People Deserve to Know Their Houses Are Going to Burn

The old way of insuring against fires isn’t working anymore.

Since 2016, more than 50,000 structures in California have been destroyed by wildfire. During fire season in the West, when the sky is dim with smoke and the sun’s an eerie red, you might find yourself breathing in tiny carbonized particles of what used to be someone’s front-porch swing.

These fires are only going to get worse as the climate warms. Unless we want to keep risking lives and inhaling incinerated dreams, something has to change.

The California Department of Insurance last month released new regulations that require insurance companies to reward homeowners who take steps to protect their home from wildfire, such as clearing brush and trees from the immediate vicinity of their home or putting on a fire-resistant roof. The policy is being widely praised. But it raises a broader question: As climate risks to our property, our livelihoods, and our lives mount, to what extent should we cushion the blow of these dangers, and is there a limit to how much, or how long, we pay? Is there a point where protecting people from risk begets more risk?

California makes a good case study because it leads the nation in both annual number and extent of wildfires. Climate change—no surprise—is making things much worse. Eighteen of the 20 largest fires in California history have happened since the turn of the millennium—12 of them since 2016.

Mark Bove, a meteorologist and the senior vice president of natural-catastrophe solutions for Munich Reinsurance America, told me that the California-wildfire situation was rocking the insurance industry. “We are trying to figure out this new landscape along with everybody else,” he said. “All the premium earned over three decades of writing business was gone in the wine-country and Camp fires.” One estimate, from the actuarial firm Milliman, penciled out that two years of fires undid 26 years of profits for the state’s insurers. (Insurers themselves, though, were insulated in part from these losses by their own reinsurance.)

Insurance companies are prohibited by state law from using models of future conditions to set their rates, but with the fires of the past five or so years, even backwards-looking risk calculations are beginning to prompt insurers to raise rates or refuse to renew policies. Some areas are becoming so risky that insurance companies simply won’t sell policies there.

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In 32 states, rejected homeowners can always get coverage through programs known as FAIR plans—insurance pools run collectively by every company offering homeowner’s insurance in the state. The companies are legally required to participate and split any losses. A FAIR plan must insure everyone—no matter where a house is built—though their policies tend to cover only the most catastrophic losses. The number of Californians insured under the state’s FAIR plan in 2020 was 241,466. That’s 2.7 percent of the state’s homeowners, up from 1.7 percent in 2015. The percentage is expected to be even higher for 2021.

As more and more homeowners in fire-prone areas migrate to these stopgap plans, a “FAIR plan is gradually ceasing to be just a temporary solution,” according to an analysis by Devika Hazra and Patricia Gallagher, economists at California State University in Los Angeles. And their March 2022 paper shows that FAIR-plan premiums in Los Angeles County simply do not reflect the real risk—they are more influenced by factors such as the bed-to-bath ratio of a house than how likely it is to go up in flames.

These policies send an unrealistic message to homeowners about how much risk they are taking on. The premiums look normal, so it feels normal to live there. Homeowners don’t hear “Your house is so likely to burn that it is uninsurable.” In that way, a FAIR plan is “a form of lying to the public,” according to Abrahm Lustgarten, an investigative journalist at ProPublica who is currently writing a book on climate migration in the United States.

Hazra and Gallagher recommend that insurers be allowed to set rates that reflect the real risk, based on climate models. But they know that the rich, who can afford the premiums or absorb the losses, will simply shrug and build anyway, while the poor will be squeezed at a time when housing in less risky parts of the American West—like coastal cities—is almost comically unaffordable.

People who live in the “wildland urban interface,” or WUI, are a socioeconomic mix. Second homes and mansions with lovely views are built next to tracts of housing aimed at people who can’t afford the city center and are forced to “drive until they qualify.” The result is the “intermingling of two different crises,” Hazda says—“the wildfire crisis and the housing crisis in L.A.”

[Read: We’re heading straight for a demi-armageddon]

“Making the FAIR plan more expensive, you are going to end up punishing a bunch of other folks that have no other option and are at risk of defaulting on their mortgage,” the environmental-policy expert Matt Auer, from the University of Georgia, told me. If people are exposing themselves to risk simply because they want to, using insurance policy to make it expensive or impossible to do so sounds like a great idea. But when people are moving to risky areas out of necessity, the same policies could instead seem cruel.

One way to try to thread the needle would be to limit FAIR-plan coverage to primary residences, or to charge extra for coverage on second homes. Another would be to structure premium rates into tiers, like progressive taxes, so that the most extravagant homes in the WUI subsidize protection for low-income housing. California could also consider providing the FAIR-plan option only for existing housing stock—a policy that might freeze new construction in some areas. Each of these options could help. But the galaxy-brain solution might just be to provide lots of affordable housing options in the urban core.

Advocates for affordable housing, including Sonja Trauss, the executive director of Yes in My Back Yard, which is based in San Francisco, are beginning to explicitly argue that increased urban density can mitigate climate change, and wildfire risk. More affordable housing in the city will reduce the number of people moving outward into the WUI for economic reasons. And it can provide a landing place for those moving back in. “There are probably places that are too dangerous to live,” Trauss says. She supports gradual voluntary buyouts of some of these riskiest zones. But, she adds, “there has to be some place for people to go.”

Lustgarten’s research, too, suggests that to avoid repeated catastrophic losses of property and life, “our communities should become more dense and should pull back a little bit from wildland interface areas.” But Lustgarten realizes that not everyone can leave, or will want to. So we’ll also need to “invest heavily in building better, more resilient structures” and manage landscapes better.

Many of the West’s most flammable landscapes are deeply meaningful to people who are connected to the place they live by livelihood or cultural community. The WUI is cluttered with ticky-tacky homes banged up to cream profits off the bonkers housing market, but where the city grades into the country, you can also find tribal homelands, little towns that have been there for generations, working forests, and cattle ranches—places that would break your heart to leave if you were from there.

Staying means rethinking how we pool risk. Our modern insurance system rests on contracts between individuals and businesses, but Matt Auer has studied cases where communities took on collective hardening actions—cleaning up fuels that encircle whole neighborhoods, sending a free truck around to remove woody debris from yards, ensuring enough water is available for firefighters when they crack open a hydrant. He found that successful community-fire-protection plans tended to involve “collaborations between different levels of government and with non-state actors,” including nonprofits and homeowners’ associations.

Mark Bove, from Munich Reinsurance, said that community-level insurance pools and community action to reduce fire risk are the hot new trends in the insurance industry. “In California, a home could be one meter from the property line and your neighbor’s house can be one meter from the property line, which means the house is six feet away. You can have house-to-house spread. You can’t just look at this at the individual house level. You need the whole community looking at this.”

California’s new mandatory insurance discounts for hardening do include provisions for “community-level mitigation efforts,” such as “driveway and roadway widths that facilitate evacuations and firefighting efforts, and a community-wide landscape and vegetation plan that is approved by the local fire district.” In some ways this new focus on community-level action springs from the same premise as insurance itself, the for-profit version of which evolved in the Middle Ages from a preexisting landscape of religious societies, social clubs, guilds, and other groups that practiced mutual aid.

As a 1601 English insurance act puts it, “the loss lighteth rather easily upon many than heavily upon few.”