Last week, parts of Los Angeles, California, were devastated by a series of especially destructive wildfires. While fires are common in the southern California region, a couple of factors came together to turn last week’s flare-ups into major conflagrations.
First, LA experienced a lot of rainfall in 2022 and 2023. The wet conditions spurred the growth of a lot of brush and grasses on the hills surrounding LA’s metropolitan area. 2024 brought an exceptionally hot summer and almost no rain during what was supposed to be the wet season, which dried out the now abundant vegetation.
The various state and local government authorities that own this wilderness obviously did not clear this dried-out brush with effective methods like tree thinning and controlled burns, leaving the surrounding urban areas vulnerable.
The second factor was the wind. The region frequently experiences strong, warm winds that originate high in the southern Nevada desert and travel down across California into the Pacific Ocean, gaining speed and intensity as they squeeze through the mountains and canyons surrounding Los Angeles. These winds are common and, therefore, predictable enough to have a name: the Santa Anas.
Wind is air moving from an area with high air pressure to an area with lower pressure. And last week, a high-pressure system stalled over Utah while a low-pressure system was present off the Pacific coast. The result was record-setting Santa Ana winds, with some gusts reaching over 100 mph.
For reasons that remain unknown at the time of writing, several fires started in the hills surrounding the Los Angeles Basin last Tuesday. The heavy Santa Ana winds helped the fires spread quickly through the dry brush, filling the government-owned land towards Los Angeles suburbs like Altadena and the Pacific Palisades. On Tuesday and Wednesday of last week, the fires tore through these towns. While virtually everyone was able to evacuate in time, the level of property destruction caused by these fires is unprecedented.
A substantial part of the Pacific Palisades was completely leveled—including my own childhood home and the entire neighborhood I grew up in. More than twelve thousand buildings were razed to the ground. While that figure includes several mansions owned by the Hollywood elite, the fires also wiped out homes that had been bought by middle-class Californians decades before the property values swelled to their current levels. For many of those folks, the bulk of their wealth was tied up in houses that are now gone.
Making matters worse, many of the homes destroyed last week were uninsured. Progressives and establishment media outlets seized on this fact to blame climate change for driving insurance providers out of high-risk areas.
This talking point is complete nonsense. If the risk of natural disasters in an area people want to live in increases, that’s good for insurance companies. It drives up the demand for their product. It’s true that home insurance providers have been fleeing the areas affected by these fires—with one provider canceling thousands of policies in the Pacific Palisades in the last year alone. But that’s not because of climate change, it’s because of government intervention.
In an unhampered insurance market, the prices people pay for coverage are very situational. Obviously the value of whatever is being covered will impact premiums, but so does risk. For natural disasters like floods and wildfires, the risk of a storm or blaze destroying a home can change drastically from one street to the next. Insurance providers invest a lot of time and resources into analyzing these risks so they can charge competitive prices that account for the likelihood of a claim being filed.
There is no escaping the fact that homeowners insurance will be expensive in high-risk areas. But that’s not something we should even want to escape. High insurance prices are how the market both signals that an area is a risky place to live and dissuades people—especially the poorest, most vulnerable households in society—from living in these high-risk areas.
When governments mess with insurance prices—either through subsidies, cheap public insurance, or price controls—the result is always the same. More people move to dangerous areas that are highly susceptible to natural disasters.
In 1988, California passed a law that forced insurance prices down by 20 percent, banned providers from using forecasts of future risk to set prices, and subjected all future price increases to government oversight. With rates severely decoupled from risk, the state saw extensive development in some very fire-prone areas. Then, after an exceptionally bad fire year in 2017, insurance providers tried to get approval to raise premiums to account for the high level of risk across the state. The government said no.
As a result, seven of the twelve largest home insurance providers pulled out of California. And that trend is continuing today.
The government of California had also tied the hands of insurance providers by restricting their ability to factor the cost of reinsurance into their rate calculations. You can think of reinsurance as insurance for insurance providers. These firms are structured to cover single houses burning down—not entire towns. So, they go to reinsurance providers to get covered in the event that many of their customers suddenly need to file claims at the same time. California did partially roll back this restriction a few weeks ago, but for many of those in the Palisades and Altadena who could not get insurance, it was already too late.
In true California government fashion, a new regulation was just rolled out that will legally require the few insurance companies who remain to provide coverage in high-risk areas if they want to continue doing business in the state. But, because of government price caps, these areas are unprofitable—which is why there’s no coverage. So, by pretending to address the problem while forcing insurance providers to take on economic losses, state officials risk driving even more providers to drop all their customers and pull out of the state entirely.
Wildfires in southern California will never go away. But they certainly don’t have to be as destructive as the fires that tore through LA last week. In addition to the obvious changes that need to be made to the management of government land and the reliability of government water infrastructure, the state needs an insurance market that is based on reality; one that is allowed to convey the real risk of living in fire-prone areas. As long as the state government keeps hiding these risks from its citizens in the name of fairness, the people of California will remain in serious physical and financial danger.
