Expert Ponders California Wildfire Commission, Other Solutions to State’s Severe Seasons

Establishing a California Wildfire Commission is just one idea an expert is tossing out to help the state deal with worsening fire seasons.

James Woods was formerly co-leader of Mayer Brown’s Global Insurance Industry Group and chair of the LeBoeuf, Lamb, Greene & MacRae Insurance Practice. He now owns and operates Woods Group Solutions, headquartered in Sonoma, Calif.

Woods, a long-time insurance attorney, is all about looking for solutions to help the insurance industry and insurance consumers.

He’s been talking a great deal lately about how to be better prepared and more adequately handle the costly wildfires the state has been dealing with over the last several years, including the November 2018 wildfires which are now reported to have amassed $11.4 billion in insured losses.

He recently discussed his ideas for possible solutions with Insurance Journal.

This has been edited for clarity and brevity.

Insurance Journal: When you look at last year’s wildfire season, can you recall any season as bad?

James Woods: No. Forest fires are becoming increasingly likely, because of climate change, and costing insurers more than ever. Wildfires are here and they’re doing devastating damage and they’re likely to continue.

IJ: You stated before that this an opportunity for the insurance industry to step in and provide leadership. What can be done?

Woods: Well there’s several things. We need to focus first and foremost on the consumer. The consumer today has three options, and what we’re fearful of is, in wildfire areas the consumer is likely to be uninsurable. To give one a sense of measure of that, the governor’s office has stated that one-in-10 buildings in the state of California are located in wildfire areas. About 2 million buildings are located in wildfire areas. So we’re talking about 10 percent or more of this state’s building industry, both residences and commercial structures, located there.

The alternatives, first and foremost, was to seek coverage for the consumer, in the so called admitted insurance market, that always should always be the venue first and foremost. Secondly, if the consumer cannot find adequate coverage there, they can seek coverage through the state sponsored FAIR Plan. I say state-sponsored, it’s really a creation of the insurance industry and the admitted market. And thirdly, if both of those do not provide adequate cover for the (consumer), there’s a very robust non-admitted market such as Lloyd’s of London, where the consumer can attempt to seek coverage.

The problem is that we’re finding holes in each of those, and limitations, in each of those coverages, or sources of coverage, for the consumer.

With the admitted market, we’re starting to see admitted insurers refusing to write wildfire areas … one large national broker has set wildfire deductibles in those areas … or in the FAIR Plan we’re seeing limitations of, I think it’s a million-five of coverage, and they may be reaching capacity as to how much they can write.

The non-admitted market is a very flexible market, and it’s unknown whether or not they’ll step forward as they did in the days after the Chicago fire, when Mrs. O’Leary’s cow kicked the lantern and started that fire, the non-admitted market came in to provide coverage. We’re too early to see whether or not they will fulfill that capacity problem, which forces us to start thinking about other alternatives.

IJ: You’ve heard about the lawsuit filed by Allstate, State Farm and USAA. Have you heard of something like this happening before? Do you think these suits have legs?

Woods: It’s a subrogation type of suit. It’s a suit whereby the insurers are seeking to recoup for some of the damages that have insured to their detriment, as a result of these wildfires, and they’re legally entitled to go after the entity that allegedly caused that fire. So, they do have legs.

I will point out one thing that I found to be quite interesting. Sometimes it’s important not to achieve what one hopes for, and I know that Bloomberg has estimated that the insurance industry owns 20-25 percent of the California utility bonds. So, if these lawsuits, and other suits, manage to bankrupt PG&E, it is possible that the bondholders will be left out in the cold. Hopefully, the insurance industry is tracking their asset balance sheet, as they proceed through these suits.

IJ: You’ve previously mentioned the idea of having a California Wildfire Commission. Can you tell us a little bit about that?

Woods: This is such a prevalent problem, it tends to stay, economically, so hard. It’s also hugely detrimental to the housing crisis that we currently have. We need to think differently and, in this instance, (think about) forming a Wildfire Commission that would take a look at, and draw the lines for, the truly exposed areas with wind overlays.

Then, helping us make sure that infrastructure in these populated areas is adequate for public evacuation, in the event that the worst happens, which of course was the huge issue in the Camp Fire. 26,000 homes were burned. People had to leave. They, by virtue of the fact that they had a wildfire 10 years earlier that had destroyed 80 homes, were looking to the future and created a skyway, in order to help evacuate people.

The problem was, it was locally reviewed, not state reviewed, and it turned out to be inadequate. It was totally jammed. People couldn’t get out, had to leave their vehicles on the side of the road. They had planned to have three stages of evacuation, but the fire spread so quickly that everybody was trying to leave at the same time. There was no order to it.

Eventually, Cal Fire had to come in and bulldoze cars out of the way, so that the firefighters could reach where the fire was most devastating.

We need more of a coordinated effort to take a look at infrastructure, as well as fire remediation in these areas.

Building standards (for instance). California meets the highest quality of building standards, but I think the insurance industry could be helpful here too.

They can help set higher standards for insuring risk in wildfire areas, by making sure that adequate defensible space around each home.

Eaves don’t over-extend. When communities are built, they will have areas where firetrucks can actually turn around, at the end of a cul-de-sac, rather than get stuck and therefore not respond to a fire at the end of the cul-de-sac.

All of these things can be governed, indirectly, by the insurance industry and their underwriting standards.