, housing prices go down to reflect that. I think, you know, we’re also seeing that in the insurance… having with insurance having an effect on the cost of housing. And we’re going to see more and more of that, I think.

RN: I think we probably will over time, see a building standards change at the local level. In order to harden houses, they have to be built, fundamentally, built differently than they currently are. Not just in terms of defensible space, but the building materials themselves. The external being stucco as opposed to wood, the vents on the roof being protected from embers. All of these sorts of things are not currently strict building standards, I think. I’m kind of thinking that’s probably going to happen.

But we got a lot of existing houses out there and with, with some given the size of the property and the type of trees and landscaping, that’s there in order to harden some houses, it could cost as much as replacing the house. And why would somebody do that? Or a good significant percentage of it. So existing homes is going to be a bit of a challenge.

California Insurance Crisis, Panel 3: What Next? Sen. Roger Niello. Photo by Ellie Appleby, Capitol Weekly

And the other thing about fire risk in residential areas is all of the things that need to be done to harden an area kind of work counter to the popular notion of community development, to this point. More dense building, infill building, creating houses that are all that much closer together. John’s comment notwithstanding, increases the fire risk.

So we need to come to grips with that. I’m not exactly sure how it could be actually moving in the direction of more greenfield development as opposed to infill, which is going to work entirely against the popular notion of the planners, professional planners’ conception of community development. But if you have greenfield development, you can build communities as they should have been in the first place. So we may see a bit of a political battle over this. But I think things are going to change.

RE: Well, we have a time for some questions. So if, uh…Tim, you want to I do have a.

TIM FOSTER: Quick question for you. So from the federal level, we’re seeing lessening of funding of things like the National Oceanographic [and Atmospheric Administration]. And I, from what I understand, this will limit reporting on things like extreme weather effects. I’m wondering if that is going to have an impact on us being able to prepare? I know the professor had mentioned that you’re working on kind of early warning systems and things like that. I’m wondering if that those funding cuts are going to directly impact this, or if you have any idea how that might play out?

AH: Yeah. No, I think that we’re all very concerned about loss of data, loss of reservoirs, of data. They’re they’re already data sets that are being lost. We’re trying to download them as fast as we can to make sure that they’re available going forward. But, you know, a lot of, a lot of satellite observing systems are probably going to end so we’re going to lose that continuity.

And that’s important not only going forward, but also for understanding of the historical record. And a lot of our understanding about fire behavior, for example, is built on the history going back. And if we lose those records, we’re going to lose that, that ability to to analyze that data. So I think there’s no question this is a serious issue. And over time, I think our ability to understand these dynamics will be degraded. Not to mention that we’re actually losing our money to do the analysis to the research projects are being defunded. So it sounds like.

AUDIENCE MEMBER: Almost everyone in the room can stipulate to the demonstrable facts that climate change is increasing the frequency and severity of disasters, and that a consequence of that is that billions of dollars of additional costs are being foisted upon the insurance industry. What I’m hearing from this panel seems to be that the solution to that, to make up that funding shortfall, is to provide the insurance industry, the regulatory tools to more easily foist those costs onto the consumer and the ratepayer.

And so my question is, why shouldn’t the oil and gas companies that contributed to that climate change in the first place also contribute to the cost instead of just foisting it upon the ratepayers?

RN: I’ll take a stab at that: because it would do the same thing.

To the extent that you add additional costs to any company for any reason, it’s going to translate to a cost, an additional cost of its product. It’s kind of a vicious circle. Now, your premise is that the risk of houses burning down should be the responsibility of somebody other than the homeowner. And what I would suggest is a homeowner owns a house. He or she is responsible for that house and what happens to it. And they mitigate that risk by buying insurance. And therefore they pay a premium to mitigate that. And that funds the protection in case their house burns down.

Now if their house never does burn down, they paid a whole bunch of insurance premiums over the years for nothing. But if they have a fire, then obviously it protects them. But to begin with, the premise that the responsibility for the loss is fundamentally that of somebody other than the homeowner, is kind of a that’s a I think that’s a failed premise. And to the extent that you try to spread those costs to others, you’re just going to increase the costs to those people in another area. Like how much they pay for gas.

AUDIENCE MEMBER: That’s exactly what insurance does it collectivize risk so that people who aren’t affected are paying for the people who are.

RN: I agree, I agree with you, but but if you’re going to impose those costs on other companies that also provide a product to consumers like gas companies, you’re just going to increase the cost of gas.

AUDIENCE MEMBER: Or decrease their profit. Yeah.

RN: I mean, well, if you want to have profit control, if you want to have profit control, we already debated that in the legislature, and the majority party was not willing to go in that direction.

RE: We have a question down here in the front.

AUDIENCE MEMBER: Hi. Thank you so much for informing us about the state of the insurance in California. I had a question about the future of the 3D building industry in helping the insurance companies lower their costs.

DR: I’m sorry, what? What type of companies?

AUDIENCE MEMBER: 3d buildings. So basically they print houses and they use cement and construction. I’m actually working on a couple of projects and they’re trying to locate their, their companies here in, in California. And the way it goes, it’s basically they have all these big trucks and then they design and they build their building without minimizing the costs.

JN: This is like the three pigs homes, you know, when you build them out of straw or rock or cement or whatever the case may be, if everybody wants to build their home out of cement, I think, you know, we encourage that. And, you know, I mean that’s. Going to be more fire resistant.

“There’s been talk in the past of collectively insuring for disaster losses, taking a national look at it…. Nothing’s ever gone in that direction. But perhaps this crisis might resurrect those discussions.” Sen. Roger Niello

But I did hear a story about somebody in the Santa Rosa fires that was in a very affluent neighborhood, and they built what they thought was a fire resistant home, which was basically cement, rock, steel and glass. Fire burned so hot it melted the house. You know, it was like a $4 million house. But yeah, I mean, that’s a… 3D homes is maybe something that contribute on a very small scale to you know, home hardening. But that’s as far as I see it.

DR: I would just add I think, you know, John, you touched on an important point. Unfortunately for wildfire risk, there’s only so much… you can do a bunch of things to lower your risk, but different than hurricane risk, for instance, you could mitigate your home to the hilt. But if the fire is burning that hot, or if your neighborhood is not, you know… the importance of community level mitigation for wildfire in particular… it can’t be understated. Whereas if you mitigate your home against hurricane, it doesn’t matter what your neighbor has done, it doesn’t affect your, the mitigation for your home. So I think that’s, you know, part of the challenge is getting entire communities to buy in.

RE: I think we have time for one more.

CAPITOL WEEKLY: Yeah, I think this is our last question.

AUDIENCE MEMBER: Thank you so much. Really interesting discussion. You know, John, this might just be for you, but Senator, you may have some insight. So I know that the California Earthquake Authority has been issuing catastrophe bonds as a strategy. And I think the last round they wanted to do more. There was one insurer that kind of wanted to, you know, was not enthusiastic about that approach. Have you have we seen that strategy work? For the CEA to moderate some of the costs of the reinsurance they have to buy.

JN: So as I understand it, you know, and we’ve all talked about reinsurance here. Reinsurance at some point gets too high. The alternative are catastrophic bonds, you know. And when some of the market moves to the lower cost, catastrophic bonds and reinsurance costs kind of come down. That’s why I kind of understand the mathematical equation is out there. When I talked about the FAIR plan and 226… AB 226, it was… that’s more of issuing bonds to manage cash flow. And I think I did call them CAT bonds, but I didn’t mean it that way. So I’m really not all that familiar with what the CEA has done.

RN: There’s been talk in the past of collectively insuring for disaster losses, taking a national look at it. Because some areas have tornadoes, some areas have hurricanes, some areas have earthquakes. Wildfires are probably more consistent in a lot of areas. But there have been talks in the past to aggregating those risks and insuring for them all, kind of at the same time. Sharing the risk, people at risk to earthquakes, sharing their risk with people who are at risk to hurricanes.

California Insurance Crisis, Panel 3: What Next? Rich Ehisen, Capitol Weekly. Photo by Ellie Appleby, Capitol Weekly

Nothing’s ever gone in that direction. But perhaps this crisis might resurrect those discussions. It was I it was an issue when I was in the Assembly. I haven’t heard anybody bring it up since I was in the Assembly a century ago. Haven’t… just kidding…. Haven’t heard anybody bring it up now, but maybe it’s time to start looking at that again.

RE: And with that, I think we are definitely on time here. So thank you all very much. Thanks to our great panel for coming up today and sharing all of this great information with us. Thank all of you. Thank you to our sponsors. And July 8th, correct Tim,. our next conference will be on California, and I hopefully we’ll see you all there. Thank you.

Thanks to our sponsors:

THE TRIBAL ALLIANCE OF SOVEREIGN INDIAN NATIONS, WESTERN STATES PETROLEUM ASSOCIATION, KP PUBLIC AFFAIRS, PERRY COMMUNICATIONS GROUP, CAPITOL ADVOCACY, THE WEIDEMAN GROUP, CALKIN PUBLIC AFFAIRS and CALIFORNIA PROFESSIONAL FIREFIGHTERS