California Wildfires: Can Insurance Markets Handle the Risk?

ildfires in California destroy thousands of structures each year, and in 2017 that number jumped to 10,800. In 2018, wildfires wrought even greater destruction, with more than 22,000 structures destroyed, according to the California Department of Forestry and Fire Protection. Those conflagrations ca...

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Bibliographic Details
Published in:Policy File 2020
Main Authors: Dixon, Lloyd, Tsang, Flavia, Fitts, Gary
Format: Report
Language:English
Subjects:
Environment
RAND Corporation
Online Access:Request full text
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Summary:ildfires in California destroy thousands of structures each year, and in 2017 that number jumped to 10,800. In 2018, wildfires wrought even greater destruction, with more than 22,000 structures destroyed, according to the California Department of Forestry and Fire Protection. Those conflagrations can devastate homeowners and bring heavy costs for the insurance industry. To assess how fire risks will affect the California insurance market, and consequently homeowners, RAND researchers undertook a novel study in two fire-prone areas in Northern and Southern California. They found that, while the market in lower-risk ZIP codes within those two areas was working relatively well as of 2017, higher-risk ZIP codes faced challenges. Those challenges may intensify as wildfire risks increase, potentially affecting the health of the insurance market, policy affordability, coverage adequacy, and insurer profitability. The RAND team found that wildfire risk is likely to increase markedly in some areas under business-as-usual greenhouse gas (GHG) emissions scenarios.