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Fire insurance, like earthquake and flood insurance, does not work because of the scope of damages. Insurance works by pooling risk and taking income from low r

Fire insurance, like earthquake and flood insurance, does not work because of the scope of damages. Insurance works by pooling risk and taking income from low risk areas to pay for high risk ones. Due to the scope of wildfires, fire insurance is untenable. The solution to this fire is absolutely to blame pg and e and its custoners (yes this includes me). This is the logical conclusion. The only thing preventing us from doing this is a refusal to count ourselves complicit in this fire. The solution furthermore is to legislate to remove the barriers to competition that California has set up. Even though I try to do the right thing by buying my electricity from something other than pg and e, I am -- by government sanctioned monopoly -- forced to pay of and e for 'distribution'. I put this in quotes because I am not charged this fee if I buy direct from pg and e. The state allows this non competitive monopoly. When I confronted my congressman, his response to why the state allows this is that the ' pg and e lobby is strong' If the state cannot preserve a competitive market for energy, then the state needs to seize energy production. Monopoly is not capitalism and it is not the free market and it is not freedom. A state run solution is very non ideal (I say this as a libertarian), but it is the best among all others. As it is right now, people in England are able to buy shares in my utility and are more incentivized to cut costs and increase profit even to the point of causing harm that will never affect them.

r00fus 8y ago
What about the Federal government for cutting the funding for existing CA fire programs? Funding was cut last year and boom we have back to back years of fires.
- tathougies 8y ago
  This is a strawman. I do not like the current administration, but attempting to blame everything on them is intellectually lazy. The fires in California are not caused due to bad budget cuts over the past few years, but rather the mistaken environmentalist policy of not allowing controlled burns for the last 100 years and extinguishing natural fires out of needless heroics to save species that are now in ever more need of saving: https://www.theatlantic.com/science/archive/2018/11/california-wildfire-why-humans-cant-control-them/575740/ https://www.theatlantic.com/science/archive/2018/11/californ...
  - jeremysalwen 8y ago
    The "10 am" policy, and the opposition to controlled burns are not coming from environmentalists (Just try googling "endagered species fire"... https://www.mass.gov/news/fire-prescribed-for-habitat-management https://www.mass.gov/news/fire-prescribed-for-habitat-manage... ... many endangered species rely on fire, and we have known this for 50 years). It's property owners who are opposed to prescribed burns, because there is a risk of prescribed burns getting out of control. From wikipedia: "In 1978, the Forest Service abandoned the 10:00 am policy in favor of a new policy that encouraged the use of wildland fire by prescription.[1][13] Three events between 1978 and 1988 precipitated a major fire use policy review in 1989: the Ouzel fire in Rocky Mountain National Park, the Yellowstone fires of 1988 in and around Yellowstone National Park, and the Canyon Creek fire in the Bob Marshall Wilderness on the Lewis and Clark National Forest. In all three cases, monitored fires burned until they threatened developed areas." those events caused a backlash against controlled burns, because obviously it's hard to sell the public that some destruction of property now is better than more of it later.
cronix 8y ago
> fire insurance is untenable How do the insurance companies afford to insure places like in Florida and the lower East Coast, which seem to keep getting hammered with hurricanes year after year, getting worse year after year? And... can they keep up this pace? Apparently in 2017, fires "only" cost insurance companies ~$14B, out of ~$132B paid out. The majority was caused by Hurricanes Harvey, Irma, and Maria. 2017 was the 2nd costliest year on record in terms of natural disasters (have to wait for '18 numbers released in Jan). So why is fire insurance untenable while hurricane ins. isn't? https://www.reuters.com/article/us-global-insurance-aon/2017-second-costliest-year-on-record-for-natural-disaster-insured-losses-aon-idUSKBN1FD22Y https://www.reuters.com/article/us-global-insurance-aon/2017...
- ip26 8y ago
  Flood insurance is provided by the Fed, and heavily subsidized by the taxpayer aka you and I.
- tathougies 8y ago
  Government subsidy? And, as I said above, wildfire is covered in home insurance policies. However, the argument was about wildfire specific insurance. That is untenable since it would cause large insurance runs every year.
saltedonion 8y ago
Can you explain why wild fire insurance is not tenable? Here in Canada all home insurance include wildfire insurance. All insurers have to do is to pool risk and diversify across geography. No way only California has homes near forests? There’s also reinsurers to pool even more risk.
- Mikeb85 8y ago
  > All insurers have to do is to pool risk and diversify across geography. Not all insurers are nation-wide.
  - PeterisP 8y ago
    Not a problem, that's why the very, very large business of reinsurance exists. You don't have to be nationwide to effectively pool risk and diversify across many industries and nations.
    - Mikeb85 8y ago
      But someone operating solely in places without fire risk could easily undercut the larger insurers, driving rates down in that area. It's good and all to spread out the risk, but it's better not to take on risk. So in the end, those living in risk-factor areas will pay for it one way or another.
- tathougies 8y ago
  Why would someone in Oregon (where there is abundant water) or Louisiana purchase wildfire (specific) insurance? Home insurance includes wildfires, but let's limit ourselves to wildfire-specific insurance, which was the issue at hand.
  - plasticchris 8y ago
    In flood plains you are required to buy insurance, in some parts of the us. It seems reasonable to determine fire risk and require insurance if you are in a 50 year burn zone, though determining that is probably the rub.
bluejekyll 8y ago
> The solution furthermore is to legislate to remove the barriers to competition that California has set up. While I think you’re generally on point, this misses the mark a bit. We don’t want more transmission lines running in CA, right? We don’t want lots of little companies increasing the risk of fire by managing lines independently and the one that’s losing then doesn’t have the means to maintain those lines. We might want competition at the generation point, but the transmission lines should be a monopoly. What needs to be fixed on the transmission is that there should not be a profit in maintaining them, bc the profit comes from lack of maintenance. The last three disasters caused by PG&E, can basically be boiled down to a maintenance problem, or lack of. All the transmission lines and maintenance should be transferred to the state, and the profit motive, by not maintaining the infrastructure properly, be removed. Again, competition in power generation (and storage) is good, competition in transmission is bad.
- tathougies 8y ago
  > We might want competition at the generation point, but the transmission lines should be a monopoly. A perfectly reasonable argument. If a certain market needs to be a monopoly, then it ought to be state controlled, like the FCC's monopoly on air waves. That is the only way to ensure free-market capitalism. The purpose of the market is to create an efficient society. Indeed, it is the best vehicle to do so. However, a market means that there is choice. In the absence of a market, the next best alternative is democratic control, best exercised via government. > We don’t want more transmission lines running in CA, right? Not in the air. Luckily, you can put them under ground. > The last three disasters caused by PG&E, This is willful ignorance. I'd be happy to look over companies that simply had maintenance issues. However, PG&E has proven to not only be negligent, but malicious. They've poisoned people knowingly, without disclosure. They've covered up negligence over the explosions of city blocks. I am not anti-business. Despite its many issues, Southern California edison is a much better company. PG&E though is -- quite obviously -- quite a bit more nefarious than most utilities. > competition in transmission is bad. No it's not. Competition would always be good. Your argument was that competition in transmission was not possible.
- happertiger 8y ago
  No that’s exactly what we want. We want the free market to create efficiency without entrenched regulation, which could lead to some short-term increase in risk. But what you really want is to price in the risk, and the only way to do that is to remove government protections of individual corporations so that the free market can operate. Little companies increasing the risks of fire is a misnomer because competition and a truly free market would crush those companies and eliminate that problem faster than you could think of a solution. It’s only when you entrench a bureaucracy that you end up with problems like PG&E - a company that doesn’t have to deal with real consequences because it’s political connections will protect it. What your describing sounds fantastic and is politically expeditious because there is less risk in backing the prevailing methodology, but it is not improvement. Competition in transmission is good, because alternatives like alternative energy would completely displace these systems and technology advancements would be available and legal - unlike the current insanity. You know how you can’t put in an oversized solar system and sell power back to the grid, even if you can afford to? Did you notice that the grid is super inefficient because it’s got a limited number of highly centralized generation sources? No? Well that’s the consequence of ownership of the transmission lines. If you own the last mile you own the network. And if you also own the politicians who can protect your last mile interests, why would you invest in change?
repiret 8y ago
The insurance business model is not about distributing costs from high risk customers more evenly with low risk customers, but in distributing costs more evenly between unlucky customers and lucky ones [1]. After all, most insurance companies will access the risk of their customers and assign premiums accordingly - your insurance premium is the expected value of payouts, plus overhead, plus profit. Wildfires can destroy large swaths of land, and they are certain to occur every year, but not at every susceptible house. My mother has lived in a house in a high fire risk area of Northern California since the early 1980s, but her particular neighborhood hasn't burnt. Neither has the houses of my father-in-law, grandma-in-law, and two brothers, which are all in similarly high risk areas of Nor-Cal. Likewise, in March, nobody would have predicted that Paradise, CA would all but be destroyed, nor would they have predicted the damage in Santa Rosa the previous March. But we could still have concluded that those areas are at risk. An insurance company can assign a value to your property (in fact, they probably already have), can estimate the probability of loss due to forrest fire, compute the expected value of payouts, add overhead, add profit, and sell you a policy. Damages are correlated on a local level, but not on a statewide level - that there was a fire in Paradise, CA doesn't increase the odds that Quincy or Fort Bragg will experience a fire too this year. With fire damages in the tens billions per year but maybe only millions of insured to spread around the cost, people might not like the resulting premiums, but they can choose to lower their risks (and hence insurance premiums) or roll the dice. [1]: And in managing the large pile of money you need to have on hand in case you end up with more unlucky customers than expected.
jdavis703 8y ago
I live just a couple of miles from the Hayward fault which is "scheduled" to unleash an M7 earthquake any day now. My insurance costs (which includes earthquake and fire) is about $25/month with a $500 deductible. If a $25/month charge is "untenable" I think people have bigger financial problems than affording insurance.
- sxates 8y ago
  I'm in the same area and am paying thousands per year just for basic home owners (no earthquake). Earthquake bids I've seen were thousands more with 15% deductibles (hundreds of thousands of dollars). Who is your insurance provider?
kozikow 8y ago
> Due to the scope of wildfires, fire insurance is untenable. That's why for catastrophe risks like wildfires you have reinsurers talking that risk - e.g. catastrophe reinsurance market in Bermuda.
nradov 8y ago
You have a fundamental misunderstanding of insurance. It doesn't require shifting income from low risk to high risk areas. Rather paying for the risk in each area is spread out over time. It's completely possible to provide sustainable fire insurance by charging customers in each area based on actual risk, and then using reinsurance to spread the risk pool out among multiple insurers. Of course some customers might not like having to pay market rates for fire insurance.

r00fus 8y ago

What about the Federal government for cutting the funding for existing CA fire programs? Funding was cut last year and boom we have back to back years of fires.

tathougies 8y ago
This is a strawman. I do not like the current administration, but attempting to blame everything on them is intellectually lazy. The fires in California are not caused due to bad budget cuts over the past few years, but rather the mistaken environmentalist policy of not allowing controlled burns for the last 100 years and extinguishing natural fires out of needless heroics to save species that are now in ever more need of saving: https://www.theatlantic.com/science/archive/2018/11/california-wildfire-why-humans-cant-control-them/575740/ https://www.theatlantic.com/science/archive/2018/11/californ...
- jeremysalwen 8y ago
  The "10 am" policy, and the opposition to controlled burns are not coming from environmentalists (Just try googling "endagered species fire"... https://www.mass.gov/news/fire-prescribed-for-habitat-management https://www.mass.gov/news/fire-prescribed-for-habitat-manage... ... many endangered species rely on fire, and we have known this for 50 years). It's property owners who are opposed to prescribed burns, because there is a risk of prescribed burns getting out of control. From wikipedia: "In 1978, the Forest Service abandoned the 10:00 am policy in favor of a new policy that encouraged the use of wildland fire by prescription.[1][13] Three events between 1978 and 1988 precipitated a major fire use policy review in 1989: the Ouzel fire in Rocky Mountain National Park, the Yellowstone fires of 1988 in and around Yellowstone National Park, and the Canyon Creek fire in the Bob Marshall Wilderness on the Lewis and Clark National Forest. In all three cases, monitored fires burned until they threatened developed areas." those events caused a backlash against controlled burns, because obviously it's hard to sell the public that some destruction of property now is better than more of it later.

cronix 8y ago

> fire insurance is untenable How do the insurance companies afford to insure places like in Florida and the lower East Coast, which seem to keep getting hammered with hurricanes year after year, getting worse year after year? And... can they keep up this pace? Apparently in 2017, fires "only" cost insurance companies ~$14B, out of ~$132B paid out. The majority was caused by Hurricanes Harvey, Irma, and Maria. 2017 was the 2nd costliest year on record in terms of natural disasters (have to wait for '18 numbers released in Jan). So why is fire insurance untenable while hurricane ins. isn't? https://www.reuters.com/article/us-global-insurance-aon/2017-second-costliest-year-on-record-for-natural-disaster-insured-losses-aon-idUSKBN1FD22Y https://www.reuters.com/article/us-global-insurance-aon/2017...

ip26 8y ago
Flood insurance is provided by the Fed, and heavily subsidized by the taxpayer aka you and I.
tathougies 8y ago
Government subsidy? And, as I said above, wildfire is covered in home insurance policies. However, the argument was about wildfire specific insurance. That is untenable since it would cause large insurance runs every year.

saltedonion 8y ago

Can you explain why wild fire insurance is not tenable? Here in Canada all home insurance include wildfire insurance. All insurers have to do is to pool risk and diversify across geography. No way only California has homes near forests? There’s also reinsurers to pool even more risk.

Mikeb85 8y ago
> All insurers have to do is to pool risk and diversify across geography. Not all insurers are nation-wide.
- PeterisP 8y ago
  Not a problem, that's why the very, very large business of reinsurance exists. You don't have to be nationwide to effectively pool risk and diversify across many industries and nations.
  - Mikeb85 8y ago
    But someone operating solely in places without fire risk could easily undercut the larger insurers, driving rates down in that area. It's good and all to spread out the risk, but it's better not to take on risk. So in the end, those living in risk-factor areas will pay for it one way or another.
tathougies 8y ago
Why would someone in Oregon (where there is abundant water) or Louisiana purchase wildfire (specific) insurance? Home insurance includes wildfires, but let's limit ourselves to wildfire-specific insurance, which was the issue at hand.
- plasticchris 8y ago
  In flood plains you are required to buy insurance, in some parts of the us. It seems reasonable to determine fire risk and require insurance if you are in a 50 year burn zone, though determining that is probably the rub.

bluejekyll 8y ago

> The solution furthermore is to legislate to remove the barriers to competition that California has set up. While I think you’re generally on point, this misses the mark a bit. We don’t want more transmission lines running in CA, right? We don’t want lots of little companies increasing the risk of fire by managing lines independently and the one that’s losing then doesn’t have the means to maintain those lines. We might want competition at the generation point, but the transmission lines should be a monopoly. What needs to be fixed on the transmission is that there should not be a profit in maintaining them, bc the profit comes from lack of maintenance. The last three disasters caused by PG&E, can basically be boiled down to a maintenance problem, or lack of. All the transmission lines and maintenance should be transferred to the state, and the profit motive, by not maintaining the infrastructure properly, be removed. Again, competition in power generation (and storage) is good, competition in transmission is bad.

tathougies 8y ago
> We might want competition at the generation point, but the transmission lines should be a monopoly. A perfectly reasonable argument. If a certain market needs to be a monopoly, then it ought to be state controlled, like the FCC's monopoly on air waves. That is the only way to ensure free-market capitalism. The purpose of the market is to create an efficient society. Indeed, it is the best vehicle to do so. However, a market means that there is choice. In the absence of a market, the next best alternative is democratic control, best exercised via government. > We don’t want more transmission lines running in CA, right? Not in the air. Luckily, you can put them under ground. > The last three disasters caused by PG&E, This is willful ignorance. I'd be happy to look over companies that simply had maintenance issues. However, PG&E has proven to not only be negligent, but malicious. They've poisoned people knowingly, without disclosure. They've covered up negligence over the explosions of city blocks. I am not anti-business. Despite its many issues, Southern California edison is a much better company. PG&E though is -- quite obviously -- quite a bit more nefarious than most utilities. > competition in transmission is bad. No it's not. Competition would always be good. Your argument was that competition in transmission was not possible.
happertiger 8y ago
No that’s exactly what we want. We want the free market to create efficiency without entrenched regulation, which could lead to some short-term increase in risk. But what you really want is to price in the risk, and the only way to do that is to remove government protections of individual corporations so that the free market can operate. Little companies increasing the risks of fire is a misnomer because competition and a truly free market would crush those companies and eliminate that problem faster than you could think of a solution. It’s only when you entrench a bureaucracy that you end up with problems like PG&E - a company that doesn’t have to deal with real consequences because it’s political connections will protect it. What your describing sounds fantastic and is politically expeditious because there is less risk in backing the prevailing methodology, but it is not improvement. Competition in transmission is good, because alternatives like alternative energy would completely displace these systems and technology advancements would be available and legal - unlike the current insanity. You know how you can’t put in an oversized solar system and sell power back to the grid, even if you can afford to? Did you notice that the grid is super inefficient because it’s got a limited number of highly centralized generation sources? No? Well that’s the consequence of ownership of the transmission lines. If you own the last mile you own the network. And if you also own the politicians who can protect your last mile interests, why would you invest in change?

repiret 8y ago

The insurance business model is not about distributing costs from high risk customers more evenly with low risk customers, but in distributing costs more evenly between unlucky customers and lucky ones [1]. After all, most insurance companies will access the risk of their customers and assign premiums accordingly - your insurance premium is the expected value of payouts, plus overhead, plus profit. Wildfires can destroy large swaths of land, and they are certain to occur every year, but not at every susceptible house. My mother has lived in a house in a high fire risk area of Northern California since the early 1980s, but her particular neighborhood hasn't burnt. Neither has the houses of my father-in-law, grandma-in-law, and two brothers, which are all in similarly high risk areas of Nor-Cal. Likewise, in March, nobody would have predicted that Paradise, CA would all but be destroyed, nor would they have predicted the damage in Santa Rosa the previous March. But we could still have concluded that those areas are at risk. An insurance company can assign a value to your property (in fact, they probably already have), can estimate the probability of loss due to forrest fire, compute the expected value of payouts, add overhead, add profit, and sell you a policy. Damages are correlated on a local level, but not on a statewide level - that there was a fire in Paradise, CA doesn't increase the odds that Quincy or Fort Bragg will experience a fire too this year. With fire damages in the tens billions per year but maybe only millions of insured to spread around the cost, people might not like the resulting premiums, but they can choose to lower their risks (and hence insurance premiums) or roll the dice. [1]: And in managing the large pile of money you need to have on hand in case you end up with more unlucky customers than expected.

jdavis703 8y ago

I live just a couple of miles from the Hayward fault which is "scheduled" to unleash an M7 earthquake any day now. My insurance costs (which includes earthquake and fire) is about $25/month with a $500 deductible. If a $25/month charge is "untenable" I think people have bigger financial problems than affording insurance.

sxates 8y ago
I'm in the same area and am paying thousands per year just for basic home owners (no earthquake). Earthquake bids I've seen were thousands more with 15% deductibles (hundreds of thousands of dollars). Who is your insurance provider?

kozikow 8y ago

> Due to the scope of wildfires, fire insurance is untenable. That's why for catastrophe risks like wildfires you have reinsurers talking that risk - e.g. catastrophe reinsurance market in Bermuda.

nradov 8y ago

You have a fundamental misunderstanding of insurance. It doesn't require shifting income from low risk to high risk areas. Rather paying for the risk in each area is spread out over time. It's completely possible to provide sustainable fire insurance by charging customers in each area based on actual risk, and then using reinsurance to spread the risk pool out among multiple insurers. Of course some customers might not like having to pay market rates for fire insurance.