California homeowners to fund half of high-risk insurer's $1B 'bailout' | Hacker News Reader

California homeowners to fund half of high-risk insurer's $1B 'bailout'

calmatters.org

I keep waiting for people in less risky parts of California ask why they're paying more for insurance and power so that people can live in risky, fire-prone hills and mountains, but it doesn't seem to be happening.

people are asking, but can't do anything without major power shift in state government.

Jungle primaries make this nearly impossible.

Those asking might want to have a chat with Florida residents, who have a completely ideologically opposite state government and have the same situation, but with flood insurance. Some risk has to be socialized or no one can live anywhere safely.

It's not about ideological side, but about group of people having power monopoly and abusing it without consequences. Specifically, current CA governor having close relationship with state wide electricity provider and allowing to hike rates to whatever level they want.

As an example, my power is generated by one company and distributed by PG&E. I pay $57 for power generation and $140 or so for distribution. PG&E reported close to [1] $2.5B profits for last year. My bills have been going up for $50/month to over $400/month in the last four years.

[1]. https://www.santacruzsentinel.com/2025/02/15/pge-profit-elec...

>Some risk has to be socialized or no one can live anywhere safely.

Why can't people pay for their own risk?

>have the same situation, but with flood insurance

It's not flood insurance (that's federal), it's hurricane insurance, which is technically wind. I feel that Florida is a bit ahead of California due to the larger insurance price increases. That being said, we're not out of the woods yet, but the reforms from a few years ago seem to be making some progress.

Insurance requires risk transfer but that's different from cross-subsidization. It's fine for 100 equally flood-prone houses to all pay the same insurance premiums even if only 1 of them floods in a given year. But people in a less flood-prone area, all else being equal, should be paying less for flood insurance. The alternative (aka the status quo) creates market distortions, making it artificially cheap to live in flood-prone areas and encouraging more building there.

Plenty of people would still live in those areas even if they were paying actuarially fair prices for insurance. And lots of places are safe enough from natural disasters that they're affordable to live in without cross-subsidization - in fact, eliminating cross-subsidization would make most people's cost of living go down, at the expense of a minority of people who live in very high-risk areas.

Fire-prone?

Managing fire risk is a simple task; California refuses to engage in controlled burns.

That is not true. Annual number of prescribed burn acres had been stable since the 70s with a sharp increase in the last two-three years.

The main issues are sprawl and aging, above the ground electrical infra

> Annual number of prescribed burn acres had been stable since the 70s with a sharp increase in the last two-three years.

The number of burns isn’t as important as much as how much ground is covered by burns and where. Has anyone studied it in greater detail?

> The main issues are sprawl and aging, above the ground electrical infra

I am not sure what sprawl matters, but I agree electrical infrastructure that is surrounded by fuel or can be affected by winds is problematic. But that still comes down to local and state leadership doing their job. It’s incredible that such large budgets and large numbers of public employees fail to produce outcomes that are any better than other states.

The parent says number of burn acres, not burns.

> I am not sure what sprawl matters, but I agree electrical infrastructure that is surrounded by fuel or can be affected by winds is problematic.

without sprawl forest fire is just forest fire. August Complex fire was 10x larger than Camp Fire which caused 80x deaths and 50x damages.

Much of the damage was in areas where a controlled burn would have been impossible due to geography. And the kind of vegetation in the burn area isn’t suited to controlled burns anyway:

https://thedispatch.com/newsletter/techne/why-shrubland-make...

Controlled burns aren't impossible in chaparral, even based on the logic of that article the controlled burns just need to be less frequent and more intense than for forest. There's no reason they couldn't be done.

Some of the neighborhoods that burned consist of very steep hills, single family houses on stilts, narrow winding roads, retaining walls, and almost no clearance for anything. I can’t imagine a controlled burn being done safely.

You may be thinking of the US Forest Service’s suspension of prescribed burns.

https://cepr.net/publications/us-forest-service-decision-to-...

However, state and local agencies undertake prescribed burns regularly. To be fair, clarity (read: honesty) from political figures on this topic (and others) is at an all time low.

For most of the recent Los Angeles area fires there was never any possibility of conducting controlled burns. The terrain is too steep and there were too many structures nearby. A controlled burn could have turned uncontrolled in moments (which has happened before).

Brush clearing can help to an extent. But that's tremendously labor intensive on steep hillsides where heavy equipment can't be used. Taken too far it can also destabilize the soil and cause mudslides during the rainy season.

More realistic solutions are going to include tightening up the building code to make structures more fire resistant, prohibiting building at all in certain risky areas, and provisioning more water supplies so that the hydrants don't run dry.

>More realistic solutions are going to include tightening up the building code to make structures more fire resistant

Problem is this makes building more expensive. A better path might be the Japan strategy. Houses are designed to last 30 years then be replaced. You often get more energy efficiency, ability to build density as-required, more efficient ability to build and recover quickly from any disaster.

A lot of stuff is simple, like cleaning brushes around the house, replacing wooden fences with metal/stone. More harder - changing ventilation for the attics. Except it is still not popular, so nobody would do it, if not mandated.

"Nothing can be done" says the only place on the planet where this happens.

Forest fires in populated areas definitely happen all over the world.

https://www.euronews.com/travel/2023/07/28/sicily-travel-war...

https://www.euronews.com/video/2024/08/01/tourist-towns-evac...

https://www.aljazeera.com/news/2024/8/17/thousands-forced-to...

https://www.bbc.com/news/world-europe-58243066

https://www.euronews.com/2024/02/04/dozens-killed-in-chile-a...

Here's a recent example of a place a very long way from California.

https://en.m.wikipedia.org/wiki/2019%E2%80%9320_Australian_b...

California is a bit more nuanced to that. There's a whole chunk of Federal land owned by BLM that is poorly managed by the feds. And then there's a fuck-ton of private land as well that makes up forests and brush. And then finally there's state owned land.

Of course california hurts itself with its own environmental regs for burns, but there's alot of legal complexity to pull it off across the various land ownerships.

This is a fairly ignorant take on the situation and unironically it’s the same comment I’ve been hearing news anchors constantly make.

No, it's not a simple task at all.

Firstly, burns are a short lived control. You can burn but when it rains, the vegetation regrows.

Secondly, regular burns often promote the growth of even more flammable vegetation.

https://onlinelibrary.wiley.com/doi/10.1111/brv.13041

And then there's the health impact on neighbouring communities.

https://www.mja.com.au/journal/2020/213/6/exceedances-nation...

And then there's the ever diminishing opportunity to conduct burns, due mostly to climate change.

Los Angeles had a ton of rain in Feb-Mar 2024 which resulted in massive fuel growth. That rain stopped in a hurry, plunging the region straight into drought.

That fuel subsequently cured over summer and became available to fire. Once it ignited, it was driven by extreme winds and there was no stopping it.

Not only was there no opportunity to conduct burns in that area, but it would've been dangerous to do so at any time due to steep terrain and risk to property.

Which less risky parts of California are you referring to?

You think it is inappropriate to live in a fire prone area.

Your arbitrary line of appropriateness is wrong.

My arbitrary line of appropriateness is right.

It is inappropriate to live anywhere where there is a fire, earthquake, blizzard, sink hole, volcano, heat wave, tornado, and hurricane risk but also where there is not ample local (as in constrained to a single independent self-governing body) water, energy, and food resources.

Only those parts are truly less risky parts.

There's no need to draw a discrete line and say it's inappropriate to be on the wrong side of it. People should be able to live where they choose. But people should also pay actuarially fair insurance premiums and market-driven prices for energy and other services, based on those risks and the associated cost to serve them. That's not happening today, because market distortions created by government entities force people in lower-risk areas to cross-subsidize expenses for people in higher-risk areas.

The state had, IIRC, a $100 billion surplus 2 years ago.

They knew the insurers were leaving and why. Yet didn't fund FAIR correctly at the time? Or what's the excuse?

Of course now there is a massive deficit. Maybe they'll pay us back on the next surplus...

From what I understand (and I’d appreciate any corrections) FAIR was supposed to pay for itself, not be a subsidized insurer. It seems like FAIR was underpricing the risk, and the private insurers were right to pull out.

It didn't work out well...

"FAIR Plan has about $300 billion in total exposure, meaning how much they actually insure, and about $200 million in the bank," - March 2024

https://www.cbsnews.com/sanfrancisco/news/california-fair-pl...

Why would the state pay to fund FAIR? It's just a pool of insurers required to provide fire insurance and it's paid for by insurance customers. Even if the state had $100 billion surplus, why would it be justifiable to use it on FAIR as opposed to the countless other ways the money could be used to help Californian residents? It would effectively be like taxing Californians to pay for homeowner fire insurance. Is that fair?

They never actually had that surplus, it was projected revenue. The projections were wrong - they extrapolated, then planned spending around that. Source: https://calmatters.org/commentary/2023/10/california-budget-...

If they put the money into a fund, you would have complained that the government was overtaxing the citizens.

The problem is the same thing that leads to many California problems - it’s the leaders voters keep choosing. One party states tend to be wasteful and ineffective.

More details on the insurance debacle, which basically is classic over regulation: https://youtu.be/ojzUtQlug3I

California has budget rules that cap its ability to save money from surpluses and require it to issue refunds:

https://www.capradio.org/articles/2024/01/22/how-california-...

I must be missing something, but FAIR is an insurer of last resort backstopped by the insurance companies who refused to sell risky policies in the first place?

The weren’t allowed to - not even the fair plan was charging sound actuarial rates. Cali put price controls on insurance, making this debacle inevitable.

That’s really the core problem here. As is often the case with rent control models, the natural outcome of an incentive structure came to pass in spite of the best intentions of legislators/regulators.

Yep. Government-imposed price controls and caps should actually be illegal. Like actually unconstitutional, with the requisite constitutional amendments in California (and the other States) and the US Constitution being passed.

No matter what anybody’s intentions are, they always end up creating market distortions that eventually lead to more societal issues than the ones they’re suppose to alleviate and it’s just bad economics that shouldn’t even be a tool in politicians’ (or voters, but ballot box lawmaking should be illegal too) toolboxes so they’re forced to address the upstream concerns that cause prices on land, housing, rents, services and goods to climb to the point of being unaffordable to most of the population.

Its hard to understand why so many California houses are built of wood. After a fire all that’s left is a few chimneys. However I happen to live in California in a house made of concrete bricks and we don’t get a higher valuation per square foot or a discount for our fire insurance. There should be more incentives to build fireproof houses.

Earthquakes?

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