Financial Costs of California Wildfires Likely to Keep Soaring

San Miguel County Firefighters battle a brush fire along Japatul Road during the Valley Fire in Jamul, Calif., on Sept. 6, 2020. (Sandy Huffaker/AFP via Getty Images)

Commentary

Lives have been lost, and homes and livelihoods have been destroyed by this year’s devastating wildfires in California.

We will leave to others to argue about forest management and global warming. Whatever the causes of the terrible fires this year, not to mention the fires that destroyed the town of Paradise in 2018 and badly damaged Santa Rosa in 2017, we do know that there is a very high emotional and financial cost to these fires.

Premiums are paid to insurance companies so that the insurers have money to dispense if covered dwellings or other properties are damaged by fire. In 2019, insurance companies wrote $1.16 billion in insurance premiums to protect California dwellings from fire, according to California’s insurance commissioner. That’s an increase of more than 21 percent from the estimated $957 million and a jump of 26 percent from 2017, when written premiums were $918 million.

Meanwhile, perhaps sensing the risk when the drought was so extreme, the number of insurance policies to protect dwelling owners from loss caused by fire jumped in 2016 by 15.6 percent to surpass 2 million policies for the first time. The number of policies, which has grown steadily since 2015, has remained above 2 million since 2016.

In addition to the $1.16 billion that insurance policy holders committed to pay in premiums in 2019, California’s nonpartisan Legislative Accounting Office reported in February:

“In the current year, the state has budgeted about $2.5 billion for wildfire prevention and response activities for CalFire. CalFire’s budget includes funding for forest health and fire prevention projects (such as constructing fire breaks). The current level of funding for these purposes is $364 million, which reflects limited-term augmentations made in the last couple of years. (CalFire’s budget typically has included about $100 million annually for these purposes.)”

Given the terrible wildfire destruction that’s occurred this year, total premiums can be expected to go up, along with political pressure to boost spending on fire prevention and suppression.

Californians were already spending about $3.7 billion just on CalFire funding and insurance premiums before the awful destruction of this past season.

As an economist, it’s easy to see that that price tag will almost certainly go up next year.

Tim Shaler is a professional investor and economist based in Southern California. He is a regular columnist for The Epoch Times, where he exclusively provides some of his original economic analysis.