California Insurance Commissioner Ricardo Lara’s recent decision to put a one-year moratorium on insurance companies refusing to renew policies on homes in areas adjacent to recent devastating wildfires has garnered widely mixed reaction.

Lara’s decision ensures roughly 800,000 homeowners can have policies renewed. It’s allowed under Senate Bill 824, which Lara shepherded to passage in 2018 while a state senator representing Bell Gardens. An estimated 350,000 policies had not been renewed in California since the beginning of 2015.

“This wildfire insurance crisis has been years in the making, but it is an emergency we must deal with now if we are going to keep the California dream of homeownership from becoming the California nightmare,” Lara said in a statement.

Lara has won praise from consumer advocates who say insurers are too quick to cancel policies held by homeowners who have dutifully paid premiums for years without ever filing claims. He’s also gotten kudos for his November decision to expand the state-overseen FAIR program, which is run by a pool of insurers and provides bare-bones insurance to homeowners otherwise unable to get policies. Beginning in April, FAIR is supposed to offer plans that cover $3 million in damages, up from the present $1.5 million.

But an analysis by The New York Times suggests that Lara has misjudged the risk that insurers face in an era of hotter, drier weather and that the industry could be on the road to ruin. It noted that the $20 billion that insurers offering policies in the state lost because of devastating wildfires in 2017 and 2018 “wiped out a full quarter-century of the industry’s profits” from California operations, according to the Milliman consulting firm.

Lara told the Times that all he was doing was “hitting the pause button on non-renewals” to stabilize the home insurance market and let insurers and regulators catch their breath and carefully evaluate future steps.

Parallels seen to Hurricane Andrew, Northridge earthquake

But Milliman actuary Eric Xu compared the massive losses suffered by insurers since 2017 to the aftermath of Hurricane Andrew in Florida in 1992, when insurers lost a similar amount and about a dozen went bankrupt.

Karl Susman, owner of a Los Angeles-based insurance agency, told the Associated Press that the present crisis reminded him of the fallout from the Northridge earthquake in 1994, which led many insurers to either stop renewing earthquake insurance policies or to get out of the field entirely. He questioned whether the historic model of home insurance was “sustainable” in California, given fire risks. 

Home insurers in the state requested about 80 rate hikes in 2018, far more than the norm. But the hikes are generally rejected unless it can be established that they are needed because of demonstrated risk – not the higher risks that insurance actuaries expect because of a hotter climate.

“That works, until it doesn’t,” Rex Frazier, president of the Personal Insurance Federation of California, an insurers’ trade association, told the New York Times. He questioned how the industry could survive unless it was allowed to factor in future risks.

Insurers have grumbled but otherwise taken no formal steps to challenge Lara’s moratorium on non-renewals, which is in effect until Dec. 5, 2020. 

But the insurance companies which pool to provide the FAIR “insurance of last resort” program are openly defying Lara. FAIR officials were supposed to provide an operational plan by Dec. 14 of how they would expand the program and increase coverage limits, as the insurance commissioner had ordered. Instead, they sued Lara just before the deadline, saying he had grossly overstepped his authority.

A California Public Utilities Commission report that Pacific Gas & Electric failed to fulfill its responsibilities to properly maintain

On Dec. 21, the CPUC released a dramatic statement saying it would consider drastic steps to address the “serious safety problems” it says the utility has long condoned. The commission said a break-up of the agency into smaller regional utilities or a state takeover would be among the possible changes it examined.

“This process will be like repairing a jetliner while it’s in flight. Crashing a plane to make it safer isn’t good for the passengers,” said CPUC President Michael Picker. “This is not a punitive exercise. The keystone question is would, compared to PG&E and PG&E Corp. as presently constituted, any of the proposals provide Northern Californians with safer natural gas and electric service at just and reasonable rates.”

CPUC looking at seven possible major changes

The CPUC statement said seven possible changes would be considered.

– Having “some or all of PG&E be reconstituted as a publicly owned utility or utilities.”

– Replacing some members of PG&E’s Board of Directors with members “with a stronger background and focus on safety.” 

– The replacement of existing corporate management.

– Adoption of a new corporate management structure with regional leaders overseeing regional subsidiaries.

– Linking PG&E’s “return on equity” – the profits it shares with its investor-owners – to its safety performance.

– Breaking the utility’s natural gas operations and its electric transmission operations into separate companies.

– Ending the arrangement in which PG&E is controlled by a holding company so it becomes “exclusively a regulated utility.”

Picker’s statement was a remarkable turnaround from his comments on Nov. 15, when his upbeat remarks about the ability of PG&E to survive its fourth consecutive year of devastating wildfires in Northern California led the utility’s stock price to spike.

It reflected the anger among CPUC officials over a staff report released Dec. 14 that found the utility had systematically neglected natural gas infrastructure despite being fined $1.6 billion and convicted of six felonies in federal court over the 2010 disaster in San Bruno, a suburb of San Francisco.

Utility facing 500 lawsuits relating to fires it may have caused

Even if PG&E survives in something like its present form after the CPUC’s review, its future is still very cloudy.

Because of claims that PG&E was responsible for the devastating Camp Fire that killed 85 people in Butte County in November, U.S. District Judge William Alsup announced he was reviewing whether PG&E had violated terms of its federal probation in the San Bruno case.

PG&E also disclosed to the U.S. Securities and Exchange Commission that it is facing roughly 500 lawsuits with more than 3,100 plaintiffs over claims the utility was responsible for many of the dozens of wildfires in Northern California since 2016.

It is also facing wildfire-related lawsuits from the state Office of Emergency Services, Cal Fire, Calaveras County and other government agencies.

But while the CPUC is apparently ready for major changes at the utility, it’s not clear yet how state lawmakers feel.

On Nov. 19 – even as criticism of PG&E swelled as confirmed deaths grew in the Camp Fire – Assemblyman Chris Holden, D-Pasadena, was reported to be considering introducing legislation to help the utility deal with wildfire costs.

Holden helped pass a law earlier this year that allowed PG&E to spread out the costs from the liabilities it faced from 17 wildfires in 2017.

California’s perilous experiences with massive wildfires reached an all-time peak in 2017, as the state suffered through its worst blaze in recorded history – the Thomas Fire – and five of its 17 worst fires ever. State officials estimated that about 9,000 wildfires from northern San Diego County to the Oregon border killed at least 46 people and burned about 11,000 structures.

With drought conditions returning in much of the state – and with millions of dead trees in forests ready to serve as an accelerant for new wildfires – 2018 is shaping up as another deadly, dangerous year for the Golden State. But it’s also shaping up as another year of constant second-guessing over state and federal efforts that critics say focus too much on fire suppression instead of fire prevention.

Cal Fire and the U.S. Forest Service – responsible for dealing with fires in more than half of California’s total land mass – have historically devoted more of their resources to being able to mobilize quickly to respond to fires than to acting beforehand to limit the likelihood, scope and intensity of the blazes. This is driven, critics say, by the antipathy of environmentalists to forest thinning efforts by logging companies, and by the perception that suppression is a more glamorous and eye-catching approach than encouraging property owners to clear dead trees and brush and to maintain defensible spaces around structures.

Cal Fire officials say they are aware of the value of forest thinning – including using “controlled burns” – and have long encouraged property owners to protect themselves by removing potential fire fuel.

But fire ecology experts say the current approach in the Golden State isn’t up to the challenge posed by years of dry, hot conditions in the 21st century with little if any historical precedent in the modern era.

“We will need some very new approaches to deal with both the increasing hazard of fire and our increasing exposure to it,” Max Moritz, a professor at UC Berkeley’s College of Natural Resources, told The San Diego Union-Tribune last year. “The situation we have created is dangerous, and without a major shift in perspective it will only get worse.”

Has state’s official fire strategy been ignored?

But there isn’t just a gap between what experts say should be done and how state and national fire agencies use their resources. With Cal Fire, an argument can be made that there has been a lack of follow-through on a key internal mission statement.

In 2010, the state Board of Forestry and Fire Protection approved a new Strategic Fire Plan for California that the Office of the State Fire Marshal’s website billed as reflecting significant new changes from the previous plan put forth in 1995. It embraced a basic approach that put a heavy emphasis on prevention.

“The California Fire Plan is the state’s road map for reducing the risk of wildfire. The Fire Plan is a cooperative effort between the State Board of Forestry and Fire Protection and the California Department of Forestry and Fire Protection,” the website explained. “By placing the emphasis on what needs to be done long before a fire starts, the Fire Plan looks to reduce fire fighting costs and property losses, increase firefighter safety and to contribute to ecosystem health.”

The intent of the plan was on display in successful efforts to persuade the state Legislature in 2011 to enact a $117 fee assessed on more than 800,000 rural property owners to pay for fire prevention efforts. State fire officials depicted the fee as crucial to efforts to minimize blazes on nearly 23 million acres of state land deemed to be in high fire risk regions.

But in October 2015 – after a series of destructive wildfires in Northern California – the Sacramento Bee reported that state officials had sat on $43 million in unspent funds generated by the fee despite warnings going into that fall fire season of extreme risks in many rural areas.

State officials said they were being prudent. But the Bee compared the fire prevention special fund with other designated state accounts and found it had set aside about more than half of annual receipts, more than double the average of 25 percent in other similar specialized funds.

The fire prevention fee was suspended by the Legislature last summer at the behest of a handful of Republican lawmakers who voted with Democrats to extend the state’s cap-and-trade program. Going forward, revenue from cap-and-trade auctions is supposed to fund fire prevention efforts on state lands previously funded by the fee.

Nationally, the focus has been on the numbers illustrating the extent of the disaster – 200,000-plus acres charred, at least 40 dead and hundreds missing, perhaps more than 10,000 structures burned. But for those most directly affected, there are much more long-term fears. After Hurricane Katrina hammered New Orleans in 2005, Louisiana officials said it led to a “lost decade.”

It’s clear that dozens of wineries suffered some damage, and several were destroyed or badly damaged, including White Rock Vineyards, Ancient Oak Cellars, Paradise Ridge and Signorello Valley. The city of Santa Rosa suffered body blows to its visitor industry with the destruction of the Hilton Sonoma Wine Country hotel, Willi’s Wine Bar, the Cricklewood steakhouse, the Fountaingrove Inn and several other tourist mainstays.

This weekend, in small towns and unincorporated areas west of the main fire damage, about two dozen hotels and hundreds of private rentals were in good condition and remained open. But in hard-hit communities, with the focus remaining on firefighting efforts, it’s not clear yet how bad the damage has been to popular tourism centers, wine facilities and more. The idea that rebuilding might be quick and relatively easy is tough to square with grim images from Napa and Sonoma counties.

Authorities also emphasize that while they are optimistic, it is not a sure thing that the current fires will be contained in coming days, and they warn that windy, dry conditions could spur new infernos.

The concern about the wildfires’ economic toll is well-grounded. According to wine industry research, in 2014, tourism and wine production were responsible for about 100,000 jobs in Napa and Sonoma counties, generating $26 billion annually for the regional economy.

The region’s tourism-wine industry has already faced recent disruptions. In 2015, nearly 2,000 homes in Lake, Napa and Sonoma counties were torched by the Valley Fire.

Area already had shortage of skilled construction workers

But the latest wildfires mean another headache for the industry may only worsen: the high cost of housing, which can make it difficult to find workers for modest-paying hotel and restaurant jobs and often complicates efforts to bring in agricultural laborers.

Last month, according to realtor.com statistics, the median home price was $876,200 in Napa County and $750,000 in Sonoma County.

Average rents for modest single-family homes in the Napa area were about $2,400 before the blazes, with comparable figures in Sonoma County. Still, earlier this year, a real-estate blogger wrote that it was possible to find monthly rentals of $1,500 or even a little less.

But that claim could be ancient history in the wake of the fires taking nearly 6,000 homes – so far – out of an already-tight market. While many will be rebuilt, real-estate agents see an even-tighter market ahead, especially in Sonoma County, which has so far lost about 2,800 homes. That’s 4 percent of the county’s 67,000 housing units.

A Bay Area News Group report offered a downbeat take on how quickly the region’s housing stock might bounce back. With insurers paying for the rebuilding of homes, there will be a massive demand for skilled construction workers – and the region already had a shortage of such workers before this month’s fires, the article noted.

One expert offered hope that the wine country price shock would be limited – but for a reason that’s troubling in its own right.

“Pricing can go down, possibly, because the area is burned out and not an attractive place to live,” economics researcher Randall Bell told the Bay Area News Group.