As destructive wildfires have ravaged California over the past decade, the insurance industry has dropped hundreds of thousands of homeowners statewide, raised their premiums, and, in some cases, stopped writing new home policies anywhere in the state.

Few understand the crisis better than Dave Jones, the former California insurance commissioner who oversaw the industry’s regulation from 2011 to 2018. Now head of the Climate Risk Initiative at UC Berkeley’s Center for Law, Energy and the Environment, Jones is a frequent commentator on the state’s insurance challenges and advocates for policies to protect homeowners.

A Democrat who also served in the State Assembly representing Sacramento, Jones spoke with this news organization about what is driving the insurance meltdown and shared how he believes California should address it. The conversation has been lightly edited for length and clarity.

Q: What are the main causes of the insurance crisis?

A: Insurance is the climate crisis canary in the coal mine, and the canary is dying. Severe-weather events are more common and extreme because we’re not doing enough, fast enough, to transition from fossil fuels and other greenhouse gas-emitting industries. And that’s landing on insurers through increased insurance payouts.

What is also contributing to the problem is more people and more businesses in harm’s way — we’ve expanded real estate development in areas that are being hard hit by climate change. And then the cost of replacing property has gone up, whether it’s to replace a home or replace a business property. The principal driver really is climate change, but these other aspects of the problem are contributing to insurance company losses as well.

Q: The state is now phasing in reforms that allow insurers to increase rates based on the growing threat of climate change. Does this mean insurance costs will rise even higher?

A: The regulatory changes that were enacted last year at the request of the insurers will give them higher rates faster, which is what they’ve said they need to keep writing insurance in California. I don’t think there’s any scenario under which insurance rates are not going to increase in this state and every state, because the losses are increasing.

Insurers indicated last year that with these regulatory changes, they would lift their pause on writing new insurance and write a little bit of additional insurance in high-wildfire-risk areas. And then we had the Los Angeles wildfires, which are well on their way to being the largest insured natural catastrophe in California. The losses could be as much as $45 billion on the insurance side. Insurers shouldn’t use the LA wildfires as a pretext to renege on those commitments, but they might.

Q: What can homeowners do to protect their properties from wildfires?

A: We know that hardening your home against wildfire can make a difference. These are things like using roofing materials that are less likely to burn, shatter-resistant glass for your windows, having no attached wooden structures, which become a conduit for fire, and defensible space at least five feet around the home where there’s no vegetation. There’s also a broad-based consensus at the federal, state, and local levels that going into the forests and managing them using prescribed fire thinning to reduce the volume of fuels can make a big difference.

The state of California has appropriated $3.6 billion to do prescribed fire thinning. Individual homeowners are doing defensible space and spending thousands, if not tens of thousands of dollars, to harden their homes. The problem is that virtually no insurance company is taking these measures into account in the models they use to decide whether to write and renew insurance.

Q: What could the state do to ensure insurers drop fewer homeowners who harden their homes?

A: The insurance commissioner issued a regulation a couple of years ago for a small discount for home hardening and defensible space, and being in a Firewise Community, which is terrific. But it’s meaningless if the insurer won’t write you the insurance or renew your insurance. The Colorado Legislature just passed a bill that requires the risk score models used for writing and renewing insurance to account for property, community and landscape-adaptation resilience. But so far, the California Legislature has not been willing to buck the insurance industry and pass that law in California.

Q: What other steps could the state take to protect homeowners?

A: Insurers have the right to sue any third party whose actions or inactions cause damages to their policyholders. It’s called the right of subrogation. California home insurers sued PG&E, the major Northern California gas and electric utility, for having started the Camp Fire in Paradise. And they can and should bring lawsuits to recover money associated with the oil and gas companies’ contributions to climate change.

Why are they not bringing these lawsuits? I suspect it’s because they have over half a trillion dollars invested in the oil and gas industry. And that raises another question: Why is the insurance industry — which is telling Californians, look, we’ve got to dramatically increase your price of insurance — at the same time investing over half a trillion dollars in the very industry whose emissions are the major contributors to the insurers’ inability to write insurance? It makes no sense. But states can and should pass laws to require that insurers transition their investments out of oil and gas, and states can and should pass laws to insist on the companies bringing subrogation claims.

Q: Home insurance costs in California are less than the national average, despite the wildfire danger. Does this suggest the state’s insurance market is over-regulated?

A: You’re not really in negotiation with the insurance company as an individual homeowner or business. You’ve got to take what they’re offering, right? That’s why 16 states have enacted rate regulation as a way of giving consumers and the public interest a fighting chance to make sure that the rates aren’t excessive.

The insurers argue: Look, if we just deregulated those states that have rate regulation, like California, why, we could write all sorts of insurance that we’re not able to write now. Yet, Florida has dramatically deregulated its market and has rates that are four times the national average. And the national name-brand home insurers are not writing insurance in Florida.

Now, we’re not there yet in California, but that’s where we’re going, and that’s where the rest of the country is going. Price increases in the shorter term will hopefully help to get more insurance written. But in the long term, price increases are going to be overrun by the increased magnitude of losses driven by climate change. Unless we address that, we’re gonna continue to march toward a future where there won’t be insurance.

Dave Jones

Organization: Climate Risk Initiative at UC Berkeley’s Center for Law, Energy and the EnvironmentTitle: DirectorAge: 63Education: Bachelor’s degree from DePauw University and graduate degrees from Harvard Law School and Harvard’s Kennedy School of GovernmentResidence: Sacramento

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