Allard: Mutually-Insured Destruction

Insurance companies shouldn’t have to cover wildfire-prone regions in California.

by Sydney Allard | 9/29/20 2:00am

Wildfires have ravaged millions of acres of land in California this month. Though the climate crisis has made this natural phenomenon more destructive, California’s wildfires are inevitable. The summer climate is dry, and the region’s ecosystem is adapted to frequent burning. 

The annual loss of thousands of homes in the fires, though, is not inevitable. Ecologists know which regions are likely to burn in wildfires. Most of the homes destroyed by this month’s fires should never have been there in the first place.

In a Sept. 2 article in The New York Times, climate correspondent Christopher Flavelle addressed this issue. In order to respond to a housing crisis and increasing homelessness, California’s state government pressures local governments to build more affordable housing. And because land in areas that are most susceptible to wildfires is, for good reason, cheap and relatively undeveloped, that’s where affordable housing tends to be built. 

California’s governor, Gavin Newsom, explicitly rejected the suggestion that the state stop home-building in high-risk areas, explaining that “there’s something truly Californian about the wilderness.” As Flavelle explained in The New York Times podcast, The Daily, “When you talk to local officials … they’ll say, look, we might know what the risk is. But we’re getting pressure from the state … We’ve got to build houses somewhere.” 

The state government allows homes to be built in areas that officials know are likely to burn. Because of a rule that expires this December, California requires insurance companies to continue to cover those high-risk homes even though doing so isn’t profitable for insurers. Because these homes are insured, residents and local governments are able to ignore the fact that people are living in areas where they shouldn’t. 

If insurance on a home isn’t profitable for the insurer, that’s because the home is very unsafe. If private insurance companies refuse to cover that home, the home will decrease in value and become harder to sell. But it should — homes like these are dangerous. In lieu of mandated insurance coverage, the state government ought to offer aid to help current residents relocate from, but not sell, such homes. This process will be long, difficult and costly, but it’s worthwhile in order to save lives and prevent more families from losing their homes to fire in the future. 

Politicians have an incentive to do something that looks like solving the housing shortage as quickly as possible — before their next campaign cycle, ideally. They don’t have the same level of incentive, however, to make sure that homes are built as safely and responsibly as possible. The insurance industry, on the other hand, has a financial incentive to make sure that the houses it covers are safely and responsibly built — because in the event of a disaster, insurance companies will bear the brunt of the costs. If they deem homes too risky, insurance companies will simply refuse to cover them. This plainly reveals which houses are too dangerous to reasonably live in. 

Requiring insurance companies to cover homes in dangerous areas might seem compassionate, but it’s anything but. It obscures the imminent danger of living in such areas, which makes residents less likely to recognize the risk they’re taking by staying in their homes. It also lets the government get away with continuing to build homes in unsafe areas. Moving because your home can no longer be insured is an awful situation, but it beats the alternative — building and rebuilding homes in high-risk areas, remaining in the likely path of future wildfires. 

Building more affordable housing in California is a noble goal. So too is helping residents of destroyed homes rebuild. But policies that seem, and often genuinely are, well-intentioned don’t always play out as planned. Building affordable housing in wildfire-prone ZIP codes was a lazy and irresponsible solution to the housing crisis. Prohibiting private insurance companies from dropping houses in these areas is a similarly lazy and irresponsible solution to the destruction wrought by these fires — it is a solution only until the next round of fires destroys these same residences again, likely not too long from now.

The predictable destruction of hundreds of thousands of California homes is tragic. By requiring insurance companies to cover such homes, California’s government makes itself complicit. This is a government failure, not a market failure.