A common refrain regarding the horrific wildfires that have engulfed parts of Los Angeles—and will result in one of the nation’s costliest natural disasters in history—is that they’re the result of a “perfect storm” of climate-related conditions.
“One of the things that we have been seeing in California is this kind of whiplash between extreme wet events . . . and then extreme dry events,” Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies, told PBS. “So it hasn’t really rained in the Los Angeles area for months now. And that has led to both a spur of growth when there was water, and then all of that growth has dried out providing like a—unfortunately, a perfect storm for fires this season.”
While Schmidt is probably correct about the confluence of weather conditions, his analysis is likely to encourage state officials to devote even more effort and resources to the climate-change strategy as a catch-all for dealing with the natural disasters that routinely afflict California. Floods and wildfire have defined this state since time immemorial. Climate change might be worsening these disasters, but the real “perfect storm” involves public policy.
Instead of creating a resilient system that handles whatever Mother Nature throws our way, California’s progressive leaders have insisted on pursuing multiple costly policies designed to change the trajectory of the Earth’s weather patterns—heedless of the fact that California’s CO2 emissions make up less than 1 percent of world emissions, or that 2020’s wildfires added nearly double the CO2 emissions that the state had eliminated over the previous 16 years, per University of Chicago research.
A substantial way to build resilience is to establish a functioning property-insurance market, which is vital for protecting property ownership and the economy. Instead, Governor Gavin Newsom has prioritized symbolic policymaking, like measures to battle so-called price-gouging and to “Trump-proof” the state, over fixing the insurance market. While state officials have finally introduced some modest but sensible insurance reforms, these won’t mean much in the face of a potential $150 billion in damages.
It’s not as if California’s leaders didn’t know what was coming. Insurers had for years been warning about what would happen. State Farm General Insurance Co., the state’s largest property insurer, announced in March 2023 that it would stop writing new policies. It has since announced a total pull-out from the condo and apartment market. Other insurers quickly followed suit.
Why would insurance companies exit such a major, seemingly lucrative market? In essence, because California has a system of price controls for property insurance. The insurance commissioner must approve any rate changes and can even roll back rates retroactively.
It can take many months for insurers to wade through the byzantine process of hearings, bureaucratic rate reviews, and opposition to such hikes by consumer-attorney “intervenors” who earn large fees for their efforts. It can take months or even years to get a rate approval. Elected insurance commissioners have little incentive to grant large rate increases—that’s bad for their political careers.
The problem goes back to Proposition 103, the 1988 ballot initiative that made the state insurance commissioner an elected position, instituted the prior-approval system for rate increases, and rolled back rates. In a functioning market, sellers of goods and services determine prices, and competition keeps prices affordable. In a price-controlled market, the government sets prices, resulting in shortages as companies pull back their offerings or quietly flee the market.
The governor and state legislature were well aware of this problem and even offered statements and held hearings discussing the need to strengthen market competition. But even modest efforts have run up against opposition from consumer groups claiming that these reforms amount to giving in to corporate interests and will drive up prices for consumers. So, Newsom and the legislature have punted on the issue, focusing on other, less pressing but more politically useful topics.
Consider state insurance commissioner Ricardo Lara’s latest reforms, which, among other things, allowed insurers to consider forward-looking catastrophe models in setting rates. Before the wildfires swept through Los Angeles, this approach showed some signs of easing the crisis; Farmers Insurance announced a plan to write more policies.
Why did doing this take so long? Given the state’s focus on climate change, officials surely knew that forward-looking models would adjust for warming temperatures better than a process based on past losses. And why did it take so long to allow insurance companies to factor in rising reinsurance rates? Expanding reinsurance—the insurance purchased by insurance companies—lets insurers write more policies, as it protects their capital reserves. That’s exactly what we need: more policy writing.
In the wake of the latest wildfires, the state legislature has introduced a bill that would let the bare-bones, state-created insurer of last resort—California’s FAIR Plan—issue bonds. It’s not as if lawmakers haven’t seen the writing on the wall. Indeed, there’s open talk about the state insurance system’s facing insolvency as it’s forced to handle far more policy holders than it was designed to handle.
It’s a perfect storm, all right—but one involving a confluence of bad regulation, the poor implementation of those regulations, and continued inaction by state leaders.
Photo by Lokman Vural Elibol/Anadolu via Getty Images