(a)The Legislature finds and declares all of the following:

(1)Climate change has created a new reality in California. Fifteen of the 20 most destructive wildfires in the state’s history have occurred since 2000 and 10 of the most destructive fires have occurred since 2015. More people died from wildfires in 2017 and 2018 than in the last 10 years combined.

(A)Igniting November 8, 2018, the Camp Fire burned for 17 days, killed at least 85 people, and destroyed over 18,800 structures. It is not only the most expensive wildfire in United States history, but was the most expensive natural disaster worldwide in 2018. Insured losses reached $12.5 billion, while total losses were $16.5 billion.

(B)Also igniting November 8, 2018, the Woolsey Fire burned for 14 days, killed three people, and destroyed over 1,600 buildings. Insured losses are estimated at $3 billion to $5 billion of the $6 billion in total property losses.

(C)Igniting July 23, 2018, the Carr Fire burned for 37 days, killed eight people, including three firefighters, and destroyed over 1,600 structures. The fire caused over $1.5 billion in property damage.

(D)Igniting December 4, 2017, the Thomas Fire burned for 39 days, killed 23 people, including one firefighter and 21 people from a resulting mudslide, and destroyed over 1,000 structures. The fire caused over $2.2 billion in damages.

(E)Igniting October 8, 2017, the Tubbs Fire burned for 12 days, killed 22 people, and destroyed over 5,600 structures. Insured losses are estimated to be between $7.5 billion and $9.5 billion.

(F)Igniting October 8, 2017, the Atlas Fire burned for 12 days, destroyed 25,000 acres, and destroyed over 700 buildings. Insured losses are estimated to be between $2.5 billion and $4.5 billion.

(G)Burning for over three months in 2018, a less costly seventh fire, the Mendocino Complex Fire, became the largest recorded fire in state history when it consumed over 459,000 acres, more than the previous largest fire, the Thomas Fire, in 2017.

(2)Fire season in California has changed. In the western United States, the length of the fire season is over 80 days longer than it was in the 1970s. According to research from the University of California, Los Angeles, residents may no longer expect fire season to end in September. Instead, the onset of seasonal rain can be delayed into October or even November. These longer periods without rain, combined with the well-known, heavy wind patterns of autumn, have created increased likelihood of uncontrollable, severe fires that endanger life and property. The Camp Fire in Paradise is an example of a fire that started after the end of the traditional fire season.

(3)The impact of catastrophic fires is multifaceted. While the governmental costs of fire response and suppression are significant, research from Headwaters Economics indicates those costs are less than 10 percent of the total costs. Combined with suppression expenses, other short-term costs, including evacuation and aid relief, road stabilization, and home and property loss only represent 35 percent of the total wildfire-related costs. Longer term costs, including loss of property value, tax revenue, and business revenue, as well as landscape rehabilitation, infrastructure repair, loss of ecosystem services, and human casualties represent the remaining 65 percent.

(4)According to a Department of Insurance 2018 report on the availability and affordability of wildfire coverage, major insurers are pulling back from writing new policies or renewing policies in the wildland-urban interface (WUI) fire areas. Additionally, premiums are increasing in the WUI, and most insurers do not take into consideration wildfire mitigation conducted by the homeowner or the community. This is in part because no single insurer has loss experience in the WUI to validate the rates and premiums charged for each wild fire risk model score. The department’s report further states that a credible database for wildfire loss experience in the WUI is needed in order for insurers to use rating plans that impact rates in the WUI and suggests that the Legislature should create a framework within which insurers offer a mitigation premium credit for property owners that conduct proper mitigation.

(5)The National Institute of Building Sciences studied 23 years of federally funded mitigation grants provided by the Federal Emergency Management Agency (FEMA), the United States Economic Development Administration, and the United States Department of Housing and Urban Development, and found that hazard mitigation funding saves $6 in future disaster costs for every $1 invested. Further, the study found that designing buildings to meet the 2018 International Residential Code and 2018 International Building Code would provide a national benefit of $11 for every $1 of investment when compared to 1990-era building codes and National Flood Insurance Program requirements.

(6)Studying, developing, and incentivizing homeowners to actively participate in, actuarially sound wildfire mitigation measures is therefore a fiscally prudent policy with the potential to save lives and prevent billions of dollars in future losses from occurring. A regularly updated and secure central database of publicly held housing infrastructure information, deployed in support of a public catastrophic loss model, has the potential to significantly enhance statewide disaster planning and response efforts, as well as quantify the benefit of homeowners’ mitigation efforts. In order to accomplish this goal, it is important for the state to partner with insurers, insurance research organizations, and local agencies to develop easily and uniformly enforced defensible space practices and measurable mitigation efforts for future study.

(7)Research shows that homeowners’ risk reduction behaviors are influenced by the perceived effectiveness of the activities and their perceived ability to complete them. Public outreach, information sharing, and a communitywide collaborative process on wildfire protection planning have been found to build trust among residents and local fire agencies. It is the intent of the Legislature to partner with local agencies throughout California’s diverse wildfire risk regions in support of collecting regionally specific housing infrastructure information in support of developing regionally specific loss modeling.

(8)Residential property insurance provides essential financial security for California residents for both short-term and long-term costs. Insurance supports temporary needs for housing and transportation for fire victims, intermediate needs for debris and hazardous materials removal from fire-affected properties, and long-term rebuilding of structures and replacement of personal property. There is no governmental program that provides similar comprehensive assistance for California residents and it is, therefore, vital for the State of California to ensure the existence of a vibrant residential property insurance marketplace capable of serving all communities.

(9)Strains in the residential property insurance system are becoming evident. As the Senate Committee on Insurance noted in its 2019 informational hearing on homeowners’ insurance availability and affordability, California policyholders have “enjoyed a long spell of low insurance rates” but “climate change, drought, population movement, and other factors may be changing the fundamental nature of the homeowners’ insurance market.” Analysis of countrywide data from the National Association of Insurance Commissioners indicates that average homeowners’ insurance rates in California rank 32nd in the country and, when adjusted for differences in regional costs, rank 49th in the country, at less than one-half the cost for insurance in states exposed to other natural disasters, including hurricanes.

(10)As part of a similar 2019 investigation of the homeowners’ insurance market, the Assembly Committee on Insurance noted the acceleration of losses in this environment of relatively low rates, finding that a “study of the homeowners’ insurance market released in 2018 as part of California’s Fourth Climate Change Assessment found that insured losses through 2017 wiped out the entire underwriting profit insurers earned since 2000. The 2018 fires continued with another round of enormous losses.” The committee cautioned against a legislative response that “increases the likelihood of any policy change to generate unintended consequences” and guarding against the great risk that regulating some, but not all, of the important aspects of insurance could “significantly disrupt a homeowners’ insurance market that is effectively serving a great majority of California homeowners.”

(11)The final report of the Governor’s Commission on Catastrophic Wildfire Cost and Recovery attempted to reconcile the various competing interests associated with insurance availability, risk selection, and pricing. The commission noted that “while insurance is still largely available, it will become increasingly unavailable and/or unaffordable for many in the wildland urban interface in California.” In attempting to harmonize the various competing interests for California, the commission recommended preserving risk-based insurance pricing, while avoiding cross-subsidies of high-risk areas by low-risk areas, as well as developing incentives for parcel and community level loss mitigation efforts.

(b)Based upon this extensive investigation in both the legislative and executive branches, the Legislature determines that a state policy response is required to solve several issues simultaneously, including all of the following:

(1)Ensuring insurance rates are adequate to avoid insurer insolvencies and to permit insurers to operate in the state’s highest risk areas, while imposing restrictions on rates above actuarially justified levels.

(2)Reducing the number of residents that are required to rely upon the California FAIR Plan, which the State of California created to provide a market of last resort but which is a catastrophic insurance pool at rate levels far higher than the regular insurance market.

(3)Incentivizing insurers to seek cost-based rates in exchange for assurances that they will serve high-risk communities at levels similar to their statewide presence.

(4)Developing systems of accountability for individual and community-based loss mitigation efforts.

(c)Recent wildfires have contributed to a surge of residential property insurance policies being issued by the FAIR Plan in numbers approaching that seen after the Northridge earthquake. In order to monitor the surges in new FAIR Plan policies and to create a standard threshold to indicate when admitted market residential property insurance availability in specified areas of the state has declined, the Legislature determines that it is necessary to do all of the following:

(1)Create a standard threshold for residential property insurance policies to qualify for the Insurance Market Action Plan (IMAP), established by this act, based on monitoring surges in FAIR Plan new business that indicate a contracting insurance market.

(2)Incentivize insurers to seek cost-based rates in exchange for assurances that they will maintain an adequate presence in specified high-risk areas of the state, and evaluate the effectiveness of these methods at reducing reliance on the FAIR Plan in eligible areas, thereby maintaining an adequate supply of admitted market insurance at a price more affordable to most consumers than that offered by the FAIR Plan.

(3)Establish a scientifically advanced probabilistic wildfire loss model for the purpose of providing property and casualty insurers access to a state of the art public tool that is accessible for comparison, evaluation, and analysis of modeled risk assumptions used in support of IMAP rate filings. In this regard, it is the intent of the Legislature to convene an advisory committee of public and private stakeholders to design standards for the use of probabilistic wildfire loss models in residential property insurance rate development, and to establish a database and computer model for that purpose.

(4)The Legislature finds these measures are necessary to limit the number of insurer-initiated nonrenewals that occur in response to changes in the understanding of wildfire risk and to limit homeowners’ reliance on the California FAIR Plan.

(A)The Legislature finds that such a model is an objective public tool that will promote precision in loss projection, and that decreasing the uncertainty of future losses in this state is necessary to stabilize large price swings in the residential property insurance market.

(B)The Legislature further intends that such a model be available to assist state and local governments incorporate a modeled understanding of the costs of wildfire risk in their planning processes.

The provisions of this act are not severable. If any provision of this act or its application is held invalid, all other provisions of this act shall also be held invalid.

This act shall become operative only if Assembly Bill 2167 of the 2019–20 Regular Session is enacted and becomes effective on or before January 1, 2021.