This podcast has an interesting account of why western wildfires have gotten so much worse. In large part, of course, the answer is climate change. But not to be discounted is housing sprawl. https://www.nytimes.com/2020/09/11/podcasts/the-daily/wildfires-california-fire-zones.html

The podcast claims that affordable housing regulations, state incentives, and an insatiable demand for the American dream has pushed towns and housing developments into high-risk areas. This raises interesting insurance questions.

Why would insurers continue to offer homeowners policies when the homes face such a high risk of loss? Or, why wouldn't they price the policies commensurate with the risk of loss?

Turns out, CA prohibited both. Insurers cannot withdraw from the market or charge actuarial prices. Homeowners who can't afford policies can participate in a high-risk pool and insurers have been forced to maintain the same prices and coverages.

Moreover, according to the podcast, advice from insurers about how and where to rebuild have been ignored because of political and social pressure to build fast and cheap has overridden other interests.

Perhaps that is the right policy decision. I am not in a position to judge whether the wildfires are worth the housing gains. Without insurance, affordable housing is not sellable. The state certainly needs more housing options given the price bloat in vast stretches of CA.

But there are several things of note. First, lower risk homeowners and state tax payers are helping keep the insurance affordable. These kinds of cross-subsidies have been decried elsewhere--see e.g., ACA and flood insurance.

What is different here? Is it that the underlying activity (affordable homes) is more valuable? Maybe that is true for flood, but more important than health insurance? I'm not so sure.

These decisions undermine the moral force of libertarian insurance (cc: @adam_shniderman)

Second, the state's policy of forcing insurers to offer coverage and the same prices has stripped the regulatory force of insurers. Academics have long lauded the private regulatory power of insurers.

We've seen some positive force around rebuilding in flood plains. Why wouldn't we take advice from insurers about how to do this safer? Is it because it drives up the cost of housing? Here, it might make sense to do a deeper dive not he cost/benefit of where and how to build.

Insurers might have real insights into those questions. We just have to ask.