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Private providers have started returning to the fire-ravaged state, but its insurer of last resort still has huge and growing exposure.
The massive wildfires in Pacific Palisades and Altadena in Southern California may deal a devastating blow to the state’s fragile home insurance market, which is in the midst of large-scale reforms as part of an effort to lure private insurers back to the state.
In the years running up to yesterday’s, today’s, and likely tomorrow’s fires, several home insurers announced plans to stop writing new policies in California, or even leave the state entirely. The industry and many analysts blamed not just California’s famously hostile mix of dry vegetation, high winds, and scarce rains, but also a rise in construction and reinsurance costs and a regulatory system that made it difficult for insurers to raise rates or think prospectively about risk when setting rates.
In other words, it was simply easier for insurers to not renew policies than it was for them to increase rates to better adjust for risk. Some of these non-renewals occurred in the area now affected by the Eaton Fire in Altadena, though they were most prevalent in the Bay Area and the Sierra Nevada foothills.
In response, California’s insurance commissioner Ricardo Lara rolled out a set of reforms last year that tried to both expand insurance in wildfire prone areas and lure insurers back to the state. The new rules would allow insurers to use models to determine risk (not just historical data, as the law had previously been interpreted to allow) while also mandating that insurance companies operating in the state write policies in fire-prone areas as well as in those that are relatively safe. Lara then issued another rule late last year allowing insurers to use the cost of reinsurance in determining their rates, which insurers in the rest of the country are allowed to do.
Allstate, which announced in November, 2022 that it would stop writing new home insurance policies in California, said last spring that it was considering a return to the state based on the possibility of models being allowed for ratemaking. At the end of last year, partly in response to the reforms, Farmers also said that it would restart writing new policies for some lines of business in California, and that it would increase the number of new homeowners insurance policies it writes every month after instituting limits in 2023. Last week, Verisk submitted a model to project wildfire risk to the state for regulatory agency review for use in rate-setting.
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Consumer advocates have warned that these rules would lead to increases in insurance rates. So has Lara’s predecessor, Dave Jones, who has been skeptical of trying to grow the private insurance market by giving it more flexibility to set rates without addressing the core issues of climate change and fire management policy.
“In the long term, we’re not going to be able to ‘rate increase’ ourselves out of this problem,” he said in an interview with the University of California, pointing to Florida’s insurance problems as an example, despite the flexibility that insurers have in setting rates there. “In the short-and mid-term for California, giving insurers proposed higher rates will get them to start writing new insurance again — although many homes in the wildland urban interface will continue to face challenges. But in the longer term, higher rates alone are likely to be overwhelmed by the higher risks and losses from climate change — just like in Florida.”
Like Florida, California has a backup for the private market, an insurer of last resort. And, like Florida, it’s been trying to make it smaller, to little avail. It may now be so large as to place the rest of the state at financial risk.
California’s FAIR Plan is a fire insurance pool that all property and casualty insurers operating in the state contribute to in proportion to how much business they have in the state; homeowners turn to FAIR when they can’t get insurance otherwise. As the state has experienced massive wildfires and insurers have pulled out, the size of the FAIR Plan has ballooned, with exposure rising to $458 billion in 2024 from $153 billion in 2020, even as it explicitly says that its “goal is attrition” (i.e. getting customers back on normal insurance plans).
“It’s a socialized cost,” Kate Gordon, the chief executive of California Forward, a policy nonprofit, and former advisor to Secretary of Energy Jennifer Granholm, told me. “We see more and more people switching to the FAIR plan. It’s getting massively oversubscribed. It’s going to hit some kind of wall at some point.”
The communities with the most wildfire exposure for the insurer include vacation areas throughout the state such as Lake Arrowhead, Truckee, and Big Bear Lake, and affluent residential communities including Berkeley and the San Francisco suburb Orinda. They also include Pacific Palisades, the fifth most wildfire-exposed market for FAIR in Southern California, with some $5.9 billion of exposure.
While the fires have yet to be substantially contained, let alone extinguished, and the damage has not yet been calculated, the still-raging fires will likely constitute a major hit to the FAIR Plan and California insurers. The number of residential FAIR policies in the Pacific Palisades zip code grew by over 80% between 2023 and 2024, and has quadrupled since 2020. The total financial exposure for residential insurance in Pacific Palisades doubled in the past year, growing to almost $3 billion. In one zipcode affected by the fire in Altadena, residential FAIR plan policies grew by over 40% since 2020, with around $950 million of total exposure.
“As the risk of more climate change-intensified wildfires increases in California, a major wildfire in one geographical area concentrated with FAIR Plan-insured properties could overwhelm the FAIR Plan’s reserves and its capacity to quickly and fully pay consumers’ claims,” Lara wrote in a bulletin in September.
Like other states with insurers of last resort, the FAIR Plan can seek cash from insurers — which could, if the losses are large enough, extract “temporary supplemental fees from their own policyholders,” according to new California insurance regulations. This would mean that Californians who were able to buy private insurance — because they don’t live in a region of the state that insurers have abandoned — could be on the hook for massive wildfire losses. While such an assessment has not occurred since 1994, Victoria Roach, the FAIR Plan’s president, warned in a hearing before the State Assembly last March that a major fire could knock out the plan’s reserves and force it to go to insurers — and their policyholders — to shell out for the difference.
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Congressional Democrats will have to trust the administration to allow renewables projects through. That may be too big an ask.
How do you do a bipartisan permitting deal if the Republicans running the government don’t want to permit anything Democrats like?
The typical model for a run at permitting reform is that a handful of Republicans and Democrats come together and draw up a plan that would benefit renewable developers, transmission developers, and the fossil fuel industry by placing some kind of limit on the scope and extent of federally-mandated environmental reviews. Last year’s Energy Permitting Reform Act, for instance, co-sponsored by Republican John Barrasso and Independent Joe Manchin, included time limits on environmental reviews, mandatory oil and gas lease sales, siting authority for interstate transmission, and legal clarity for mining projects. That passed through the Senate Energy and Natural Resources Committee but got no further.
During a House hearing in July, California Representative Scott Peters, a Democrat, bragged that a bill he’d introduced with Republican Dusty Johnson to help digitize permitting had won support from both the Natural Resources Defense Council and the American Petroleum Institute — two advocacy groups not typically speaking in harmony. (He’s not the only one taking a crack at permitting reform, though: Another bipartisan House effort sponsored by House Natural Resources Committee chairman Bruce Westerman and moderate Maine Democrat Jared Golden would limit when National Environmental Policy Act-mandated reviews happen, install time limits for making claims, and restrict judicial oversight of the NEPA process.)
But unless Democrats trust the Trump administration to actually allow renewables projects to go forward, his proposal could be dead on arrival. Since the signing of the One Big Beautiful Bill Act on July 4, the executive branch has been on the warpath against renewables, especially wind. With the Trump administration’s blessing, OBBBA restricted tax credits for renewable projects, both by accelerating the phaseout timeline for the credits (projects have until July of next year to start construction, or until the end of 2027 to be placed in service) and by imposing harsh new restrictions on developers’ business relationships with China or Chinese companies. Mere days after he signed the final bill into law, Trump directed the Internal Revenue Service to write tougher guidance governing what it means to start construction, potentially narrowing the window to qualify still further.
“I think all of this fuzz coming out of the Trump administration makes trust among Democrats a lot harder to achieve,” Peters told me this week.
In recent weeks, Trump’s Department of the Interior has issued memos calling for political reviews of effectively all new renewables permits and instituting strict new land use requirements that will be all but impossible for wind developments to meet. His Department of Transportation, meanwhile, insinuated that the department under the previous administration had ignored safety concerns related to radio frequencies while instituting onerous new setback requirements for renewables development near roadways.
Peters acknowledged that bipartisan permitting reform may be a heavy lift for his fellow Democrats — “a lot of Democrats didn’t come to Congress to make permitting oil and gas easier,” he told me — but that considering the high proportion of planned projects that are non-emitting, it would still be worth it to make all projects move faster.
That said, he conceded that his argument “loses a lot of force” if none of those planned non-emitting projects that happen to be solar or wind can get their federal permits approved. “How can I even make a deal on energy unless I get some assurance that will be honored by the President?” Peters told me.
Other energy and climate experts broadly supportive of investment-led approaches to combatting climate change still think that Democrats should push on with a permitting deal.
“All of this raises the importance of a bipartisan Congressional permitting reform bill that contains executive branch discretion to deny routine permits for American energy resources,” Princeton professor and Heatmap contributor Jesse Jenkins posted on X. “Seems like there's a lot of reasons for both sides to ensure America's approach to siting energy resources doesn't keep ping-ponging back and forth every four years.”
But permitting reform supporters are aware of the awkward situation the president’s unilateral actions against renewables puts the whole enterprise in.
“The administration’s recent measures are suboptimal policy and no doubt worsen the odds of enacting a technology-neutral permitting reform deal,” Pavan Venkatakrishnan, an infrastructure fellow at the Institute for Progress, told me.
At the same time, he argued that Democrats should still try to seek a deal, pointing to the high demand for electrons of any type. Not even the Trump administration can entirely choke off demand for renewables, so permitting reform could still be worth doing to ensure that as much as can evade the administration’s booby traps can eventually get built.
“Projects remain at the mercy of a burdensome regulatory regime,” Venkatakrishnan said. “Democrats should remain committed to an ambitious permitting deal — the best way to reduce deployment timelines and costs for all technologies, including solar-and-storage.”
Venkatakrishnan also suggested that Democrats could, in a bipartisan deal, seek to roll back some of the executive branch actions, including the Interior memo subjecting wind and solar to heightened review or the executive order on the definition of “begin construction.” There would be a precedent for such an action — the 2024 Manchin-Barrasso permitting reform bill attempted to scrap the pause on liquified natural gas approvals that the Biden administration had implemented. But then of course, that didn’t ever become law. (Manchin and congressional Republicans were able to clear the way to permitting a specific project, the Mountain Valley Pipeline in a larger bipartisan deal.)
What could unlock a deal, Yogin Kathari, a former congressional staffer and the chief strategy officer of the SEMA Coalition, a domestic solar manufacturing group, told me, would be the Trump administration getting actively involved. “The administration is probably going to have to lead,” Kathari said. “It’s going to be up to folks in the administration to go to the Hill and say, We do need this, and this is what it’s going to mean, and we’re going to implement this in good faith.”
This would require a delicate balancing act — the Trump administration would have to think there’s enough in a deal for their favored energy and infrastructure projects to make it worth perhaps rolling back some of their anti-renewables campaign.
“The administration is going to have to convince Democrats that it’s not permitting reform just for a subset of industries,” i.e. oil, gas, and coal, “but it is really technology neutral permanent reform,” Kathari said. “On the Senate side, it comes down to whether seven Senate Democrats feel like they can trust the admin to actually implement things in a way that is helpful across the board for energy dominance.”
One reason the administration itself may have to make commitments is because Congressional Democrats may not trust Republicans to stand behind legislation they support and vote for, Peters told me.
“Obviously we’d have to get some face-to-face understanding that if we make a deal, they’re going to live by the deal,” he said.
Peters pointed to the handful of Republicans who successfully negotiated for a longer runway for renewable tax credits, only to see Trump move almost immediately to tighten up eligibility for those tax credits as reason enough for skepticism. He also cited the cuts to previously agreed-upon spending that the Trump administration pushed through Congress on a party line vote as evidence that existing law and deals aren’t necessarily stable in Trump’s Washington.“If we do a deal — Republicans and Democrats in Congress, the House and Senate, get together and make an agreement — we have to have assurance that the President will back us,” Peters told me.
No bipartisan deal is ever easy to come by, but then historically, “everybody lives by it,” he said. “I think that may be changing under this administration, and I think it makes everything tougher.”
And more of the week’s most important conflicts around renewable energy.
1. Sussex County, Delaware – The Trump administration has confirmed it will revisit permitting decisions for the MarWin offshore wind project off the coast of Maryland, potentially putting the proposal in jeopardy unless blue states and the courts intervene.
2. Northwest Iowa – Locals fighting a wind project spanning multiple counties in northern Iowa are opposing legislation that purports to make renewable development easier in the state.
3. Pima County, Arizona – Down goes another solar-powered data center, this time in Arizona.
4. San Diego County, California – A battery storage developer has withdrawn plans to build in the southern California city of La Mesa amidst a broadening post-Moss Landing backlash over fire concerns.
5. Logan and McIntosh Counties, North Dakota – These days, it’s worth noting when a wind project even gets approved.
6. Hamilton County, Indiana – This county is now denying an Aypa battery storage facility north of Indianapolis despite growing power concerns in the region.
They don’t have much to lose, Heiko Burow, an attorney at Baker & Mackenzie, tells me.
This week, since this edition of The Fight was so heavy, I tried something a little different: I interviewed one of my readers, Heiko Burow, an attorney with Baker & Mackenzie based in Dallas, Texas. Burow doesn’t work in energy specifically – he’s an intellectual property lawyer – but he’s read many of my scoops over the past few weeks about attacks on renewable energy and had legitimate criticism! Namely, as a lawyer who is passionate about the rule of law, he wanted to send a message to any developers and energy wonks reading me to use the legal system more often as a tool against attacks on their field.
The following conversation has been abridged for clarity. Let’s dive in.
So Heiko, you reached out to me after my latest scoop about how the Trump administration is now trying to create national land use restrictions on wind projects through the Department of Transportation. In your email, you said the Trump administration “cannot invent a setback requirement by executive fiat.” What does this mean?
Something you need to understand from my point of view is, there’s all these things coming out of the White House, the executive. Like the setback requirement: If the law says they have the right to do that, then okay. But the viewpoints of the administration do not replace the law.
There’s no requirement in the law that the Secretary of Transportation can require a setback. He can’t just come in and say here’s a required setback. The government can only do what the law allows a government to do.
For example, a CEO can’t come into a company and say all the contracts are null and void. The president, in the same way, can’t say everything that’s legally binding is no longer legally binding. There are two ways that creates a problem: one is that it is a breach of contract, and the courts will say there’s a different remedy for that. But there’s also a constitutional problem with that.
Why did you reach out to me about this story, in particular?
I’m just concerned about the environment, and our country, and our democracy.
As someone who works with corporations navigating the legal system under Trump, why do you think companies – like renewable developers – aren’t suing left and right in this moment?
I think they’re timid.
It’s not just companies – it’s stakeholders in general. In 2017, there was pushback on Trump. That is missing. Look at the tech industry – and a lot of investments in renewable energy come from the tech area – and how they lined up with Trump on Inauguration Day.
That is fear. I’d say other stakeholders too are now ruled by fear.
As someone who advises companies in other areas of law, what posture do you think renewable energy companies should take?
Band together. Renewable energy companies, you don’t have much to lose. He’s persecuting you.
I know people stay under the radar, like community solar entities that he could have forgotten about. But he didn’t forget about them. So they need to band together and fight.
Everybody’s just lying low and being afraid. But how much more can renewable energy companies lose? Right now they’re still surviving, because the business case for renewable energy works and states are supporting it. But they’re quiet about it on the national level.
If people start believing what Trump says is the force of law, then it’ll just be that way. And I don’t see a coordinated response to that.