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California Insurance Commissioner on wildfire devastation: 'We need to bring some parity for the consumer'

California Insurance Commissioner Ricardo Lara joins Yahoo Finance’s Akiko Fujita to discuss the extent of the damage from the California wildfires.

Video Transcript

AKIKO FUJITA: Wildfires in California have burned more than 3 million acres so far this year, killing 26 people and destroying nearly 7,200 buildings, according to the latest numbers from the state. That is an area that is larger than the state of Connecticut, so that gives you some context there. And there are real concerns here about the impact this is likely to have on the insurance industry there.

Let's bring in California Insurance Commissioner Ricardo Lara, joining us from LA today. Commissioner Lara, it's always good to talk to you. Let's talk about what's at play here right now. You've got nearly 8,000 wildfires in the state. At least, that's the number out from Cal Fire. How does the damage you're seeing right now compare to some of the worst years in the state, 2017 or 2018?

RICARDO LARA: Right. Well, thank you, Akiko. No doubt the seven largest fires in California's history have happened since 2017. With increasing wildfire activity, you know, insurance companies have increased rates substantially over the past few years. You know, this is, unfortunately, the new reality for California, as we try to move forward from these devastating fires that we've never seen before.

AKIKO FUJITA: Is there any estimate that you can give us, any number you can put on the damage total or the extent of the damage you're likely to see coming out of this?

RICARDO LARA: You know, we're still in the emergency and recovery phase, so we don't have clear numbers in terms of the devastation, property damage and things of that nature, because we're, quite frankly, still dealing with these ravaging fires. And so, you know, we're taking it day by day. Right now, the most important thing is keeping Californians safe. And once we have a handle on these fires, we'll be able to determine, you know, those statistics that you need and are asking for. But currently right now, we're still just in the recovery and the emergency and recovery phase of these devastating wildfires.

AKIKO FUJITA: This has unfortunately become an annual occurrence over in California, and last year you imposed a moratorium that prevented insurance companies from canceling coverage for those homeowners. That was, I believe, back in December of last year. You're now looking potentially a year in. What's the plan right now moving forward, in terms of renewing that and addressing the concerns about cancellations on insurance?

RICARDO LARA: Absolutely. Well right now, currently under that law, we have close to a million policies that are being protected. We hope that, by now, these homeowners have done the right thing by mitigating their properties, by creating that defensible space, [INAUDIBLE] their homes, and bringing down that risk that is necessary to keep these insurance companies still writing in these communities.

You know, we're going to determine once, again, the fire has subsided to see that parameter and see where we're going to be able to extract those zip codes that are going to be protected for the following year to address these current fires. And so again, we have to get to a point where we're talking about mitigation, bringing down the risk, rebuilding more resilient, and giving incentives to Californians to be able to harden their home.

You know, as we've seen, this is impacting low-income Californians, it's impacting people of color and folks who don't have the money and wherewithal to be able to, you know, rebuild in a way that's more resilient, and to be able to incentivize them to continue to harden their home. Unfortunately, right now, if you invest thousands of dollars to harden your home, you're still being dropped from your insurance company. So we need to bring some parity for the consumer as we continue to discuss a way out of this awful situation we find ourselves in.

AKIKO FUJITA: To that point, when you look at the scale of the fires that you're seeing, it does feel like there needs to be a more permanent change in terms of how these insurance policies go moving forward, instead of looking at year to year. I know you've got some hearings coming up in the next month or so about the availability of insurance and affordability.

What specific measures are you considering right now, not just to protect homeowners, but really to address the concerns that insurance companies have made about those claims piling up? I mean, if you look at where the insurance companies are right now, you have to wonder, what is the case for staying in the state if these damages are going to continue to pile up and the fires are going to get worse year from year?

RICARDO LARA: Well first, Akiko, it's important to recognize that insurance companies have very diversified holdings. And so, you know, they're doing well in these other areas. And so the likelihood of us seeing insurance companies pulling out of California, I don't see it in the foreseeable future. What we do have to address is in the homeowner's policies, specifically for those Californians that are living in the WUI, in the wild and urban interface, is how do we bring the risk down for the entire community. Not moving away from the per-parcel recommendations, but looking at how do we establish statewide community standards to lessen that risk.

And that is what the hearing is going to look for, looking at how do we create statewide mitigation standards at a community level, look at some transparency when it comes to these fire risk scores so that consumers understand why they have that score, how can they mitigate that score, and how could they appeal that score, again bringing down that overall risk. Additionally, we want to look at rates and rate settings, and look at are the rates that the insurance companies sending the department for approval adequate to maintain a strong market moving forward.

AKIKO FUJITA: And finally, Commissioner, we've got the UN Climate Week playing out here in New York, or really internationally this week. You have been working very closely not just with the mayors of other cities, but the leaders of other countries to look at the impacts of the insurance industry from climate change. I mean, year on year, how does that conversation shift? It feels like, at least those of us looking from the outside in, that things are getting worse. What are the conversations you're having right now outside of the US, with other leaders, in terms of what needs to be done, particularly as it relates to the sector and climate change?

RICARDO LARA: Absolutely. We're seeing our European counterparts in the insurance industry really taking a lead role when it comes to looking at how do we protect our natural infrastructure, how do we address incentives to rebuilding much more resilient, how do we look at financial disclosures within the industry, and how do we remove that ongoing risk of fossil fuels. And so in California and in the United States, we have to get to a point where we get closer to our European counterparts.

I'm proud to say that the National Association of Insurance Commissioners now have created an executive-level task force on climate and resiliency, where I chair-- I'm the co-chair, along with the insurance commissioner from South Carolina. Two states that couldn't be further politically apart now are working together, along with the national association, to really figure out what are some key strategies that we need to address here domestically to catch up not only to our European counterparts, but also engage the insurance industry in the United States to be part of the solution.

We cannot do this alone. We need them at the table as we continue to address not only wildfires, we address extreme heat, sea level rise, you know, a whole host of other issues that-- hurricanes-- that we're experiencing throughout the country that are going to eventually impact the overall insurance market across the country.