California officials have proposed new legislation that could see the introduction of a state insurance policy to help cover the costs associated with natural catastrophes including wildfires, earthquakes and floods.
Senator Bill Dodd, Insurance Commissioner Ricardo Lara, and Treasurer Fiona Ma say California Disaster Insurance (SB 290) would function like home insurance except for the state, with premiums being paid using existing emergency funds that would trigger a payment in the event of a catastrophe.
The proposition of SB 290 is aimed primarily at combating the high costs associated with wildfires, with climate change and increased levels of infrastructure development in high-risk areas heightening the potential for significant losses.
“Rising wildfire suppression costs can strain California’s financial resources and threaten cuts to critical programs,” said Dodd.
“As climate change continues to contribute to devastating infernos, we need a strategy to reduce the pressure on state and community coffers.”
“This bill would do just that, allowing the state to invest in an insurance policy to ensure budget predictability and reduce taxpayers’ exposure to increasing costs associated with disasters, especially wildfires.”
Officials say California spent $947 million in emergency funds between 2017 and 2018 for firefighting, more than $450 million over budget.
Furthermore, the costs of fighting wildfires have overrun Cal Fire’s emergency budget in seven of the last 10 years, with California experiencing 11 of the top 20 most destructive fires in its history since Since 2007.
This new legislation would allow for the purchase of insurance, reinsurance, insurance linked securities, or other related alternative risk-transfer products for the State of California.
“In seven of the last ten years, our firefighting costs have exceeded our budget projections—by more than $450 million in 2017 alone,” commented Lara.
“California Disaster Insurance is a better solution that gives taxpayers the benefit of predictable costs, so we can invest in a safer future.”
This move would see California join The federal government, the World Bank, and the state of Oregon, which have all used insurance to reduce the risk to taxpayers following disasters.
In fact, Oregon has purchased insurance protection against wildfire costs for close to 40 years – spending $61 million on premiums and receiving $102 million in insurance payments.
California currently pays for wildfire disasters with available funds, and California Disaster Insurance will come from those same sources.
“This policy makes annual wildfire suppression costs more predictable, protecting the taxpayers from the volatility that has been seen over the past several years and creating budget stability and preserving other investments,” added Ma. “It is time for California to be proactive and not reactive.”
