[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
STATE OF EMERGENCY: EXAMINING
THE IMPACT OF GROWING WILDFIRE
RISK ON THE INSURANCE MARKET
=======================================================================
HYBRID HEARING
BEFORE THE
SUBCOMMITTEE ON HOUSING,
COMMUNITY DEVELOPMENT,
AND INSURANCE
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 22, 2022
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-101
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
49-481 PDF WASHINGTON : 2022
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
RITCHIE TORRES, New York BRYAN STEIL, Wisconsin
STEPHEN F. LYNCH, Massachusetts LANCE GOODEN, Texas
ALMA ADAMS, North Carolina WILLIAM TIMMONS, South Carolina
RASHIDA TLAIB, Michigan VAN TAYLOR, Texas
MADELEINE DEAN, Pennsylvania PETE SESSIONS, Texas
ALEXANDRIA OCASIO-CORTEZ, New York RALPH NORMAN, South Carolina
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
Subcommittee on Housing, Community
Development, and Insurance
EMANUEL CLEAVER, Missouri, Chairman
NYDIA M. VELAZQUEZ, New York FRENCH HILL, Arkansas, Ranking
BRAD SHERMAN, California Member
JOYCE BEATTY, Ohio BILL POSEY, Florida
AL GREEN, Texas BILL HUIZENGA, Michigan
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York TREY HOLLINGSWORTH, Indiana
JUAN VARGAS, California JOHN ROSE, Tennessee
AL LAWSON, Florida BRYAN STEIL, Wisconsin, Vice
CINDY AXNE, Iowa, Vice Chair Ranking Member
RITCHIE TORRES, New York LANCE GOODEN, Texas
VAN TAYLOR, Texas
C O N T E N T S
----------
Page
Hearing held on:
September 22, 2022........................................... 1
Appendix:
September 22, 2022........................................... 23
WITNESSES
Thursday, September 22, 2022
Auer, Matthew R., Dean, School of Public and International
Affairs, University of Georgia................................. 4
Bach, Amy R., Co-Founder and Executive Director, United
Policyholders.................................................. 5
Frazier, Rex, President, Personal Insurance Federation of
California..................................................... 10
Lara, Ricardo, California Insurance Commissioner................. 7
Wright, Roy E., President & CEO, the Insurance Institute for
Business & Home Safety (IBHS).................................. 9
APPENDIX
Prepared statements:
Auer, Matthew R.............................................. 24
Bach, Amy R.................................................. 41
Frazier, Rex,................................................ 44
Lara, Ricardo................................................ 47
Wright, Roy E................................................ 55
Additional Material Submitted for the Record
Cleaver, Hon. Emanuel:
Written statement of the American Property Casualty Insurance
Association (APCIA)........................................ 63
Hill, Hon. French:
``California's Ban on Climate-Informed Models for Wildfire
Insurance Premiums'', by Rex Frazier....................... 82
Written statement of the SmarterSafer coalition.............. 96
Steil, Hon. Bryan:
Letter from Allstate, dated September 27, 2022............... 100
STATE OF EMERGENCY: EXAMINING
THE IMPACT OF GROWING WILDFIRE
RISK ON THE INSURANCE MARKET
----------
Thursday, September 22, 2022
U.S. House of Representatives,
Subcommittee on Housing,
Community Development,
and Insurance,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:07 a.m., in
room 2128, Rayburn House Office Building, Hon. Emanuel Cleaver
[chairman of the subcommittee] presiding.
Members present: Representatives Cleaver, Green; Hill,
Posey, Huizenga, and Rose.
Ex officio present: Representative Waters.
Chairman Cleaver. The Subcommittee on Housing, Community
Development, and Insurance will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. We may have to do that
because votes are expected shortly.
Also, without objection, members of the full Financial
Services Committee who are not members of this subcommittee are
authorized to participate in today's hearing.
Today's hearing is entitled, ``State of Emergency:
Examining the Impact of Growing Wildfire Risk on the Insurance
Market.''
I now recognize myself for 4 minutes for an opening
statement.
The National Interagency Fire Center indicates that five
large new fires were reported: one in Kansas, next door to my
State of Missouri; one in Montana; one in Oklahoma; one in
Texas; and one in Washington. Currently, 97 active large fires
and complexes across the country have already burned more than
900,000 acres in 8 States. In response, more than 11,000
wildland firefighter and supportive personnel are assigned to
respond to these wildfire incidents across the country.
Americans today are fighting to save their family's homes,
businesses, and communities from fire. And make no mistake, the
threat of wildfire is growing. Between 1980 and 2022, 20
wildfire billion-dollar disaster events affected the United
States. Sixteen of these incidents occurred in 2000. Most
recently, the 2021 Dixie Fire consumed over 960,000 acres,
making it the second-largest wildfire on record in California,
while also destroying more than 1,000 structures. In Colorado,
the December 2021 Marshall Fire in Boulder County was the most
destructive on record in the State's history.
We find ourselves in what some are calling an era of the
megafire, extraordinary fires in terms of size, in terms of
intensity, and in terms of cost to taxpayers and private
industry. These megafires set aflame everyone and everything in
their path, but they still disproportionately destroy low-
income neighborhoods, and they put in jeopardy low-income
families and communities who have the least resources to
prepare and respond to them.
We as a nation have and always will have to manage wildfire
risk. Unfortunately, due to climate change, scientists predict
more megafires in our future. The central question for this
hearing is, how do we coexist with wildfire risk? How do we as
a country adapt and become more resilient to the growing
wildfire threat? And wherever possible, how do we reduce or
avoid risk altogether?
And the insurance industry is a piece of this equation. For
decades, the insurance sector has continued to underwrite
industries and practices that exacerbate climate change and
increase exposure levels for their own investment. That is a
problem. But the insurance industry is also a part of the
solution. Insurers have a plethora of data that can help public
and private stakeholders better understand the climate-related
risk and can be used in climate-specific stress testing.
In my nearly 20 years in Congress, I have seen these issues
with flood insurance and other climate-related perils. My fear
is that the wildfire crisis becomes a systemic issue, one where
the temporary solutions put forward by State regulators
collapse under increased risk. Insurance is primarily a State
issue, and States across this nation are grappling with the
growing wildfire risk.
During this hearing, we want to know how regulators in the
insurance sector are managing this risk in the short term, and
if the long-term solutions proposed are viable solutions. And
we want to know what the insurers are doing to make sure that
American families and communities can recover once disaster
strikes. So, I look forward to this hearing and the
recommendations.
I now recognize the ranking member of the subcommittee, Mr.
Hill, for 5 minutes for an opening statement.
Mr. Hill. Thank you, Mr. Chairman. I appreciate the chance
to be with you today, as always, and I am very interested in
this topic. It may be the first time the Financial Services
Committee has ever held a hearing on the threat of wildfires
and the role of insurance since this committee formally became
the Committee on Financial Services in the 106th Congress.
Wildfires are, of course, a real challenge and a severe
problem, particularly in some regions of the country, and it's
certainly worth the time for us to explore and discuss what we
are doing right and what we are doing wrong in various aspects
of public policy in order for our citizens to better prepare
for coping with and dealing with this devastating risk.
Statistics show that over the last 20 years, an average of
about 7 million acres per year across the country have been
burned by wildfires. Over the decades, that varies with
rainfall, obviously. For example, in Arkansas, after the past 9
years of being extremely wet, we are having our first dry year.
And, in fact, if you look at that rainfall, for those concerned
about and aware of climate change, rainfall is actually
increasing all over the country. We have record rainfall now
compared to the period of 1958-1998 in my home State.
An estimated 4.5 million properties are at high or extreme
risk from wildfires, and nearly half of those, over 2 million,
are in the State of California, which has 3 times as many as
the second-most risky State, Texas.
The Chair said that States bear the brunt, and State policy
bears the responsibility for insurance, and California in many
ways, in my view, represents the absolute worst of the problem.
The local market for insurance, which we will get into later,
is not impressive. And wildfires are by no means just
concentrated out West.
As my colleague from our Arkansas delegation, Bruce
Westerman, who is the ranking member on the House Committee on
Natural Resources and the only licensed forester in Congress,
has said, we have quite literally loved our trees to death
through mismanagement, which has led to insect infestation,
overstocked stands, and dead and decaying trees. And this is a
particular crisis in the Rocky Mountains and the coastal West.
The solution is not unsurprising: the adoption of sound
forest management policies. Plus, in addition to that, better
land management, public land management, better local land use
decisions, and responsible development would all predictably
reduce risk.
But prevention is only half of the battle, and that is why
we are here today. We also need to make sure that we are making
smart financial decisions so that individuals and businesses
across the country can access and have the affordable insurance
they need to protect their property. Insurance is just a tool
and one that works only when the fundamental principles of risk
pricing and competitive enterprise are followed.
In the most basic terms, you want lower rates? How about
creating an environment of lower risk. And as we have witnessed
in energy and water policy, forest management practices, and
now in insurance, California is no place to emulate, and, in
fact, is a cautionary tale of what not to do.
Instead of allowing premiums to correspond to risk,
California has layered on price controls, on top of mandatory
coverage, on top of automatic renewals. All of that means that
it is losing money and it doesn't add up. And who is hurt?
People who are insured.
For a State that claims to be a bold leader on climate
change, its regulations literally prevent insurers and
policyholders from taking the future risks of rising
temperatures into account. And, in fact, too many homeowners
are left in the lurch, needing coverage that isn't available in
amounts or at prices they want. And outside insurers know
better than to invest in California, a market built on unfair
rules. That is a painful and costly exercise and one that we
will explore today.
But, Mr. Chairman, better insurance markets occur when you
send smart pricing signals to poorly-considered municipal and
county zoning land use and development practices, which is no
doubt a big part of why insured losses in California are larger
than they should be.
I thank my friend, and I yield back.
Chairman Cleaver. The gentleman yields back.
Witnesses who are here today, we welcome you; and those of
you who are with us virtually, we appreciate you giving us your
time today.
Our witnesses are: Matthew Auer, the dean of the School of
Public and International Affairs at the SCC, School of Georgia;
Amy Bach, the executive director of United Policyholders;
Ricardo Lara, the California Insurance Commissioner; Roy
Wright, the president and CEO of the Insurance Institute for
Business & Home Safety; and Rex Frazier, the president of the
Personal Insurance Federation of California.
Witnesses are reminded that their oral testimony will be
limited to 5 minutes. You should be able to see a timer that
will indicate how much time you have left. I would ask that you
be mindful of the timer so that we can be respectful of both
the witnesses' and the committee members' time.
And without objection, your written statements will be made
a part of the record.
We are probably going to have some little technical issues
because many of you are not going to be able to see the timer.
So I will, unfortunately, have to tap on the desk so that you
will be given a caution that the time is almost out.
Mr. Auer, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF MATTHEW R. AUER, DEAN OF THE SCHOOL OF PUBLIC AND
INTERNATIONAL AFFAIRS, UNIVERSITY OF GEORGIA
Mr. Auer. Good morning, Chairman Cleaver, Ranking Member
Hill, and members of the subcommittee. I am Matthew Auer, dean
of the School of Public and International Affairs at the
University of Georgia's School of Public and International
Affairs.
I began a career in forestry and environmental policy in
the 1990s. Back then, policy experts predicted that climate
change would challenge how insurance companies typically model
and price risk when they underwrite insurance policies. Ample,
reliable data tell us now that climate change, including
increased heat, extended drought, and lower humidity in Western
States is a major driver of wildfires. As predicted, these
environmental changes are playing havoc with insurance markets,
and this affects everyday policyholders, including lower-income
homeowners.
Graduate student Benjamin Hexamer and I wanted to gain a
clearer sense of which homeowners are at particular risk in the
most wildfire-prone States. We found that 60 percent of
counties with moderate to high wildfire risk in the most
wildfire-prone States also have a poverty rate exceeding the
national poverty rate. Hence, the majority of homes in the most
at-risk counties in Western States and in Florida are in areas
with comparatively higher poverty rates.
Increasingly, insurance companies, as well as State and
local authorities, require homeowners to adopt fire safety
measures. For some homeowners, this is a condition for a new
policy rule for renewal of coverage. This can pose hardships
for lower-income homeowners. If an insurance company were to
require a policyholder to implement wildfire safety measures
including, for example, removal of branches or of whole trees
overhanging a roof, those costs can add up. Consider that a
premium for $250,000 worth of dwelling coverage in New Mexico
is around $1,900, which represents over 6 percent of median
household income in a county like Mora, County, New Mexico.
Mora was one of the counties hit by this year's Hermits Peak
and Calf Canyon fire, the largest wildfire ever recorded in New
Mexico.
Federal assistance will continue to loom large for the most
at-risk communities. Consider that the State of California is
currently distributing FEMA funds in a pilot project called the
California Wildfire Mitigation Program. Communities selected
for assistance have higher concentrations of people over the
age of 65, residents with disabilities, people living in
poverty, and populations with limited English proficiency or a
lack of access to a car.
This is a cost-share program. FEMA pays up to 75 percent of
the cost for eligible mitigation projects. The State has made a
25-percent match at the local level. In some parts of the
country, the match is not always possible. And communities,
including Tribal communities, frequently lack adequate staffing
to implement the grant. These problems could be alleviated by
more consultation between FEMA and States about which
communities to serve and the provision of adequate funds to
ensure staff hiring and training.
FEMA-supported programs like the California Wildfire
Mitigation Program, and Safer from Wildfires, an initiative
spearheaded by California's Insurance Commissioner Ricardo
Lara, are designed not only to directly help homeowners make
their homes safer, but also to inspire insurance companies to
reenter the market. These programs could shift the insurance
industry's thinking, transforming risk into opportunity.
Nevertheless, even as insurance and reinsurance companies
become more proficient at estimating risk, the advantages will
be less profound for lower-income homeowners and renters,
particularly if better risk forecasting means higher premiums
and lower coverage limits.
When it comes to protecting the most-vulnerable communities
in harm's way, present and future funds authorized by Congress
are essential. Indeed, Congress has made programs like the
California Wildfire Mitigation Program possible. All of the
relevant trends indicate that today's pilot programs to harden
homes and create defensible space, supported by Federal
agencies, will need to evolve into longer-term sustained
programs that help underserved communities with fire safety
measures in local States.
I wish to thank the committee for their attention to this
important matter, and for inviting me to today's hearing.
[The prepared statement of Mr. Auer can be found on page 24
of the appendix.]
Chairman Cleaver. Thank you very much.
Ms. Bach, you are now recognized for 5 minutes to give us
an oral presentation of your testimony.
STATEMENT OF AMY R. BACH, CO-FOUNDER AND EXECUTIVE DIRECTOR,
UNITED POLICYHOLDERS
Ms. Bach. Good morning, Chairman Cleaver, Ranking Member
Hill, and subcommittee members. Thank you so much for the
opportunity to address the subcommittee on a matter of national
importance.
I represent an organization, a 501(c)(3) based in
California that informs and helps consumers throughout the
country. For over 30 years, we have been working to make the
insurance system work for the consumers who pay premiums and
deserve fair treatment and the financial safety nets for which
they have paid. We have extensive experience with wildfires and
insurance markets in California, New Mexico, Texas, Washington,
Oregon, Colorado, and Arizona.
And you have the right people in the room here. My
organization has been working very closely with four of the
witnesses here. Rex Frazier has been speaking on behalf of the
insurance industry's perspective on these issues for many
years. And then, of course, Ricardo Lara is a very strong
leader and a very, very good partner, as is Roy Wright and his
organization with the research and the work they are doing. So,
we have all locked arms to really tackle the situation that is
before us today.
In recent years, my organization has had to shift our focus
in wildfire-prone areas from educating consumers about not just
shopping for the cheapest policy, but actually buying the
coverage that is going to really be there for them. We had to
shift from that to helping people find any option. And in many
counties throughout California, and increasingly in Colorado
and also Oregon and Washington, consumers are now having no
choices, no options for insuring their homes and small
businesses other than limited and expensive protection through
the California FAIR Plan or residual markets in those other
States.
And just as insurers have dramatically reduced the number
of homes they are willing to voluntarily cover in California,
private market options in these other States appear to be
shrinking. But with our hardworking partners, the Commissioners
of both California and Colorado, we are doing everything we can
to fix the situation. As Professor Auer noted, this is a long-
range game here, not for the short term.
Through a Wildfire Risk Reduction and Asset Protection
workstream, we have for the last 2 years been having monthly
meetings with people from all over the country and the States
who are working in this space to promote home hardening,
defensible space, and community-based programs to help people
limb trees, change out their roofs, take away fire hazards
around their homes, et cetera. And we are making a lot of
progress.
This year, we saw very significant progress with--the
Insurance Institute for Business & Home Safety (IBHS) is
putting out their standard of Safer from Wildfires, an
initiative putting out their standards. And now, we are all on
the same page to address what Rex had flagged years ago, which
is a skepticism on the insurance industry's part that you can
actually move the needle. But we can move the needle. We can
reduce wildfire risk, and we are doing it. There is a lot of
really good work going on.
My written testimony goes into the details of how this all
came about, and it does relate to a combination of unfortunate
circumstances. It is not just one thing, which is why we need
not just one solution, right? It did start somewhat with the
tree mortality crisis. But again, when you look at how
insurance companies make decisions, and you look at what has
happened in Florida, it is really--I understand concerns about
regulation, but it is really not that.
If you ask people in California if they think there are
price controls in place, they will say, ``What are you talking
about? I am getting hit with $9,000-a-year premium notices.''
So, it is really more. It is deeper.
Insurance companies are highly-sophisticated professional
gamblers. They will take risks in return for money, but only to
a degree. Obviously, climate change has caused a lot of
concern, and that concern is being exacerbated by all of the
tools that insurers are now using, including risk scoring tools
and analytics.
And just in conclusion, what do we want to see here? More
funding and technical assistance for home hardening and
defensible space. We need insurers to reward and incentivize
risk reduction through renewal rewards and discounts to those
who have reduced risk. We need strengthened, well-run insurers
of last resort. We need assistance to residual market property
insurance programs similar to what the Florida Hurricane
Catastrophe Fund is doing in Florida to try to restabilize that
market.
I thank you so much for your time and attention. And I will
conclude now.
[The prepared statement of Ms. Bach can be found on page 41
of the appendix.]
Chairman Cleaver. We thank you very much for your
testimony, Ms. Bach.
Commissioner Lara, you are now recognized for 5 minutes to
give an oral presentation of your testimony.
STATEMENT OF RICARDO LARA, CALIFORNIA INSURANCE COMMISSIONER
Mr. Lara. Thank you.
Good morning, Subcommittee Chairman Cleaver, Ranking Member
Hill, and esteemed members of the subcommittee, and thank you
for having me virtually speak to you all today. I also want to
personally thank Full Committee Chairwoman Waters for her
invitation for me to be part of this hearing and for the
overall attention given to this important issue of insurance
availability/reliability due to continued, climate-intensified
wildfires.
As the elected insurance commissioner of the nation's
largest insurance market, I have taken significant steps to
safeguard the availability of insurance for consumers and to
maintain a competitive insurance market, granted by the
California voters in passing Proposition 103 back in 1988.
Proposition 103 allows for insurance companies to request rates
that are adequate to pay future claims, again, while giving me,
as the insurance commissioner, the authority to protect
consumers from excessive or unfairly-discriminatory rates.
In December of 2019, I implemented a moratorium law that I
proudly authored while I served in the California State Senate,
which protects wildfire survivors by preventing insurance
companies from nonrenewing policies for those living adjacent
to a declared wildfire emergency for a total of 1 year,
recognizing that it is absolutely critical to give consumers
some breathing room after a wildfire disaster. Even if they
don't lose their home, they might have lost a neighbor, a
friend, or a loved one. And my action also gives insurance
companies a chance to assess so that they are not so quick to
drop their longtime customers. To date, since 2019, I have
protected more than 4 million residential policies from
nonrenewal by their insurance company.
For years, California and other like-minded States have
warned repeatedly to prepare for the impact that climate change
is having on risk and our ability to prepare for it. At the
National Association of Insurance Commissioners (NAIC), I co-
Chair its Climate and Resiliency Task Force with my fellow
insurance regulator from Florida. Wildfires, wildfire smoke,
flooding, and heat waves do not respect State borders, so we
have to work together as State-based regulators of insurance
through the NAIC.
I am also proud to be creating an historic sustainable
insurance roadmap with the United Nations' Principles for
Sustainable Insurance initiative, which will outline key
actions that regulators and insurance companies need to take to
protect consumers, and to create a more sustainable insurance
market in a time of intensified climate risks. Otherwise,
insurance companies that threaten to withdraw from wildfire
risk regions of California or any State defy the central
purpose for insurance: to incentivize home hardening behaviors
that will reduce the risk at the end.
That is why I created the first-in-the-nation insurance
pricing regulation after 3 years of stakeholder engagement, and
in partnership with California's emergency preparedness
agencies, which would require all insurance companies to
recognize and reward wildfire mitigation efforts made by
homeowners and businesses, such as upgraded roofs and windows,
defensible space, and living in Firewise communities.
Transparency is another important benefit of my regulation,
requiring insurance companies to provide consumers with their
property's risk score and to give them a right to appeal that
score. I have also advocated for increased State budget funding
to help residents and businesses pay for mitigation efforts
necessary for them to retain their insurance coverage.
I believe funding for pre-disaster mitigation for local
communities is critical, and I commend Congress for passing the
Inflation Reduction Act earlier this year, which includes
critical funding for hazardous fuel reduction and community
resilience and risk mitigation projects. Every dollar of
premitigation saves $5 to $7 in avoided future insurance loss,
helping make insurance more available and affordable.
And I know you are all familiar with the residential,
``insurer of last resort'' market, known as the FAIR Plan in
California, which will cover you if no insurance company will.
Because of an increase of nonrenewals in the Wildland Urban
Interface, I have worked to modernize the FAIR Plan by ordering
it to provide consumers with increased homeowner and commercial
policy coverage limits, as well as offer more comprehensive
property coverage options, again, to protect what is, for most
of us, is our largest financial safeguard: our homes.
I am committed to continue to look at how we give insurance
companies tools to better manage risk so that we can maintain
competition. However, there must be a firm commitment from the
voluntary insurance market to provide and maintain insurance,
especially to our most vulnerable. As you know, many rural
residents in our States are retirees and on fixed incomes,
working people, and those pushed out of the urban core.
Again, Mother Nature is the best advocate we have on
climate change as well as the wildfires. I look forward to
having this discussion with you. Thank you again for the
opportunity to testify, and I would love to answer your
questions when it is appropriate.
[The prepared statement of Mr. Lara can be found on page 47
of the appendix.]
Chairman Cleaver. Thank you very much, Mr. Lara.
Mr. Wright, you are now recognized for 5 minutes to give an
oral presentation of your testimony.
STATEMENT OF ROY E. WRIGHT, PRESIDENT & CEO, THE INSURANCE
INSTITUTE FOR BUSINESS & HOME SAFETY (IBHS)
Mr. Wright. Good morning, Chairman Cleaver, Ranking Member
Hill, and members of the subcommittee. I do appreciate the
opportunity to join you today.
Wildfires have always been part of the American landscape.
Yet, the intensity and frequency of wildfires barging into the
lives of our families--well, there is more of that coming. I
work at the Insurance Institute for Business & Home Safety
(IBHS), which squarely focuses on the collision of wildfire in
the built environment when wildfire attacks and consumes our
homes and communities.
The compelling videos of flames on the nightly news are
usually the first wildfire images that come to mind. Yet, most
buildings ignite because they are attacked by flying embers,
some of which might be as small as the spark you see when you
are roasting a marshmallow. Many are the size of your thumb,
and it is common to see ones the size of the palm of your hand.
Yet, those embers don't just spray forward a few feet. We
regularly see embers lofting for a half mile or more, landing,
smoldering, and igniting fires.
Wildfire disasters play out differently than floods or wind
disasters. Unique to wildfire, the buildings that are hit by
embers and ignite become part of the fuel. Instead of
dissipating the way you think of flood waters, once a home
ignites, that home becomes an amplifier of the disaster. The
inflamed home becomes more fuel that further intensifies the
damage across the community.
Work on forest management and ignition sources is critical,
but we cannot eradicate wildfires from across our landscape. We
need to narrow their path of destruction within our
communities.
IBHS has pulled the scientific pieces together for home
wildfire resilience. The Wildfire Prepared Home needs to
address three fundamentals: first, the roof; then, building
features like vents; and defensible space. And once all of
those are finished--and collectively, it is all three of those
pieces--then you turn to additional measures like fencing,
noncombustible siding and closed eaves, deck materials,
windows, and sheds. The most transformational piece amid all of
this defensible space.
We discuss defensible space in bands: the first 5 feet; 5
to 30 feet; and 30 to 100 feet. In a suburban context, the 0 to
5, and 5 to 30-foot, are the game changers. Consumers need to
embrace a new view of home landscaping: nothing flammable
within 5 feet of your structures. No bushes or trees, no
plastic bins or cans, no wooden gates. We can make this
aesthetically attractive, yet all homeowners who are within the
reach of those flying embers need to reimagine the 5 feet
closest to their home. Nothing in that space can burn. Nothing
in that space can be hospitable to the wildfire embers that can
land, smolder, and ignite.
While we can start at the parcel level of an individual
home, wildfire risk requires us to take action at the community
scale too. Only when entire neighborhoods take these resilient
actions through collective action and stronger codes we will be
able to truly bend down the risk of wildfire conflagration,
those really catastrophic days when entire neighborhoods fall
like dominoes.
At the point of new construction, these wildfire mitigation
techniques require as little at $3,000. But retrofitting a home
can be harder. The cost of rescaping closest to your home
varies. Some have little work to do and others have significant
changes to make. And the emotional attachment to the look of
your home, well, we can all imagine that.
It is not just IBHS. Others, like the California Department
of Insurance, consumer groups, the insurance industry, and the
fire services are using the same wildfire science in their
work. Speaking with a common voice will affect far more change.
None of this is free. We can't in one breath say the
climate is changing and making wildfires worse, and in the next
breath say, I want the cost of building and insurance to be
cheaper. The changing climate has a cost. For those who can
afford to take those actions themselves, we need to nudge them
to do so. Others on the panel will speak to the insurance
pricing of the risk. However, the cost of mitigating for
wildfire cannot be viewed solely through the lens of insurance
premiums. Like energy efficiency tax credits, we need to see
financial nudges to homeowners and drive them to fund their own
retrofits.
And when homeowners cannot afford to take the retrofit
action themselves, Federal and State grants need to be targeted
to help them close the gap. First among those actions: help
homeowners change the landscaping closest to their homes to
ensure there is not a hospitable area for embers to take hold
and ignite.
Thank you, Mr. Chairman. I look forward to your questions.
[The prepared statement of Mr. Wright can be found on page
55 of the appendix.]
Chairman Cleaver. Thank you very much, Mr. Wright.
Mr. Frazier, you are now recognized for 5 minutes to give
an oral presentation of your testimony.
STATEMENT OF REX FRAZIER, PRESIDENT, PERSONAL INSURANCE
FEDERATION OF CALIFORNIA
Mr. Frazier. Good morning, Chairman Cleaver, Ranking Member
Hill, and members of the subcommittee. My name is Rex Frazier.
I am the president of the Personal Insurance Federation of
California, an association of insurers that provides over 60
percent of the homeowners insurance coverage in California.
Thank you for the opportunity to testify today.
Much has changed since 2017, when California experienced
over 250 wildfires. That year, there were devastating fires,
including the Tubbs Fire, which killed 22 people, destroyed 5
percent of the City of Santa Rosa's housing stock, and resulted
in over $11 billion in insured losses. For 2017 and 2018,
insurers made claims payments totaling more than the previous
22 years of underwriting profit.
We now have a better understanding of how climate change
operates in California. Peak fire season is no longer a
predictable part of autumn. Delayed onset of seasonal rains,
possibly as late as December, is resulting in longer periods of
dry conditions that overlap with the annual Santa Ana,
Sundowner, and Diablo wind patterns, which can turn small fires
into major disasters. Instead of having a month of this dry,
windy overlap, we can now face 2 or more months.
The insolvency of the Merced Property Casualty Company
following the Paradise Fire in 2018, has especially driven home
the seriousness of the situation.
On the positive side, and with only one exception, all
major home insurers active in the California marketplace prior
to 2017 remain in the market today. They have worked with
Commissioner Lara and the staff at the Department of Insurance
on the difficult balancing act of ensuring financial stability
while seeking insurance availability and affordability.
Our member companies believe wildfire risk in California is
insurable if rates are adequate to match the growing risk. Even
when the regular market experiences problems, insurers provide
a residual market for all homeowners seeking coverage, called
the California FAIR Plan, which involves no government funding.
But much work remains. The first step is to develop
standards for insurers to recognize the benefits of home
hardening and defensible space. Of critical importance is the
research of the Insurance Institute for Business & Home Safety
(IBHS). Its Wildfire Prepared Home designation program holds
great promise for helping insurers provide better price signals
regarding mitigation. This work is timely because the
California Department of Insurance recently issued regulations
for how insurers must communicate with customers about
available mitigation discounts. Insurers will be submitting new
filings with the Department soon.
The next step is to advance the science of community-level
mitigation. While home hardening and defensible space is
important, many wildfires will only be stopped by efforts
beyond the individual parcel. So much of wildfire risk relates
to bigger considerations, such as the amount of surrounding
brush or trees, whether a community is located near slopes,
canyons, or wind tunnels, and the amount of access for
firefighters to confront a fire. IBHS is researching these
dynamics currently, and insurers look forward to studying and
incorporating the results.
While mitigation is important, there is another issue that,
if it is not solved, will limit the California homeowners
insurance market. California insurance regulations must be
amended to allow insurers to incorporate forward-looking
climate science into their rate filings.
In California, when an insurer submits a rate filing, it
must justify its requested statewide premium for future
wildfire losses based upon its average annual wildfire losses
over the last 20 years. The request cannot consider the
location of the insured properties, their proximity to
vegetation, or even if the homes to be insured are hardened. It
is a calculation with no sensitivity to changing conditions or
evolving knowledge.
An insurer is not permitted to seek a higher premium level
even if it would like to go into a higher fire-risk area. Under
the regulations, that insurer must first sustain high losses
and then request permission for a higher statewide premium
level. This is not a reasonable expectation. It encourages
insurers to withdraw from the highest-risk areas. If an insurer
has data to support how a particular area is being impacted by
fuel loads or climate change, then it should be able to submit
a filing to the Department which explains the risk and
quantifies the premiums that will be needed to pay the expected
losses in the area.
There is no other State that requires insurers to look back
2 decades to justify its requested premium levels intended to
fund future wildfire losses. Without updating the rating
system, it is difficult to see how California--
[Audio malfunction.]
Chairman Cleaver. We obviously have a technical problem.
Mr. Frazier?
Mr. Frazier. Yes, sir.
Chairman Cleaver. I don't want to cheat you out of your
last 5 seconds. You have 5 seconds.
Mr. Frazier. I just said thank you, sir.
Chairman Cleaver. Okay. Thank you.
[The prepared statement of Mr. Frazier can be found on page
44 of the appendix.]
Chairman Cleaver. I thank all of our witnesses for being
with us today. We appreciate your testimony.
The Members who are here today--I want to make sure that
everybody understands we may have votes called, so I need
everyone to be very crisp in your questioning so that we don't
waste any time at all. I want to recognize myself now for 5
minutes for questions, and do what I ask all of the Members to
do.
Mr. Wright you kind of hit on some issues that are a very
deep concern of mine. I have a son who lives in California, and
I go out there and get angry when I see where people build
their homes.
What actions have insurers taken to respond to the threat
of increased economic losses from wildfire disasters, including
how insurers are incorporating mitigation and resilience into
the business operation?
Mr. Wright. Thank you, Mr. Chairman. I will let others
speak to the specifics of how they get to pricing, but I can
say with absolute confidence that the mitigation actions that
we call for, this collective set of make sure you have a good
roof--and the good news is 99.2 percent of Californians already
have that--address the vents and then the defensible space.
When the risk has changed, insurers will meet people there.
Insurance is supposed to price risk, and to the degree that
you can shape that, I think they would meet there.
Chairman Cleaver. Thank you.
Let's kind of stay on this for a moment, if you will. What
actions have insurers taken in terms of the increase in
economic losses from wildfire disasters right now?
Mr. Wright. Again, Chairman Cleaver, I think that others,
like Mr. Frazier, can get into the specifics of how it is
ultimately priced. But I do think that we are seeing people
lose their homes, and the cost of rebuilding has continued to
go up. And I think that is really the piece that people feel
after the event.
Chairman Cleaver. Okay. Dr. Auer, and Ms. Bach, are there
certain parts of the country facing major disruptions to their
insurance markets due to wildfire impacts? And what is the
outlook for other parts of the country in our future?
Ms. Bach. If I may, sir, thank you, just briefly. In the
State of Colorado, for example, there is a pilot program that
has been underway in Boulder County where there are a number of
insurers participating in that program. And if the homeowner
has their home hardened with help from the program, the
participating insurers will agree to not drop them. They will
agree to keep them as a customer.
So, we know that can work, but we also know that, in
Colorado, where you see--it is just like what you saw in
Florida, where if you see a pattern of a number of years where
there is a bad hurricane, that is going to really affect the
market, right? We saw it in Florida. We see it in California.
We are seeing it in Colorado. We see a series of wildfires, and
insurers get the jitters. Understandably, they react. The
regulator tries to calm the situation, and the rest of us are
doing everything we can to help.
You really can't unbuild the homes that have been allowed
to be built in these areas, so you just have to work with the
built environment as it is. And, again, I think the real
challenge is getting insurers to get on the train with the rest
of us and say, yes, we are not powerless here. There is a lot
we can do and we have to help people do it. And we have to
incentivize them.
And that is where we really need the insurers to do what
they have been doing in wildfire-prone areas, where they reward
people for roof tiedowns, and they reward people for elevating
their homes, with preferred pricing.
Chairman Cleaver. Yes. But is education one of the issues?
When I was growing up, you would turn on the TV and Smokey Bear
comes up and talks to you. And I haven't seen Smokey in recent
years. I don't know if he died or what.
But the issue is, for me, what can we do in terms of
education--85 percent of these fires are a result of human
activity, not lightning, so there is something that we are not
doing, that we must begin to do. Anyone?
Mr. Auer. Thank you for that good question. The efforts, I
think, that Commissioner Lara has initiated with Safer from
Wildfires, not only technical issues of home hardening and
defensible space at the individual homeowner level, but in
addition and consistent, I think, with some of the testimony
that we have heard here, there usually is a community or
neighborhood-level dimension to these initiatives. And that
would be true, for example, of the U.S. Forest Service's
Community Wildfire Defense Grant program. Some of the FEMA
grants that I mentioned before with their Hazard Mitigation
Assistance programs generally have a direct educational
component. Moreover, all over the country there are these
community wildfire level plans that have been put in place over
the past 10 or 15 years which also focus on education.
Chairman Cleaver. Thank you very much.
I now recognize the ranking member of the subcommittee, the
distinguished gentleman from Arkansas, Mr. Hill, for 5 minutes.
Mr. Hill. Thank you, Chairman Cleaver. And again, thank you
to the panel for bringing your expertise, albeit virtually. We
miss seeing you in person.
Mr. Wright, has your organization testified before the
State legislature in Sacramento or gone to zoning or local
planning districts in California and argued against people
building houses in places they should not?
Mr. Wright. We have appeared at the State legislature and
at the local level. And while we have not gotten into the
specifics of where you choose to site the house, we have
aggressively advocated, however, that wherever you need to
build, you must build in a way that can narrow the path of
wildfires.
Mr. Hill. And do you think that local planning and building
specs in California reflect your recommendations?
Mr. Wright. For brand new construction in the highest area
of concern, the answer is yes. California leads the way on the
building code. We, though, would say they too narrowly apply
it, and more homes need to be built to that higher standard to
be able to withstand it. One additional piece is that
defensible space has to be maintained year after year after
year, so that is not a new construction.
Mr. Hill. Thank you for that.
Commissioner Lara, with a $300-billion surplus in
California, what is California doing to help low-income
residents on this mitigation piece? Not the insurance piece you
are responsible for, but just that county support of
mitigation. And do you believe that zoning in California is not
done appropriately, from a public safety point of view?
Mr. Lara. Thank you, Mr. Hill, for that question. We have
seen the legislature and the governor put a record amount of
money into fighting these wildfires, everything from working on
creating incentive programs to helping people rebuild as
quickly as possible. Additionally, providing incentives and
funding so that people have the opportunity to mitigate against
these wildfires, which is critical.
I would just say, we should have done this before, but,
fortunately, we have the money now to do this.
Mr. Hill. Okay. Thank you, Commissioner. I appreciate that.
Because one of my concerns is that the FEMA flood program
encourages people to build where they should not build. Let's
face it. And I believe that land use planning in California
does the same and, therefore, it puts you as the commissioner
in direct conflict, because you are trying to protect
consumers. We get that. But you are not really facilitating
insurers being paid for risk. And it is those risk prices that
then inform mayors and counties that they shouldn't approve
that development or that they should develop mitigation in this
particular high-risk area.
Mr. Frazier, in your testimony, you are saying insurers are
not permitted to seek a higher premium level even if they would
like to go into higher-risk areas. Under regulations, that
insurer must first sustain high losses, then request permission
for a higher statewide premium level. That doesn't seem like a
reasonable expectation. It encourages insurers to withdraw from
high-risk areas. Is that what you are seeing happen in
California, Mr. Frazier?
Mr. Frazier. Yes, sir. In the highest-risk areas.
[inaudible] For 2017, the FAIR plan, which is the residual
market, had a resting point of about 125,000 people per homes
regularly. That number has gone up to about 270,000. Clearly,
the shock in the system from the megafires of 2017 and 2018 has
had an impact. And companies certainly looked at their rules
for risk selection and compared it to the prices to figure out
if they matched. And there has been some holdback, but,
obviously, the vast majority of policies have been and are
renewed.
But, certainly, a system that doesn't allow statewide
premiums to be looked at--
[Audio malfunction.]
Mr. Hill. Thank you. I will move on quickly there, Mr.
Chairman, and submit that question in writing.
Mr. Wright, you have great experience as the former Deputy
Associate Administrator for the National Flood Insurance
Program, so you know exactly what I am talking about on the
challenges of reforming our Flood Program, on its 17th
extension under the continuing resolution.
Would you submit in writing for me what your views are of
having a National Wildfire Insurance Program? Is that good for
taxpayers and good for insured people?
Mr. Wright. I will submit a fuller answer in writing. It is
a bad idea.
Mr. Hill. Thanks. I yield back.
Chairman Cleaver. The ranking member yields back.
I just have to say I agree with the ranking member on
allowing people to move where they should not live.
I now recognize the distinguished gentleman from Texas, Mr.
Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. And I thank the
witnesses for appearing.
I am interested in the area that the chairman has
introduced, and that is mitigation. With reference to
mitigation, do we have policies that require mitigation before
issuance? This is a means by which homeowners can have an
opportunity to improve their property if they make adjustments
and also get insurance. Do we have policies that address it in
this fashion? Anyone, please?
Ms. Bach. The regulations that are hopefully about to go
into effect in California that Commissioner Lara brought forth
do provide that the homeowner gets to know what their risk
score is, what number the insurer has put on their home, and
then has the opportunity to know why they got that score, which
I think is really important.
Because people have just been getting the price signal.
They have been getting these much higher prices and they have
been getting dropped, but they don't know what--in many cases,
when my organization surveys homeowners, when we ask, did your
insurer tell you what you could do to keep your policy, they
will say, no, they didn't. Again, I think we are making some
progress in that direction as a result of the regulations that
are pending now in California.
Mr. Green. Thank you.
Anyone else?
Mr. Auer. Representative Green, it is also the case that,
frequently at the local or county level, you see some
regulatory--that is to say, the authorities have the ability to
go house to house as relevant to say--for example, on, let's
say, El Cerrito, California, to move up a street and tell each
one of those homeowners, you need to work on your ignition zone
and defensible space or else you could be fined. So, wholly
apart from what the insurance carrier might be saying, there is
also pressure at the local law level.
Mr. Lara. Quickly, if I may, again, the regulation will
also do something that it hasn't done before, which is look at
communitywide mitigation. And working with the insurance trade
groups and consumer groups is also providing communication
about the community-wide risk reduction. Because if we bring
down the risk for the entire community, we keep insurers
writing in those communities, and consumers are able to have
more insurance products that they can--the insurance companies
can compete for and drive that cost down.
Mr. Frazier. Yes, if I may, we appreciated very much the
chance to work with the commissioner on these regulations. I
think they will bring a lot more transparency so that people
understand what they are being asked to do as part of this
overall solution.
Mr. Green. Mr. Chairman, I am going to yield back, because
I know that time is of the essence for you.
Chairman Cleaver. The gentleman yields back.
At this time, the gentleman from Florida, Mr. Posey, is
recognized for 5 minutes.
Mr. Posey. Thank you very much, Chairman Cleaver.
Mr. Frazier, at a September 8th hearing of the Senate
Banking Committee, the National Association of Insurance
Commissioners' witness referred several times to the kinds of
risks that are just too large and uncertain for private sector
and State regulators to tackle. Are we anywhere near that now
on fire insurance?
Mr. Frazier?
Mr. Frazier. I'm sorry, sir, I didn't hear your question.
Mr. Posey. At a September 8th hearing of the Senate Banking
Committee, the National Association of Insurance Commissioners'
witness referred several times to the kinds of risks that are
just too large and uncertain for private sector and State
regulators to tackle. Are we anywhere near that now on fire
insurance?
Mr. Frazier. We do not believe so, sir. At this point, the
private insurance market still functions in a robust fashion in
California. We stand ready to work with policymakers and
stakeholders to continue serving these communities. Obviously,
we are in a time of transition because of how climate change
has become manifest. But at this point, this is still a
situation that the private market can serve.
Mr. Posey. Okay. Thank you.
Can you please describe how State insurance commissioners
are ensuring or will ensure that insurance carriers who give
incentives to policyholders to mitigate wildfire risk can
reduce premiums?
Mr. Frazier, that is you again.
Mr. Frazier. Sorry. I am having some delay issues, sir.
Mr. Posey. Will somebody else start to weigh in on that?
Mr. Lara. Yes. Representative Posey, this is Commissioner
Lara. That is exactly what the regulation is intended to do. We
brought all the State agencies together so that we can all be
operating with the same fire science with the insurance
industry and consumer groups to give those incentives, so that
consumers know exactly what they need do to protect themselves
or property and their families, and then price the insurance
accordingly so that people are paying for the risk of where
they are living.
Mr. Posey. Thank you, Commissioner.
I know we are talking about wildfires today, but on a
parallel and similar matter, let me ask you a question about
the impacts of deferring approval of premium rate increases
during a period of rampant inflation. It is my understanding
that you haven't approved an auto rate increase since April of
2020. And according to the U.S. Bureau of Labor Statistics, a
40-year-high record inflation means that costs have increased
16 percent for nearly everybody over the past 2 years.
If your department won't accept any rate increase filings
but costs have increased 16 percent, wouldn't that undermine
the capital adequacy solvency and the ability to continue to
force insurers out of the State, harming insurers?
We didn't like paying for gas in Florida when it was just 2
bucks a gallon, and then it went up to 4 bucks just a couple of
years ago. And I know it is even worse in California because of
the policies out there. But we are glad we can get it, because
$4-a-gallon gasoline is better than no gasoline. I would like
your opinion of that.
Mr. Lara. You are talking about private passenger auto rate
filings?
Mr. Posey. Yes, sir.
Mr. Lara. Oh, okay. We are currently reviewing the various
passenger private auto filings, and we are putting it through
our regulatory process to make sure that those rates are
adequately fair, and that they are not discriminatory, and they
are currently moving through our process.
What we are also looking at is making sure the insurance
companies, that during the pandemic made so much profit, are
returning some of that, because we knew that Californians were
driving less, therefore the risk profile changed so that they
were paying premiums that no longer reflected that risk. But we
are moving as quickly as possible to make sure that we are
reviewing these rate filings and we will be taking action in
the future.
Mr. Posey. I am glad to hear they are driving less out
there during the pandemic, because on my trip out there,
everywhere I went, the traffic was bumper to bumper.
Mr. Frazier, is there still room for mitigation incentives
to substantially reduce the premiums in wildfire areas?
Mr. Frazier. We believe so, sir, both at the parcel level
and at the community level. Obviously, at the community level,
it is a lot harder because fuel treatments can be controversial
in communities and opposition can develop. So, while everyone
wants safer communities, there is also the difficult, on-the-
ground conditions of implementation.
Mr. Posey. I get it. What role are State forest management
plans playing in the current trends in fire insurance premiums?
Mr. Frazier. We certainly look forward to the updating of
our CAL FIRE maps. The State puts out hazard maps, and we are
due for a refresh. It has been over a decade. There is a lot of
concern about the impact these maps will have, but we do need
the updating of these maps, and then from there, figuring out
how we move to--
Mr. Posey. Thank you.
Mr. Chairman, I see my time is about to expire, so I will
yield back.
Chairman Cleaver. The gentleman yields back.
The gentleman from Tennessee, Mr. Rose, is now recognized
for 5 minutes.
Votes have been called, we have one vote. But in respect of
your time, we are going to try to continue with the hearing.
And we will have Members come in after they vote. And I will
try to make sure somebody comes takes over as Chair when I go
to vote.
Mr. Rose, you are now recognized for 5 minutes.
Mr. Rose. Thank you, Chairman Cleaver, and Ranking Member
Hill, for holding this hearing on wildfire insurance.
As many of you know, wildfires present a growing risk to
life and property, mostly in Western States. We know, however,
that Tennessee is no stranger to wildfires itself. In 2016, as
I think most know, a deadly wildfire swept through the Smoky
Mountains, burning over 16,000 acres and destroying 2,500
homes, which caused an estimated $2 billion in damages. Many of
you know the area around Gatlinburg and the Smoky Mountains. I
appreciate the opportunity to continue to examine ways in which
we can both respond to and mitigate risk associated with
wildfires.
Mr. Frazier, my first question is for you. Overly-rigged
local environmental and land-use standards in places like
California prevent homeowners from being able to take specific
steps needed to make their homes more resistant to fire. Mr.
Frazier, can you talk about the impact that environmental
standards have on new construction and how this is having the
ultimate effect of making homes less resistant to wildfire?
Mr. Frazier. Yes. It does seem like the pressing question
in land use is that it is difficult to build in the urban core
and so you have to continue to build--
[Audio malfunction.]
Chairman Cleaver. We apologize. We are having--
Mr. Rose. We lost you for a second there, Mr. Frazier.
Mr. Frazier. Hopefully, I am back.
I was just saying, it is much more difficult to build in
the urban core in California, and so you have to build further
out, and placing more and more homes in closer proximity to
fuel is certainly making the situation more difficult. But that
is why we do the work with IBHS and others, and these new
regulations that the commissioner developed, I think, will help
the situation.
Mr. Rose. Sure. And I am curious, Mr. Frazier, if you could
speak a little more on the question of the broad policies that
California has in place with respect to forest management and
whether there is any recognition that more aggressive long-term
traditional forest management practices that need to be
restored in order to deal with the threat of wildfires going
forward.
Mr. Frazier. Yes. There is no doubt that there has been a
shift just from providing funding for immediate response to
fires to starting to look at pre-fire loss mitigation, and that
includes fuels treatment. Obviously, in California, it is a
difficult environment because you have the traditional
conflicts between foresters and environmentalists. But
certainly, things are improving.
The governor has been quite committed to working with the
legislature to make sure there is considerable new funding for
fuels treatment in a way that just simply wasn't being
discussed 5 or 10 years ago.
Mr. Rose. Sure. Switching gears a little, since we have
Commissioner Lara, I would like to touch on some issues that
are broader than wildfire insurance, because California is such
a large market for insurance products, and the policy decisions
you are making can have ripple effects across the entire
industry.
Commissioner Lara, California's Proposition 103 requires
prior approval of California's Department of Insurance before
property and casualty companies can implement insurance rates.
Isn't it true you have, over the last 2\1/2\ years, withheld
approval of rate increases for all pending auto rate filings
because of your view that insurers provided inadequate COVID
premium refunds to customers?
Mr. Lara. Thank you, Representative Rose. As I said
earlier, those rate filings are currently within the
Department. They are being reviewed under Proposition 103 to
ensure that they are fair, they are adequate, and that they are
not discriminatory.
And, yes, I am proud of the fact that in California, we
mandated rebates back to California drivers who were driving
less during the pandemic, and $2.4 billion has been returned to
California motorists, because again, the risk profile changed
during that pandemic. And therefore, consumers were paying for
a policy that no longer reflected that risk because we asked
them to stay home.
We are moving now, understanding that the pandemic is
moving towards the end, and we are now in the process of
reviewing those rate filings for the private passenger auto.
Mr. Rose. Why have insurance companies like GEICO,
Progressive, and Allstate begun to leave California's insurance
market?
Mr. Lara. Representative Rose, they have not left the
market. They left the brick-and-mortar. They are still doing
business through their online businesses, and I fear that this
is going to be a move as more companies move towards online
services as they modernize their business practices. But they
have not left the California insurance market.
Mr. Rose. Okay. I see my time has expired. I yield back.
Chairman Cleaver. The gentleman yields back.
The Chair now recognizes the notable Chair of the Full
Committee, Chairwoman Waters.
Chairwoman Waters. Thank you very much, Mr. Cleaver.
Commissioner Lara, when buying a home, the only current
Federal requirement surrounding natural hazard risk is FEMA's
flood zone determination requirement. However, our home State
of California has gone above and beyond in improving risk
disclosures to mandate the inclusion of wildfire risk and other
natural hazards.
Given the current state of the wildfire insurance market,
along with the increasing frequency and intensity of wildfires,
would you recommend that similar disclosure mechanisms be
enacted across the country for those purchasing a new home? If
so, do you think it should be done on a State-by-State basis so
that State insurance commissioners are able to customize their
disclosure forms to best encompass the specific risk that home
buyers in that State need to be aware of?
Mr. Lara. Thank you, Chairwoman Waters. I believe that in
order for us to really protect and ensure that consumers know
exactly the risks they are getting into, disclosure is
critical. People need to understand the risk, and that
disclosure becomes critical.
It is true that as insurance commissioners, we have to
adapt to the individual needs and topographies and requirements
within the individual States, so I would say it is important
for us to ensure that we respect the jurisdiction of individual
States. But at the end of the day, we know that consumers need
to have this information before they purchase a home and
understand the type of insurance they are going to need.
As you know, one of the biggest issues we are facing
nationally is the issue of consumers being underinsured,
especially during these wildfires, floods, or climactic events,
in which people feel that they are properly insured, but after
realizing that they are not, they cannot rebuild to the
standard that they were expecting to. Transparency is critical
so that they understand, not only their coverage limits, but
understand the risk that they are undertaking.
Chairwoman Waters. Thank you very much.
Ms. Bach, climate-related disasters such as wildfires have
posed an increasing threat to the United States mortgage market
as more people are living in disaster-prone areas. For
instance, more than 46 million homes with an estimated value of
$1.3 trillion are now at risk from the impacts of wildfire.
Given the systemic risk that wildfires and other natural
disasters pose to the mortgage market, what role can Federal
agencies, such as the Federal Housing Administration, USDA, and
the Federal Housing Finance Agency, play in setting standards
for homeowners insurance coverage?
Ms. Bach. Thank you so much, Chairwoman Waters. It is an
honor to be with you. And I just saw your star in St. Louis,
and I was so proud.
First of all, California has passed a disclosure
requirement now that REALTORS have to use if a home that is
being purchased is in a high-risk wildfire area, so that is
already in place.
And as far as the lending sector, the Fannie Mae guidelines
that Congress has set do require that homes which are subject
to a federally-backed mortgage have replacement value insurance
on that home. So, you have that in place, but I think that it
has to be enforced that, insurers are, of course, doing all
kinds of nipping and tucking of coverage to try to balance
their books in the face of climate change. Maintaining the
basic standard that is already in the law is important for
homes to have replacement value coverage.
That being said, Fannie Mae is very much engaging in our
efforts to promote and facilitate risk reduction in the
wildfire context. So, we are on the right trail, but more
consumer education, of course, at a very granular level, what
can you do at your home to reduce your risk is developing fast.
There are a lot of tech companies now--Zest Technologies,
DaiTechCorp, Betterview--that are developing tools mostly for
insurers. What we need is tools for property owners so they can
quickly put their address in and see what their risks are.
Chairwoman Waters. Thank you very much, Mr. Chairman. I
just want to tell you, in California, where we also need
earthquake insurance, we are going to be insurance-poor. It is
going to cost more than our mortgages. I don't know what to say
about that, but it is going to be very costly.
Thank you. I yield back.
Chairman Cleaver. We thank the chairwoman for making it
here in time to raise issues with our illustrious witnesses.
I would like to thank you very much for coming to the
hearing today or being a part of the hearing. We apologize for
any technical difficulties that--I almost said that may have
happened, but that did, in fact, happen. We apologize for that.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
The hearing is now adjourned.
[Whereupon, at 10:18 a.m., the hearing was adjourned.]
A P P E N D I X
September 22, 2022
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