ca working to predict financial costs of fires

We have depended upon the private sector to provide the majority of our “risk based” modeling for disasters. See the news release below which shares California’s goal for having a public model. Property insurance has not yet reached “catastrophe” level availability and cost impacts to homeowners, but, but, but…we are getting closer to that point each day.

California’s Public Wildfire Model Will Take Climate Data Out of the 'Black Box'

After the LA fires, California moves to build a public wildfire catastrophe model

By Mekedas Belayneh, Public Citizen's Climate Program

In the months before the L.A. fires, tens of thousands of people received notifications from State Farm that their homes would no longer be insured. In the aftermath of the fires, those policyholders might have been right to wonder, “What did State Farm know about our homes?” 

These homeowners are not alone. Climate change and rising wildfire risk are rapidly driving up the cost of insurance. In the absence of better sources of local climate data, insurance companies have filled the void, becoming messengers of last resort on the financial costs of climate change. Since the L.A. fires, the California legislature asked a bigger question: “Why are we depending on insurance companies to warn us about wildfire risks in the first place?”

The state now has a better answer.

California is set to become the first state in the nation to build its very own public model for predicting the financial costs of wildfires. Growing attention to faltering insurance markets has revealed that the tools insurers use to predict and price risk remain largely locked behind paywalls, only accessible to major corporations. These “catastrophe” or “cat” models are complex computer assessments that measure financial exposure to extreme weather events. Today, insurers use them to set insurance coverage and prices. 

California is right to recognize that there is no good reason why these models need to be a private-sector secret. While the federal government paved the way for developing climate data through substantial investments, there is currently no federal-level public catastrophe model. And states, which are the primary regulators of insurance, simply have not invested the same way. Florida is the only U.S. state with a publicly available catastrophe model for hurricanes and windstorms. As a result, private firms have developed their own secretive systems that track climate risk, with little outside scrutiny of their methods or assumptions.

SB 429, a bill by Sen. Dave Cortese and sponsored by Insurance Commissioner Ricardo Lara to have a California university create a public wildfire catastrophe model, passed through the California legislature and now will be sent to the Governor’s desk. The bill establishes a new program, the Wildfire Safety and Risk Mitigation Program, to fund the development of a public wildfire catastrophe model and provides grant funding for a university research center and climate scientists to support California communities in wildfire risk reduction efforts.

The public model would provide, at a minimum, a benchmark to compare against private models, which would inform insurance oversight in a time of major changes to extreme weather patterns and a growing crisis in the sector. It would also have benefits far beyond insurance. Municipalities and local communities who currently cannot afford private models would have access to a public model to inform their approaches to adaptation and mitigation. 

For decades, insurers had brushed off the need for forward-looking models, relying instead on backward-looking models that worked well enough for short-term rate setting. In fact, California regulators previously prohibited insurers from using forward-looking catastrophe models to set rates, as a consumer protection measure to prevent insurers from using opaque, proprietary models to justify price-gouging. But fossil-fuel driven extreme weather requires a different approach. California needs an approach that allows insurers to consider forward-looking risks, without removing public oversight. 

The industry has turned to climate scientists, and even AI-driven catastrophe models, in a scramble to keep up with mounting risk. But too often, these models are inconsistent, error-prone, and susceptible to embedded biases that exacerbate existing disparities. Marginalized communities, who have long suffered from discriminatory underwriting and coverage withdrawal, would have no meaningful way to challenge biased rate increases or coverage denials driven by these new proprietary models. While California recently set a formal review process for the approval of private catastrophe models, a step towards transparency, the complexity of the review process necessitates a bolder, public approach. A public model, in contrast, can help prevent these inequities by offering consistent, open methodologies and data sources that all stakeholders can scrutinize.

Given the necessity and limitations of catastrophe models, transparency is essential. By grounding these models in publicly available data and subjecting them to public scrutiny, policymakers can better protect consumers and promote equitable outcomes in the insurance industry. Climate change is already reshaping where and how people live. The question is whether the tools used to manage that risk will serve the public interest or the narrow interests of insurance companies. California’s experiment with a public catastrophe model may be the first real test.