State of Emergency: Examining the Impact of Growing Wildfire Risk on the Insurance Market (U.S. House Committee on Financial Services, Subcommittee on Housing, Community Development and Insurance)

Hearing	State of Emergency: Examining the Impact of Growing Wildfire Risk on the Insurance Market
Committee	U.S. House Committee on Financial Services, Subcommittee on Housing, Community Development and Insurance
Date	September 22, 2022

 

Hearing Takeaways:

• The Growing Prevalence and Increasing Intensity of Wildfires in the U.S.: The hearing largely focused on the growing prevalence and increasing intensity of wildfires and this trend’s impact on wildfire insurance markets. Subcommittee Ranking Member French Hill (R-AR) noted that an estimated 4.5 million properties were at high or extreme risk from wildfires and highlighted how nearly half of these at-risk properties were in California.
  • Impact of Climate Change: Subcommittee Democrats and all of the hearing’s witnesses remarked that climate change was responsible for the growing prevalence and increasing severity of wildfires. Dr. Auer specifically noted how increased heat, extended droughts, and lower humidity levels (which were all associated with climate change) created the conditions that supported wildfires.
  • Impact of Forrest Management Practices: Subcommittee Republicans expressed concerns that poor forest management practices were contributing to the U.S.’s current wildfire problems (especially in the Rocky Mountains in the Coastal West). Subcommittee Ranking Member Hill commented that this mismanagement was leading to insect infestation, overstocked stands, and dead and decaying trees. Mr. Frazier stated that the upcoming map updates from the California Department of Forestry and Fire Protection (CAL FIRE) could lead to better forest management in California.
  • Impact of Home Building Practices: Subcommittee Members expressed concerns that many government policies were encouraging people to build homes in inappropriate locations. Subcommittee Ranking Member Hill argued that California’s efforts to insulate consumers from these risks through the state’s insurance policies were preventing price signals from discouraging such inappropriate building. Mr. Frazier noted how it was more difficult to build in California’s urban areas, which caused many new construction projects to be in less urban areas. He stated that this dynamic was leading more homes to be located near fuel sources, which was exacerbating wildfire damages.
  • Impact on Low-Income Communities: Dr. Auer mentioned how his research had found that 60 percent of counties with moderate-to-high wildfire risks in the most wildfire prone states had poverty rates that exceeded the official national poverty rate.
  • Reduction in the Availability of Wildfire Insurance: Ms. Bach testified that her organization had needed to shift its focus in wildfire prone areas in recent years from helping consumers to choose the best possible wildfire insurance policy option to helping consumers find any type of wildfire insurance policy. She indicated that wildfire insurance policy availability was a problem in many counties throughout California, Colorado, Oregon, and Washington.
• State Regulation of the Wildfire Insurance Market: Subcommittee Members and the hearing’s witnesses expressed interest in how state insurance regulators were responding to the growing prevalence and increasing intensity of wildfires. States are the primary regulators of insurance markets, which led Subcommittee Members to focus more on understanding the state of the wildfire insurance market and less on proposing policy solutions.
  • California’s Wildfire Insurance Market: Subcommittee Members and the hearing’s witnesses expressed particular interest in California’s wildfire insurance market given its size and the prevalence of wildfires within that state. Mr. Frazier noted that while California’s wildfire insurers had needed to respond to numerous expensive wildfires over the previous five years, he testified that most of these insurers had remained in the market. Commissioner Lara discussed how California had implemented a state moratorium law in 2019 that prevents insurance companies from not renewing wildfire insurance policies for people living adjacent to a declared wildfire emergency for a total of one year. Subcommittee Ranking Member French Hill (R-AR) argued that California’s use of price controls, mandatory coverage requirements, and automatic renewal requirements had led to a poorly functioning wildfire insurance system. He stated that these policies were making wildfire insurance less available within California. Ms. Bach asserted however that regulation was not responsible for California’s current wildfire insurance problems.
  • California’s Upcoming Wildfire Insurance Regulation: Commissioner Lara noted how California would soon implement a wildfire insurance regulation that would consider community-wide wildfire mitigation practices and require insurers to disclose to the risks scores of the properties of their customers. He indicated that customers would have a right to appeal these risk scores. Mr. Frazier mentioned how the Personal Insurance Federation of California had worked with the California Department of Insurance on the state’s upcoming wildfire insurance regulations. He stated that these regulations would make the state’s insurance market more transparent for consumers.
  • Proposals to Bolster Natural Disaster Hazard Requirements for Insurers: Full Committee Chairman Maxine Waters (D-CA) noted how the only current federal requirement surrounding natural hazard risk for home purchases was Flood Zone Determination requirement from the U.S. Federal Emergency Management Agency (FEMA). She suggested that states should adopt new wildfire and other natural disaster risk disclosure requirements for home purchases. She highlighted how her state of California already maintained such disclosure requirements.
  • Proposal to Permit Insurers to Consider Forward Looking Climate Science When Setting Rates: Mr. Frazier remarked that California’s insurance regulations would need to be amended to permit insurers to incorporate forward looking climate science into their rate filings. He stated that California’s current insurance regulations required insurers to first sustain high losses before they could request permission for a higher statewide premium level, which he called unreasonable. He commented that this dynamic encouraged insurers to withdraw from the highest risk areas.
  • Role of Insurers of Last Resort: The hearing’s witnesses highlighted the role that insurers of last resort played in providing wildfire insurance coverage to areas that could not obtain insurance coverage from the traditional market. Mr. Frazier noted how the number of homes using California’s FAIR Plan program (which provides last resort insurance coverage to California homes) had increased from 125,000 homes in 2017 to 270,000 today. Ms. Bach suggested that the Florida Hurricane Catastrophe Fund could serve as a model for such residual market property insurance programs.
  • Cumulative Impact of Natural Disaster Insurance: Full Committee Chairman Waters also noted how California homeowners needed to purchase other types of natural disaster insurance (such as earthquake insurance). She raised concerns that this high number of insurance needs could overwhelm the state’s homeowners.
• Adoption of Wildfire Risk Mitigation Practices: Subcommittee Members and the hearing’s witnesses expressed interest in efforts to promote wildfire risk mitigation practices, including home hardening and the development of defensible spaces. They highlighted how both insurance companies and multiple levels of government were driving the adoption of these practices through mandates and incentive programs.
  • State Actions to Promote the Adoption of Wildfire Risk Mitigation Practices: Commissioner Lara highlighted how California had created the U.S.’s first insurance pricing regulation that required all insurance companies to recognize and reward wildfire mitigation efforts made by homeowners and businesses. He indicated that these efforts included upgraded roofs and windows, creation of defensible space, and living in fire wise communities.
  • Government Support for State Wildfire Risk Mitigation Practice Incentive Programs: Subcommittee Members and the hearing’s witnesses highlighted how the federal, state, and local governments maintained programs to encourage homeowners to adopt wildfire risk mitigation practices. Dr. Auer, Ms. Bach, Commissioner Lara, and Mr. Wright also advocated for federal support for these programs and emphasized the importance of targeting this support to vulnerable populations. Commissioner Lara highlighted how the recently passed Inflation Reduction Act of 2022 included funding for hazardous fuel reduction, community resilience projects, and risk mitigation projects. He stated that every $1 spent on pre-mitigation efforts would lead to savings between $5 and $7 in terms of avoided future insurance losses. Dr. Auer cautioned however that the advantages of these programs would be less profound for lower-income homeowners and renters, particularly if better risk forecasting led to higher premiums and lower coverage limits.
  • Wildfire Risk Mitigation Practice Standards for Insurers: Mr. Frazier called for the development of standards for insurers to recognize the benefits of home hardening and defensible space. He applauded the Insurance Institute for Business & Home Safety’s research on these issues and commented that the organization’s “Wildfire Prepared Home” designation held “great promise.” Mr. Wright remarked that insurers tended to adequately account for the adoption of risk mitigation efforts and set their prices accordingly.
  • Retrofitting Challenges: Mr. Wright cautioned that home retrofitting for wildfire mitigation could be more difficult and more expensive. He added that these retrofitting techniques might be less popular for some consumers given how they can alter a home’s aesthetic.
• California’s Refusals to Approve Automotive Insurance Rate Increases Since 2020: Subcommittee Republicans used the hearing to raise concerns over the California Department of Insurance’s refusal to approve increases in automotive insurance rates since April 2020. They argued that this decision undermined the capital adequacy and solvency of automotive insurers and noted how these insurers currently faced increased costs resulting from inflation. Commissioner Lara testified that the California Department of Insurance was currently reviewing the private passenger automotive insurance rate filings to ensure that the proposed rates were fair, adequate, and nondiscriminatory. He stated that his department had not approved insurance rate filings since April 2020 because the state’s automotive insurers had failed to account for the reduction of risk stemming from depressed driving levels during the COVID-19 pandemic. He further asserted that the state’s refusal to approve automotive insurance rate increases was not driving insurers out of the state’s insurance market. He stated that some insurers were merely abandoning their brick-and-mortar presences within the state and were still doing business online within the state. He predicted that this trend would continue as more companies move towards online services.

Hearing Witnesses:

1. Dr. Matthew Auer, Dean of the School of Public and International Affairs, University of Georgia
2. Ms. Amy Bach, Executive Director, United Policyholders
3. The Hon. Ricardo Lara, California Insurance Commissioner
4. Mr. Roy Wright, President & CEO, The Insurance Institute for Business & Home Safety
5. Mr. Rex Frazier, President, Personal Insurance Federation of California

Member Opening Statements:

Subcommittee Chairman Emanuel Cleaver (D-MO):

• He mentioned how the U.S. National Interagency Fire Center (NIFC) was indicating that five large new fires have been reported throughout the U.S. and highlighted how 97 active large fires have already burned more than 900,000 acres in eight states.
  • He noted how more than 11,000 wildland firefighters and support personnel have been assigned to respond to these wildfires.
• He remarked that the threat of wildfire in the U.S. was growing and highlighted how 20 wildfires with damages exceeding $1 billion had impacted the U.S. between 1980 and 2022.
  • He indicated that the 2021 Dixie Fire had consumed over 960,000 acres, which made it the second largest wildfire on record in California.
  • He also mentioned how the 2021 Marshall Fire in Colorado was the most destructive wildfire on record in the state’s history.
• He stated that many people defined the current time as the era of the megafire and described megafires as extraordinary fires in terms of size, intensity, and costs to both taxpayers and industry.
  • He commented that these megafires disproportionately impacted low-income neighborhoods and families.
• He discussed how climate change was leading scientists to predict that the U.S. would experience more megafires moving forward.
• He remarked that the hearing would examine adaptation and resilience strategies for dealing with wildfire risks and stated that the insurance industry would play an important role in these strategies.
  • He criticized the insurance industry for underwriting sectors and practices that exacerbate climate change.
• He stated however that the insurance industry could play a key role in addressing wildfire risks and noted how insurance data could help public and private stakeholders to better understand climate change-related risks.
  • He suggested that this data could be used in stress tests that focused on climate change-related risks.
• He raised concerns that the U.S.’s wildfires would become a systemic issue that state regulators would be unable to adequately respond to.
  • He noted how insurance regulation was primarily a state issue in the U.S. and how state insurance regulators were currently grappling with increased wildfire risks.

Subcommittee Ranking Member French Hill (R-AR):

• He discussed how the problem of wildfires was particularly severe in certain regions of the U.S. and noted how wildfires had burned seven million acres per year on average over the previous 20 years.
  • He commented that this amount could vary based on rainfall and noted how the U.S. was now experiencing a record amount of rainfall.
• He indicated that an estimated 4.5 million properties were at high or extreme risk from wildfires and highlighted how nearly half of these at properties were in California.
• He noted that states were primarily responsible for overseeing wildfire insurance and specifically criticized California’s wildfire insurance policies.
• He stated that the U.S.’s tree mismanagement had resulted in insect infestation, overstocked stands, and dead and decaying trees.
  • He commented that these problems were particularly present in the Rocky Mountains and the coastal West.
• He remarked that the aforementioned problems could be addressed through sound forest management policies, better local land use decisions, and responsible development.
• He also stated that the U.S. needs to make smart financial decisions so that individuals and businesses can access affordable wildfire insurance.
  • He asserted that wildfire insurance would only work if the fundamentals of risk-based pricing and competitive enterprise were followed.
• He reiterated his criticism of California’s wildfire insurance policies and stated that California’s use of price controls, mandatory coverage requirements, and automatic renewal requirements had led to a poorly functioning wildfire insurance system.
  • He commented that these policies prevented insurers and insurance policyholders from taking climate change-related risks into account.
• He also remarked that California’s wildfire insurance policies often made it impossible for Californian homeowners to obtain affordable wildfire insurance.
  • He added that many out-of-state insurers were reluctant to enter the California wildfire insurance market because of the state’s wildfire insurance policies.
• He concluded by attributing California’s wildfire insurance problems to the state’s poor practices.

Witness Opening Statements:

Dr. Matthew Auer (School of Public and International Affairs, University of Georgia):

• He remarked that climate change (including increased heat, extended drought, and lower humidity in Western states) are “major drivers” of wildfires and stated that these environmental changes are creating havoc for insurance markets.
• He mentioned how his research had found that 60 percent of counties with moderate-to-high wildfire risks in the most wildfire prone states had poverty rates that exceeded the official national poverty rate.
  • He also indicated that the majority of the homes in the most at-risk counties in Western states and Florida were in areas with comparatively higher poverty rates.
• He discussed how insurance companies, state authorities, and local authorities were increasingly requiring homeowners to adopt fire safety measures.
  • He indicated that these requirements could be a condition for a new insurance policy or for the renewal of coverage for an existing policy.
• He remarked that these new requirements could pose hardships for lower income homeowners and that the costs associated with these requirements could add up.
• He stated that federal assistance would continue to play a significant role in insuring the most at-risk communities.
• He discussed how California was currently distributing FEMA funds in a pilot project (known as the California Wildfire Mitigation Program) and indicated that the project’s participants were communities with more vulnerable residents.
  • He indicated that these participating communities had higher percentages of residents over the age of 65, residents with disabilities, people living in poverty, populations with limited English proficiency, and populations that lacked vehicle access.
• He noted that the California Wildfire Management Program was a cost share program in which FEMA paid up to 75 percent of the costs for eligible wildfire mitigation projects.
  • He indicated that California covers the remaining 25 percent of the costs.
• He stated however that California’s cost match pilot program for wildfire mitigation was not possible in some parts of the U.S. and highlighted how some communities (including Tribal communities) lack adequate staffing to implement these types of grants.
  • He suggested that more consultation between FEMA and states regarding which communities to serve and the provision of funds to support the hiring and training of staff could help to alleviate these problems.
• He remarked that FEMA supported programs (including the California Wildfire Management Program and California’s Safer from Wildfires initiative) were designed to both make homes safer and encourage wildfire insurers to reenter certain markets.
  • He stated however that the advantages of these programs would be less profound for lower-income homeowners and renters, particularly if better risk forecasting led to higher premiums and lower coverage limits.
• He contended that present and future funds authorized by Congress were essential for protecting the most vulnerable communities.
• He remarked that current federal pilot programs to address wildfire risks will need to evolve into longer-term sustained programs that help underserved communities with fire safety measures across multiple states.

Ms. Amy Bach (United Policyholders):

• She explained that her non-profit organization, United Policyholders, worked to help insurance policyholders (including wildfire insurance policyholders).
• She testified that her organization had recently needed to shift its focus in wildfire prone areas in recent years from helping consumers to choose the best possible wildfire insurance policy option to helping consumers find any wildfire insurance policy.
  • She indicated that many counties throughout California, Colorado, Oregon, and Washington provided consumers and businesses with very limited options for wildfire insurance policies.
• She stated that her organization was working diligently with state insurance commissioners (including in California and Colorado) to ensure that consumers could obtain wildfire insurance policies.
  • She also mentioned how her organization was engaged in efforts to promote home hardening, defensible spaces, and community-based programs.
• She testified that her organization was making progress in its efforts to increase the availability of wildfire insurance options.
• She then asserted that regulation was not responsible for current wildfire insurance problems and noted how many California residents still faced very high wildfire insurance premium rates.
  • She stated that insurance companies were very sophisticated and had limited risk appetites.
• She also remarked that climate change was creating concerns for many wildfire insurers and suggested that insurance risk tools were further exacerbating these concerns.
• She called for more funding and technical assistance for home hardening and defensible space initiatives and asserted that insurers must reward and incentivize risk reduction.
  • She recommended that insurers provide renewal rewards and discounts for customers that work to reduce their risks.
• She also stated that the U.S. needed to ensure that there were well-run insurers of last resort and to help residual market property insurance programs.
  • She suggested that the Florida Hurricane Catastrophe Fund could serve as a model for such residual market property insurance programs.

The Hon. Ricardo Lara (California Insurance Commissioner):

• He noted how California’s Proposition 103 allowed for California to request insurance rates that were adequate to pay future claims while providing the state with the authority to protect consumers from excessive or unfairly discriminatory rates.
• He also mentioned how California had implemented a state moratorium law in 2019 that prevents insurance companies from not renewing wildfire insurance policies for people living adjacent to a declared wildfire emergency for a total of one year.
  • He commented that this law prevented insurance companies from impulsively dropping long-time customers.
• He testified that the California Department of Insurance had protected more than 4 million residential wildfire insurance policies from non-renewal since 2019.
• He remarked that California and other like-minded states have long warned about the risks associated with climate change.
  • He mentioned how he served as the co-chair of the Climate and Resiliency Task Force for the National Association of Insurance Commissioners (NAIC).
• He emphasized that wildfires, wildfire smoke, flooding, and heat waves were not confined within states and asserted that state-based insurance regulators must therefore work together to address these problems.
• He also mentioned his efforts to create the Sustainable Insurance Roadmap with the United Nations (UN) Principles for Sustainable Insurance initiative.
  • He explained that this initiative sought to identify key actions that regulators and insurance companies would need to take to protect consumers and to create a more sustainable insurance market considering the intensification of climate risks.
• He highlighted how California had created the U.S.’s first insurance pricing regulation that required all insurance companies to recognize and reward wildfire mitigation efforts made by homeowners and businesses.
  • He indicated that these efforts include the upgrading of roofs and windows, the use of defensible space, and the encouragement of firewise communities.
• He noted that California’s insurance pricing regulation required insurance companies to provide consumers with their property’s risk score and provide the consumers with the right to appeal that score.
• He also mentioned his efforts to advocate for increased state budget funding to support residents and businesses in paying for wildfire mitigation efforts, which was often important for enabling residents to retain their insurance coverage.
  • He applauded Congress for its recent passage of the Inflation Reduction Act of 2022, which included funding for hazardous fuel reduction and community resilience and risk mitigation projects.
• He stated that every $1 spent on pre-mitigation efforts would lead to savings between $5 and $7 in terms of avoided future insurance losses.
  • He commented that pre-mitigation efforts were therefore key to making wildfire insurance more available and affordable.
• He further discussed how California maintained the FAIR Plan program, which provides wildfire insurance coverage to state residents that cannot obtain coverage from the traditional market.
  • He mentioned how he had worked to modernize this program by ordering it to provide consumers with increased insurance coverage limits and to offer more comprehensive property coverage options for protecting homes.

Mr. Roy Wright (The Insurance Institute for Business & Home Safety):

• He remarked that wildfires were increasingly impacting U.S. families and communities.
• He discussed how the embers stemming from wildfires were most often responsible for igniting buildings and indicated that these embers could loft for a half-mile or more.
  • He asserted that wildfire disasters were fundamentally different from flood and wind disasters in that the damaged assets in a wildfire (e.g., a burning building) could fuel the continuation of the wildfire.
• He stated that while work on forest management and ignition sources was critical for addressing wildfires, he remarked that the U.S. could not eradicate wildfires.
  • He contended that the U.S. must therefore work to narrow the destruction paths of wildfires.
• He mentioned how his organization, the Insurance Institute for Business & Home Safety, had found that wildfire-prepared homes must address three fundamentals: roofing, building features (e.g., vents), and defensible space.
• He asserted that these three fundamentals must first be addressed before additional measures should be considered.
  • He indicated that these additional measures include fencing, non-combustible siding, closed eaves, and wildfire resistant deck materials, windows, and sheds.
• He remarked that defensible space was the most transformational risk mitigation action that consumers could take to prevent the spread of wildfires and asserted that consumers must embrace a new view of home landscaping that would involve nothing flammable within five feet of a house’s structure.
  • He elaborated this would entail consumers not having bushes, trees, plastic bins or cans, or wooden gates within five feet of a home’s structure.
• He stated that this creation of defensible spaces could be done in an aesthetically attractive fashion.
• He also remarked that wildfire risks required community-wide actions to bend down the risk of wildfire conflagration.
• He discussed how wildfire mitigation techniques could cost as little as $3,000 at the new construction phase and cautioned that home retrofitting for wildfire mitigation could be more difficult and more expensive.
  • He added that these retrofitting techniques might be less popular for some consumers given how they can alter a home’s aesthetic.
• He further emphasized that wildfire mitigation practices were not free and stated that climate change was increasing the costs associated with adopting these practices.
  • He asserted that the cost of wildfire mitigation practices could not be viewed solely through the lens of insurance premiums.
• He recommended that policymakers consider “financial nudges” to homeowners to encourage the adoption of wildfire mitigation practices.
• He also stated that federal and state grants need to be targeted to support homeowners that could not afford to adopt wildfire mitigation practices on their own.
  • He specifically suggested that policymakers work to help homeowners change the landscaping closest to their homes to reduce the likelihood of home ignitions from embers.

Mr. Rex Frazier (Personal Insurance Federation of California):

• He first indicated that his organization, the Personal Insurance Federation of California, represented the insurers that provided over 60 percent of the homeowners insurance coverage in California.
• He recounted how California had experienced significant wildfires in 2017 and testified that California insurers had made claims payments in 2017 and 2018 totaling more than the previous 22 years of the underwriting profits.
• He remarked that the insurance industry has since developed a better understanding about how climate change operates within California and commented that peak fire season was no longer a predictable part of autumn.
  • He noted how the delayed onset of seasonal rains was leading to longer periods of dry conditions that overlap with annual wind patterns.
  • He commented that these factors in tandem can turn small fires into major disasters.
• He stated that the insolvency of the Merced Property & Casualty Company following the 2018 Paradise Fire had driven home the seriousness of California’s wildfire insurance situation.
• He noted however that most California’s major home insurers that were active in the home insurance market prior to 2017 remain in the market today.
  • He highlighted how these home insurers had worked with the California Department of Insurance to achieve the goals of financial stability, insurance availability, and insurance affordability.
• He remarked that his organization’s member companies believed that wildfire risk in California was insurable so long as the rates were adequate to match the growing risk.
  • He also mentioned how California’s insurers provide the California FAIR Plan, which he explained was a residual market for all homeowners seeking coverage that involves no government funding.
• He then called for the development of standards for insurers to recognize the benefits of home hardening and defensible space.
  • He applauded the Insurance Institute for Business & Home Safety’s research on these issues and commented that the organization’s “Wildfire Prepared Home” designation held “great promise.”
• He noted how the California Department of Insurance had recently issued regulations governing the communication of available wildfire mitigation discounts from insurers to customers.
  • He indicated that insurers would soon be submitting their filings with the California Department of Insurance in compliance with this regulation.
• He also discussed the importance of advancing the science of community level wildfire risk mitigation and stated that many wildfires could only be stopped through collective efforts.
  • He noted how wildfire risk was often related to bigger considerations, such as the amount of surrounding brush or trees, whether a community is located near slopes, canyons, or wind tunnels, and the amount of access for firefighters to confront a fire.
  • He mentioned how the Insurance Institute for Business & Home Safety was currently researching how community level dynamics impact wildfire risks and expressed his organization’s interest in studying and incorporating the results of this research.
• He then remarked that California’s insurance regulations would need to be amended to permit insurers to incorporate forward looking climate science into their rate filings.
  • He noted how California insurers currently must base their rate filings on wildfire losses from previous years and commented that this calculation had no sensitivity to changing conditions or evolving knowledge.
  • He also noted that California insurers are currently barred from seeking higher insurance premiums, even if they would like to enter higher fire risk areas.
• He stated that California’s current insurance regulations required insurers to first sustain high losses before they could request permission for a higher statewide insurance premium level, which he called unreasonable.
  • He commented that this dynamic encouraged insurers to withdraw from the highest risk areas.
  • He also noted how there were no other states that require insurers to look back two decades to justify higher premium levels.
• Note: Mr. Frazier’s video connection experienced technical issues at this point.

Congressional Question Period:

Subcommittee Chairman Emanuel Cleaver (D-MO):

• Chairman Cleaver asked Mr. Wright to discuss the actions that insurers had taken to respond to the threat of increased economic losses from wildfire disasters. He asked Mr. Wright to address how insurers were incorporating mitigation and resilience strategies into their business operations.
  • Mr. Wright remarked that insurers tended to adequately account for the adoption of risk mitigation efforts and set their prices accordingly.
• Chairman Cleaver asked Mr. Wright to discuss the actions that insurers have taken to respond to the increase in economic losses stemming from wildfire disasters.
  • Mr. Wright commented that the other witnesses were better suited to address how insurers set their prices. He stated however that the cost of rebuilding homes lost to wildfires was continuing to increase.
• Chairman Cleaver then asked Dr. Auer and Ms. Bach to indicate whether there were certain parts of the U.S. facing major disruptions to their insurance markets due to wildfire impacts.
  • Ms. Bach mentioned how Boulder County, Colorado had a pilot program where insurance companies have agreed to not drop the coverage of their customers if their customers engaged in certain home hardening measures. She also discussed how persistent weather patterns in certain regions can adversely impact state insurance markets. She stated that policymakers could not tear down homes that have already been built and that policymakers would instead need to adjust their insurance policies to account for these homes. She asserted that policymakers should focus on encouraging insurers to enter difficult markets and promoting homeowners to take risk mitigation actions.
• Chairman Cleaver noted how most wildfires were the result of human activity and expressed interest in the role that education could play in preventing severe wildfires.
  • Dr. Auer remarked that there typically existed a community or neighborhood level dimension to the initiatives that promote home hardening and defensible spaces. He highlighted how the U.S. Forest Service’s (USFS) Community Wildfire Defense Grants and FEMA’s Hazard Mitigation Assistance Grants generally have a direct educational component. He further mentioned how community wildfire plans had been implemented throughout the U.S. that focus on education.
• Chairman Cleaver interjected to indicate that his question period time had expired.

Subcommittee Ranking Member French Hill (R-AR):

• Ranking Member Hill asked Mr. Wright to indicate whether the Insurance Institute for Business & Home Safety had advocated against the construction of housing in unsafe locations before the California state legislature or before any California zoning or local planning districts.
  • Mr. Wright testified that the Insurance Institute for Business & Home Safety had made appearances before the California state legislature and before some California local governance bodies. He stated that while the Insurance Institute for Business & Home Safety had not addressed where houses should be sited during these appearances, he indicated that the organization had “aggressively” advocated for requiring that any new construction narrow the paths of wildfires.
• Ranking Member Hill asked Mr. Wright to indicate whether California’s local planning and building requirements were reflective of the Insurance Institute for Business & Home Safety’s recommendations.
  • Mr. Wright remarked that California’s requirements for brand new construction in high concern areas were reflective of the Insurance Institute for Business & Home Safety’s recommendations. He stated however that California should subject more homes to these construction requirements. He also noted how defensible space needed to be continuously maintained and commented that new construction requirements were not relevant to that specific issue.
• Ranking Member Hill asked Commissioner Lara to address how California was working to help its low-income residents to pursue wildfire mitigation efforts. He highlighted how California currently had a $300 billion budget surplus. He also asked Commissioner Lara to indicate whether California’s zoning policies promoted public safety.
  • Commissioner Lara remarked that California’s governor and legislature had devoted a record amount of money to fighting the state’s wildfires. He stated that these efforts have included incentive programs to encourage rebuilding, as well as funding and incentives to promote wildfire mitigation. He commented that California was taking advantage of its current budget surplus to fund these activities.
• Ranking Member Hill interjected to raise concerns that California’s land use planning policies were encouraging people to build homes in inappropriate locations. He stated that California’s efforts to insulate consumers from these risks were preventing price signals from discouraging such inappropriate building. He noted how Mr. Frazier had told the Subcommittee that California insurers were not able to seek higher premium levels until the insurers had first sustained large losses. He commented that this situation was unreasonable and could cause insurers to withdraw from high-risk areas. He asked Mr. Frazier to indicate whether California’s restrictions on the ability of insurers to charge higher premiums was leading insurers to withdraw from high-risk areas.
  • Mr. Frazier answered affirmatively. He noted how the number of homes using California’s FAIR Plan program had increased from 125,000 homes in 2017 to 270,000 today. (Note: Mr. Frazier’s video connection experienced technical difficulties at this point).
• Ranking Member Hill lastly asked Mr. Wright to provide his thoughts on establishing a National Wildfire Insurance Program, which would be similar to the U.S. National Flood Insurance Program (NFIP).
  • Mr. Wright expressed his opposition to establishing a National Wildfire Insurance Program and indicated that he would elaborate on this response in writing.

Subcommittee Chairman Emanuel Cleaver (D-MO):

• Chairman Cleaver expressed agreement with Subcommittee Ranking Member French Hill’s (R-AR) concerns that some policies were encouraging people to construct homes in inappropriate locations.

Rep. Al Green (D-TX):

• Rep. Green asked the witnesses to indicate whether there existed any laws or rules that required that wildfire mitigation efforts be undertaken before the issuance of insurance policies.
  • Ms. Bach mentioned that regulations about to go into effect in California would provide consumers with the right to know their insurance risk score and the right to obtain a justification for their risk score. She noted that consumers currently received feedback on their property’s wildfire risk through the prices that they were charged or when their coverage was dropped. She commented that this upcoming policy change could encourage consumers to adopt wildfire mitigation measures.
  • Dr. Auer noted how many counties and localities will impose fines on homes that fail to adopt wildfire mitigation measures.
  • Commissioner Lara stated that California’s upcoming wildfire insurance regulation would consider community-wide wildfire mitigation practices. He mentioned how the California Department of Insurance was working with insurance trade groups and consumer groups to communicate the need for community-wide wildfire risk reduction. He stated that these community-wide wildfire risk reduction efforts would help ensure that insurance coverage options were not dropped in certain at-risk communities. He added that the retention of multiple insurance coverage options would foster competition, which would ultimately drive down prices for consumers.
  • Mr. Frazier mentioned how the Personal Insurance Federation of California had worked with the California Department of Insurance on the state’s upcoming wildfire insurance regulations. He stated that these regulations would make the state’s insurance market more transparent for consumers.

Rep. Bill Posey (R-FL):

• Rep. Posey asked Mr. Frazier to answer whether wildfire insurance currently constitutes too great of a risk for the private sector and state regulators to address.
  • Mr. Frazier answered no. He remarked that the private wildfire insurance market currently functioned in a “robust” fashion in California. He expressed the California insurance industry’s willingness to work with policymakers and stakeholders in working to protect communities from wildfires. He acknowledged that while climate change was creating new wildfire risks, he asserted that the private market remained able to address wildfire risks.
• Rep. Posey asked the witnesses to discuss how state insurance commissioners will ensure that insurers will encourage wildfire risk mitigation practices and reduce their premiums.
  • Commissioner Lara remarked that California’s upcoming insurance regulation was intended to get insurers to encourage wildfire risk mitigation practices and reduce their premiums. He testified that the California Department of Insurance had developed this regulation in consultation with state agencies, the insurance industry, and consumer groups. He stated that California was working to educate consumers about wildfire risk mitigation practices and to ensure that the state’s insurance plans were appropriately pricing risks.
• Rep. Posey then noted how the California Department of Insurance had not approved an increase in automotive insurance rates since April 2020, despite the inflationary environment. He asked Commissioner Lara to indicate whether this decision to not approve any automotive insurance rate increases would undermine the capital adequacy and solvency for insurers. He also asked Commissioner Lara to address whether this decision to not approve any automotive insurance rate increases could force automotive insurers to leave California.
  • Commissioner Lara testified that the California Department of Insurance was currently reviewing the private passenger automotive insurance rate filings to ensure that the proposed rates were fair and nondiscriminatory. He also stated that the California Department of Insurance was working to ensure that insurance companies that made significant profits during the COVID-19 pandemic would return some of these profits to their customers. He noted how less driving had occurred during the pandemic, which meant that the risk profiles for customers had also changed during this period. He commented that the risk profiles for customers had failed to match the driving activities of customers during this period.
• Rep. Posey then asked Mr. Frazier to indicate whether there still existed opportunities for property mitigation incentives to “substantially” reduce wildfire insurance premiums.
  • Mr. Frazier answered affirmatively and remarked that these incentives could be provided at both the parcel level and at the community level. He stated that it was more difficult to implement wildfire mitigation practices at the community level.
• Rep. Posey asked Mr. Frazier to address how state forest management plans were impacting fire insurance premiums.
  • Mr. Frazier indicated that the Personal Insurance Federation of California looked forward to the updating of the maps from CAL FIRE. He noted how it had been a decade since CAL FIRE had last updated its map and commented that an update of these maps was due.

Rep. John Rose (R-TN):

• Rep. Rose stated that while wildfires were more prevalent in Western states, he noted that his state of Tennessee still experienced wildfires. He remarked that “overly rigid” local environmental and land use standards often prevent homeowners from being able to adopt wildfire risk mitigation practices. He asked Mr. Frazier to discuss the impact that environmental standards have on new construction and how these standards were making homes less resistant to wildfires.
  • Mr. Frazier noted how it was more difficult to build in California’s urban areas, which caused many new construction projects to be in less urban areas. He stated that this dynamic was leading more homes to be located near fuel sources, which was exacerbating wildfire damages. He expressed optimism however that California’s new insurance regulation would help to mitigate wildfire risks.
• Rep. Rose asked Mr. Frazier to address California’s forest management policies and to indicate whether California should adopt more traditional forest management practices to respond to the threat of wildfires.
  • Mr. Frazier remarked that three had occurred a shift from providing funding for immediate response to fires toward considering pre-fire loss mitigation practices (including fuels treatment). He noted how there were often conflicts between foresters and environmentalists in California on forest management policy issues. He stated however that the situation in California was improving and noted how the California Governor and State Legislature were now working to provide “considerable” new funding for fuels treatment.
• Rep. Rose then noted the large size of California’s insurance market. He stated that the size of this market meant that the California Department of Insurance’s decisions often influenced the entire insurance industry. He noted how California’s Proposition 103 requires that the California Department of Insurance provide prior approval before property and casualty insurance companies can implement insurance rates. He asked Commissioner Lara to confirm that he had withheld approval of rate increases for all pending automotive insurance rate filings based on the view that automotive insurers had provided inadequate COVID-19 pandemic refunds to customers.
  • Commissioner Lara testified that the California Department of Insurance was currently reviewing automotive insurance rate filings to ensure that these rate filings were fair, adequate, and nondiscriminatory. He stated that California had mandated that automotive insurers provide rebates to their customers that were driving less during the pandemic. He indicated that $2.4 billion had been returned to Californian motorists because the risk profile had changed during the pandemic.
• Rep. Rose asked Commissioner Lara to explain why several insurance companies (including GEICO, Progressive, and Allstate) were beginning to leave California’s insurance market.
  • Commissioner Lara remarked that GEICO, Progressive, and Allstate had not left California’s insurance market. He stated that these insurers were merely abandoning their brick-and-mortar presences within the state and were still doing business online within the state. He predicted that this trend would continue as more companies move towards online services.

Full Committee Chairman Maxine Waters (D-CA):

• Chairman Waters noted how the only current federal requirement surrounding natural hazard risk for home purchases was FEMA’s Flood Zone Determination requirement. She remarked however that her state of California had gone “above and beyond” in terms of improving risk disclosures. She noted how California required the disclosure of wildfire and other natural hazard risks. She asked Commissioner Lara to indicate whether wildfire and other natural hazard risk disclosure requirements for home purchases should be adopted. She also asked Commissioner Lara to indicate whether states should adopt these new disclosure requirements so that their insurance commissioners could customize the disclosure requirements to best account for local conditions.
  • Commissioner Lara called disclosure “critical” for ensuring that homebuyers understood the risks that they were assuming. He remarked that state insurance commissioners needed to adapt their policies to best fit the specific needs, topographies, and rules of their states. He highlighted how many U.S. consumers were currently underinsured and noted that these consumers often did not realize that they were underinsured until they had suffered a natural hazard. He commented that this type of situation often prevented consumers from fully recovering from a natural disaster.
• Chairman Waters then discussed how climate change-related natural disasters (such as wildfires) posed an increasing threat to the U.S. mortgage market. She highlighted how an increasing number of Americans were living in natural disaster-prone areas. She asked Ms. Bach to address the role that federal agencies, such as the U.S. Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), and the U.S. Federal Housing Finance Agency (FHFA), could play in setting standards for insurance coverage for homeowners.
  • Ms. Bach first highlighted how California now required real estate agents to make disclosures to consumers that purchased homes in high-risk wildfire areas. She also noted how lending guidelines from the Federal National Mortgage Association (Fannie Mae) required that loans that were subject to a federally backed mortgage have replacement value insurance on the underlying home. She stated however that these requirements needed to be enforced. She remarked that Fannie Mae was engaging in efforts to promote and facilitate risk reduction within the wildfire context. She also called for more consumer education to help homeowners to reduce their wildfire risks. She mentioned how many technology companies were currently developing risk mitigation tools for insurers and commented that there was a need for more risk mitigation tools for homeowners.
• Chairman Waters lastly noted how California homeowners needed to purchase other types of natural disaster insurance (such as earthquake insurance) and raised concerns that this high number of insurance needs could overwhelm the state’s homeowners.