In 2017, wildfires accounted for most of California’s $16 billion in home and farm fire losses. In October and December of 2017, 32,000 homes, 4,300 businesses, and more than 8,200 vehicles were destroyed and many people were dislocated from their neighborhoods and employment. By the end of August 2018, $845 million in insurance claims had already been posted as a result of the Carr and Mendocino Complex wildfires, and more losses are expected.

These wildfire disruptions leave people without their homes, furnishings and clothing, yet still owing mortgage payments for the burnt home, rent for substitute accommodations, and payment for essential personal items. The financial stress can lead to delinquency in mortgage and automobile payments, and for some people the fires will undermine their way of making a living.

Usually the burned brush and grassland can be restored within a few years. However, replacing or restoring the lost dwellings, furnishings, personal effects, automobiles and employment may take years or perhaps be impossible, even with assistance from insurers, government, family and friends.

Property losses are just part of wildfire costs. In 2017, California state agencies spent $1.8 billion fighting wildfires, and the Cal Fire agency spent $432 million through the end of August in 2018. As well, there is damage to utilities, roads and business operations. Local governments also experience a drop in tax collections from tourism, property owners, and utilities.

The causes of wildfires are well known; burning debris, unattended campfires, hot equipment or sparks, cigarettes, target practice or fireworks, arson, lightening and volcanic embers. Lightening and volcanic embers can be attributed to “mother nature,” but humans have some culpability in the other 90% of wildfires. While it is possible to identify the person who is culpable for some fires, there is no penalty commensurate with the millions of dollars in damage and suffering, and courts generally make no effort to extract full restitution or impose a stern enough sentence.

When the fires are extinguished, the claims are being paid, and government help is being distributed, insurers and government go into a “post mortem” phase where they study what went wrong, what worked well, and how they can be better prepared for the next year.

Insurers review the adequacy of their premiums and the fire readiness requirements for properties they are willing to insure. They may also decide which local areas or home condition vulnerabilities are too high in risk to retain in their “insured” portfolio. Of California’s 13.6 million housing units, 3.6 million are in the wildland-urban interface, and about 1 million of those have been graded at a high or very high risk of wildfire by insurers. Those property owners can obtain coverage from a multi-insurer pooled risk facility called Fair Access, which insures 1% of properties.

Some utilities such as telephone, natural gas, and electric power are by their nature prone to emitting an occasional spark as they traverse rights-of-way and they are held accountable for any fire-prone conditions they allow to develop along their rights of way. Those factors make them especially attentive to keeping the treed and grassy areas trimmed near their transmission lines. But for some reason, public utility commissions can be overly stern. For example, in California, if a utility is even 1% culpable for a wildfire, the PUC is unwilling to apportion the penalty accordingly – it prefers to punish the utility for 100% of the damage.

California requires insurers to get state approval to change rates, a process that can take more than a year. Despite that regulatory drag, fire insurance premiums are rising. After 1994 Northridge earthquake, the PUC insisted that insurers offer affordable quake insurance. “Insurers balked and regulators ended up creating a state-run earthquake program that enrolls only about 10 to 20 percent of homeowners, due to high premiums and deductibles.” Rather than succumb to a coercive wildfire insurance obligation, some insurers will hike rates or abandon that line of business, reducing consumer choice.