It doesn’t take a climate scientist to tell you that wildfires are wreaking havoc on large swaths of the country. Propelled by a warming climate, poor forest management practices, a lack of adequate risk mitigation strategies, and questionable decision-making by some Americans who choose to move to fire-prone locations, wildfires cause an enormous amount of property damage yearly. The way to address this problem is not by introducing more rules and regulations but by allowing insurance prices to reflect risk adequately.
According to the National Interagency Coordination Center, in 2023, U.S. wildfires scorched nearly 2,700,000 acres nationally and destroyed 4,312 structures — 3,060 of which were private residences. This property damage, which the National Oceanic and Atmospheric Administration estimates totaled $9 billion, puts an undue burden on the property and casualty insurance market.
In most cases, property insurance covers fire damage, including wildfires. Insurers in many states have been forced to raise insurance rates, limit or pause writing new policies, and, in extreme circumstances, pull out of the market to compensate for growing losses. These developments have spurred policymakers at all levels of government to propose a wide range of legislative and regulatory solutions to reduce rates and stabilize the insurance market. The problem is that many of these solutions are uniquely bad and can have severe consequences for consumers.
At the state level, regulators have piled more onerous regulations onto insurers. A new state plan in California will require insurers to write more policies and expand coverage into more fire-prone locations. Ironically, plans like California’s tend to add to the financial burden insurers already feel from existing regulations and do nothing to reduce homeowners’ exposure to wildfires, reduce property losses and keep insurers in the state.
Other problematic proposals revolve around states establishing new or expanding existing state-chartered insurance programs. These state-run programs insure property owners who, in theory, cannot obtain traditional coverage from private insurance companies. The problem with these programs is that while many were initially designed to serve as a backstop for the public so that insurance is available in high-risk areas, most have — over time — evolved to cover risk that isn’t even insured in the private market, or is already attainable for a price.
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Nate Scherer is a policy analyst with the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit us at www.TheAmericanConsumer.Org or follow us on X @ConsumerPal.