Cato Podcast The Policy Choices that Make California Wildfires More Devastating
Jan 17, 2025
Steve Slivinski, a senior fiscal and regulatory policy fellow, and Ryan Bourne, an economist focused on insurance markets, discuss California wildfire policy. They cover how insurance rules and rate controls worsened vulnerability. They examine permitting reforms to speed rebuilding and how price‑gouging and land‑offer bans can unintentionally hinder recovery.
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How Rate Suppression Worsened California Wildfire Risk
- California effectively suppressed home insurance rates through Proposition 106-era rules that forced insurers to base premiums on historical losses rather than forward-looking catastrophe models.
- This rate suppression prevented insurers from charging risk-reflective prices, pushed major carriers out of the market, and left many homeowners uninsured or underinsured.
Underpriced Insurance Encouraged Risky Development
- Policies that underprice wildfire risk encourage overbuilding in fire-prone areas while simultaneously causing insurers to exit, reducing available coverage for remaining homeowners.
- Ryan Bourne notes this double effect both increases exposure and leaves many relying on weak government 'insurer of last resort' plans.
Uncertainty Would Reduce Coverage But Regulation Amplified It
- Even without price controls, rising wildfire uncertainty might have made insurers wary, but rate suppression worsened exits on the margin.
- Bourne emphasizes that while some reluctance was natural, regulated price gaps were a binding contributor to insurer departures.