��ɫApp

As a program manager working on power line safety at the California’s public utilities regulator, Koko Tomassian stands on the front lines of state efforts to deal with explosive wildfires and the threat of more to come. And he has news for those who think they aren’t affected, perhaps because they live in low-risk areas or don’t own a home.

Who pays for the harms — both financial and health-related — caused by wildfires?

“Everyone,” Tomassian said. “In one way or another, whether directly or indirectly, we are all paying.”

Tomassian spoke this inconvenient truth at a recent ��ɫApp Institute for Economic Policy Research (SIEPR) Policy Forum on the economics of wildfires. Nearly four months after Southern California’s catastrophic blazes — among the most destructive in state history — the event brought together policymakers, business leaders, fire officials and academics for a deep dive into how California got into this mess, how costly it’s become, and the policies needed now and into the future to address it.

“Wildfires are, and will continue to be, one of the most pressing issues facing [California],” said Neale Mahoney, the Trione Director at SIEPR and an economics professor in the ��ɫApp School of Humanities and Sciences, in his opening remarks. He cited a recent SIEPR survey showing Californians are deeply concerned about wildfire risks and blame insurance companies, government and utilities for not doing more to manage them.

Californians have good reason to worry, according to the slate of experts speaking at the policy forum. The toll on government budgets, utility companies, insurers and state residents is massive and rising, they said. There are the direct hits from, for example, lost property, cancelled home insurance policies and fire prevention programs that are straining coffers. Then there are the indirect costs — in the form of, for example, dangerous wildfire smoke — which are “at least as large as the direct damages,” said Matthew Wibbenmeyer, a fellow with research group Resources for the Future who spoke on a panel about the best use of government dollars.

“Inhaling wildfire smoke, unfortunately, kills people,” said Marshall Burke, a SIEPR senior fellow and associate professor of global environmental policy at the ��ɫApp Doerr School of Sustainability, during a separate panel on wildfires’ health impacts. His research has shown that wildfire smoke is reversing decades of improvements in air quality across the country.

Home insurance: Solving the crisis

So what can California do? The state already boasts the world’s largest wildfire fighting fleet, according to Frank Bigelow, the deputy director of community wildfire preparedness and mitigation at the California Department of Forestry and Fire Protection (a.k.a. CAL FIRE). Like other speakers, Bigelow said finding ways to prevent the kind of catastrophic wildfires that are fast becoming the norm is key — and the responsibility, both for the steps taken and the costs involved, needs to be shared by everyone.

“When you’re looking at fire prevention and fire mitigation, it really takes an all-hands-on-deck approach,” agreed Stephen Benson, assistant program budget manager at the California Department of Finance. It’s not just all levels of government or industries affected by wildfires or utilities that need to do their part, he said.

“Individual homeowners also have to appreciate the risks and responsibilities that they have with where they choose to live,” Benson said. This means shouldering more of the mitigation costs by, among other things, “hardening” their homes to reduce the risk that they will catch on fire. It’s possible, too, that homeowners in high-risk locations could pay higher utility rates or property taxes than residents of low-risk areas.

Home hardening is also an important step toward addressing one of the biggest wildfire-related problems that California currently faces: a crisis in homeowners insurance.

�������ʸ�’s latest California Economic Survey found that 60 percent residents are worried about the availability of homeowners insurance, and 75 percent said they are concerned about its rising costs. That’s because home protection is harder and more expensive to get as private insurers exit the state, cancel policies or stop writing new ones altogether. And the state-created “insurer of last resort,” known as the FAIR Plan, is not sustainable long-term.

Speakers were especially critical of a 1988 voter-approved law, known as Prop 103, that gives regulators the power to set insurance prices and, until late 2024, required insurance companies to use historical — and not forward-looking — data in seeking rate increases.

Homeowners’ insurance in California “is not a sustainable market” and requires “creative solutions,” warned Nancy Wallace, a professor at the University of California-Berkeley who has been modeling wildfire risks and the disaster that awaits the home mortgage market and borrowers, if the problems don’t get fixed. Wallace proposed allowing homeowners to take out second mortgages to cover the costs of protecting their homes.

Technology also has a big role to play in solving the property insurance crisis, said Sarah Russell, a managing director at Google X whose team is using machine learning to help insurers get a better understanding of their risk in the California market. “They just don’t have the risk appetite for wildfires the way they have for floods [or] other natural disasters,” she said. Russell is also working on a new type of insurance that would protect businesses when wildfire smoke keeps customers away.

California insurers that are pulling back "hide a little bit behind the [Prop 103] regulatory failure," Russell said. "With an AI-based approach, [we're] constructing portfolios of California that help them understand there's lots of good risk here."

Beyond California: Lessons from afar

Rethinking land management in California is also key to reducing the number of explosive wildfires, said Joe Trotter, the executive director of Americans for Clean Water. In the southeastern part of the United States, where there’s a robust logging industry, wildfires are common but nowhere near the scale now seen in California. One reason for that, he said, is that logging companies are motivated by profits to harvest trees responsibly, which lowers fire risk.

“Nature seeks a balance” that the Southeast has been much better at striking in part because of “very active” public-private partnerships that are less common in California, Trotter said. He suggested that California regulations, including strict limits on logging and a costly environmental review process, are to blame.

Scott Stephens, a professor of fire science at the University of California-Berkeley, pointed to decades-long successes of land management in western Australia with large-scale prescribed burning, which helps contain wildfires by limiting their sources of fuel.

In western Australia, where one government agency oversees more than 6 million acres of land, 80 percent of land burned each year is prescribed and the remaining 20 percent is wildfire, according to Stephens.

Where does California stand by comparison? “We’re about 95 percent wildfire and about 5 percent something else,” he said. And a big part of the problem, he said, is that too many government agencies and private landowners have a say about how California land is managed.

“I’m not saying that [western Australia’s approach] is perfect,” Stephens continued. For instance, too much burning harms biodiversity and prescribed burning also releases dangerous toxins into the air. “But if we don’t do something like [western Australia is doing], we’re going to chase our tails forever” trying to put out wildfires.

Here’s what else western Australia has that California does not: a stable market for homeowners insurance. “Houses aren’t burning down,” Stephens said.

*All photos by Ryan Zhang.