Assembly Standing Committee on Insurance

Good morning. We're going to get started now. Welcome, everybody. We're pleased to have you at the Joint Informational Hearing of the Assembly Insurance Committee and the Select Committee on Wildfire Prevention. At this hearing, we will be focusing on wildfire risk, resiliency, and whether these two factors can help lead to the insurance market recovery.

We know these two factors alone won't solve the insurance crisis, but we would like to arm our consumers with information on how they can participate in reducing wildfire risk while also perhaps increasing the likelihood of getting coverage. We're hearing of more and more homeowners going naked, which is an insurance term describing when a homeowner decides to carry no insurance coverage. This exposes our consumer's most cherished asset, their home, and it benefits no one, including insurers.

Previous hearings have focused on the instability of the insurance market and what insurance obstacles this state faces. Today, we'd like to learn whether mitigation is working to reduce wildfire risk and how mitigation is viewed in the eyes of an insurer. With me today is the Chair of the Select Committee on Wildfire Prevention, Assemblyman Connolly and Assembly Member Wood, who represents the Assembly District. I'd like to provide both of them an opportunity to make opening remarks.

Thank you, Chair Calderon. Good afternoon, everyone. Dr. Wood and I welcome you and our panelists to the beautiful North Bay and appreciate your leadership on this important issue. I also want to thank our panelists for being here today and members of our community who are most affected by home insurance issues and are on the front lines of the wildfire crisis.

When I was first elected to the State Assembly last year, I was surprised to find that there were no committees that specifically focused or addressed the issue of wildfire prevention. I'm proud that one of my first accomplishments as a North Bay's representative in Sacramento was getting the Select Committee on Wildfire Prevention created for the first time.

Partnering with Chair Calderon and the Assembly Insurance Committee, it is our goal to ensure that future actions aimed at stabilizing the marketplace and expanding coverage for homeowners are done so with input and collaboration from stakeholders and members of the community. With the Governor's recent Executive Order and the release of Commissioner Lara's Sustainable Insurance Strategy, I look forward to hearing from our panelists to identify best practices and implementation strategies so that we can successfully accomplish the goals identified in these plans. With that, it is my pleasure to introduce Dr. Wood, my neighboring Assembly Member representing the amazing Second District.

Thank you. OK, there we go. I was like, I used to sit up here when I was doing business with the City of Healdsburg, and I still can't figure out the microphone. But first of all, thank you to our Committee Chair, our Insurance Committee Chair, Calderon and our Select Committee chair, Connolly for being here. Welcome to my world.

Our world, actually, Damon. And you wouldn't know it by looking at the weather today, but at 09:43 p.m on October 8th, 2017 was the beginning of the Tubbs Fire. And if we were to rewind to October 9, what you would have seen was a pall of smoke here and the hills on fire in many places still. I know we didn't plan this particular date, but it is ironic. And looking at the weather today, you'd never know that this would have happened.

But I want to thank you for the opportunity to be here. This is the first of multiple hearings, and so what we don't cover today obviously will continue because this is a very large topic. So the people I represent in Sonoma County, Mendocino, Trinity, and Humboldt and Del Norte Counties are well versed in the risk of wildfires. We've experienced the lack of access to affordable insurance and know very well how to make our homes safe as possible from wildfires.

And I know there are people in the audience here today who feel that way as well. We've invested thousands of dollars, hundreds of hours protecting homes, yet continue to be canceled or non-renewed, forced into the expensive and limited policies of the Fair Plan. The triple and quadruple costs of Fair Plan policies have hit them hard, especially those who are on fixed incomes.

People have lost their homes, and in the case of the Wine Country Fires, their loved ones and some, and actually me, to a little extent, suffer a little bit of PTSD every time we smell smoke around here. So I've been fortunate to have only been evacuated from my home a couple of times, never had a loss.

But the grim reality of what we experienced here, the loss of 22 lives in this county, along with another 20 plus in neighboring counties after the Tubbs Fire, have brought this into a real fear for us in the long run. So we've been living with the same as we look at cancellations, have spread into less obvious neighborhoods, the suburbs, we're hearing people's worry about when an envelope from their insurer is going to show up in their mailbox.

So we've been living with the same regulations developed in the 1980s, and it's no longer the 1980s. I believe that many of the current regulatory constraints on insurers no longer apply to the 1980s. In every Californian's long term best interest, we need to consider what can be done to create a sustainable, fair, and competitive insurance market for the environment we live in today. Look forward to the conversation today, but we'll emphasize that this is just the first of multiple hearings here as we delve into this really deep topic.

Thank you, Assembly Member Wood. I'd also like to welcome my colleague, Assemblywoman Diane Papan. If you want to say hi or comment.

Oh, no, I'm just delighted to be here. I won't take up further time other than to say that my shake roof was torn off this morning. So I'm here as living proof of what we're doing to perhaps fortify our properties. But that's not the only reason why I'm here. I promise. It's not all about me.

Thank you, Assemblywoman. And we have another colleague who will be joining us in a little bit, Assemblyman Freddie Rodriguez. So now let's go ahead and bring up our first panel. This panel will be focused on the question of how risky are California wildfires. And on this panel we have Ms. Dr. Brandon Collins, associate Adjunct Professor at the Department of Environmental Science and Policy and Management and Lead Scientist for Berkeley Forest at UC Berkeley. And we also have Dave Winnacker, Fire Chief at the Moraga Orinda Fire District. Welcome.

Hi, everybody. Thanks for having me. I'm not sure. I'm probably going to take a pretty broad perspective on this. I think you probably have some better ideas with specific application to the insurance. But I want to talk more broadly about wildfire in the state. And I'm going to start with this picture, which is of a plume from a wildfire that was in the Southern Sierra Nevada.

This was the Creek Fire in the year 2020, and it happened sort of outside of Shaver Lake, burned 300,000 something acres and lots of homes in the wake of it. But I think what I wanted to emphasize here is that a lot of people see this and other images like this, where you see smoke or you see a hillside on fire.

And when you couple that with sort of the recent nature of it, you assume right away that this is really a climate driven phenomenon, that the only thing that explains the size of fires, the number of fires, is that the climate is changing, and therefore we can't really do a whole lot to mitigate against that. And I want to just sort of push back on that a little bit.

I'm not going to sit here and deny that climate is a player for sure, but I think there's other factors at risk too. So this fire was unique, but there are others that we've seen that have kind of done something else, maybe that eclipsed this fire, but it had such incredible growth associated with that plume on that one particular day. You can see that in the red in the center where it grew almost 60,000 acres in a day, had a plume height of about 50,000ft.

And it just looks incredibly ominous. But if you knew what that fire was burning through, it sort of looked a lot of it looked like this picture. Where that was sort of ground zero for the tree mortality we saw in the drought that was going on 2012 through 2016. And even as quickly as this picture, I think, was taken in maybe 2015, and trees were already falling down, trees that died early on in that drought.

So when you have a fuel load like this, you have this much material that is dead down on the ground and beginning that process of drying out. In some cases it has been drying out for a couple of years. It's an incredibly volatile situation from the standpoint of what wildfire can do, and if you have enough of it over a large enough area you can start to contribute to that type of behavior.

That plume that I showed a picture of. And the difficult thing about it is that we don't have the capability to model that type of behavior. We still sort of rely on technology that was maybe 40, 50 years old, which we've added some bells and whistles to, but we still don't actually fundamentally model the combustion of this material and then how they kind of coalesce to create something like what we saw in the Creek Fire.

We saw it again, the Creek Fire is not unique, and we've seen it in many others. This is the Dixie Fire, and same kind of thing, plume dominated behavior. And one of the hallmarks of sort of the plume type of condition is that it is very much fuels driven. Now you can't sit there and assume that climate doesn't have a role. Climate actually puts those fuels in a dry enough state where they're very available to burn, but inherently that is a fuel signature.

And in the aftermath of that it's not just about the number of acres burned or in my case the number of homes. To me it's really about the actual effects of the fire on the ground and, in this particular case, the mortality of trees over giant scales. We're talking about thousands of acres that are treeless and don't really have a natural mechanism for regenerating following that type of fire.

This is completely unnatural fire for these forests. And this is part of a trend, you probably all know it, that we've seen this uptick in this area burn in particular area burned at high severity where the trees are killed or whatever dominant vegetation it is. It could be chaparral, but it's killed and killed in large patches. And you can see just by some of the spiking towards the latter part of this bar graph that it seems to be coming a little more frequently now.

And I would imagine that there is absolutely a climate signal in there, but a climate signal making fuel more available to burn, if you can think of it that way. And so why are we seeing this? Well we have a legacy in our forests of changing the structure of them such that they are burning very differently than they ever did historically. We've put out fires for 100 and plus years in many places and been very effective at it. We've also removed intentional ignitions.

A lot of them were indigenous base for actually changing the structure of the forest so that they didn't burn in very severe events but also so that they could cultivate certain amenities from the forest themselves. We've also cut from our trees. We've cut from our forest, in particular, cut large trees. Those trees are generally the most fire resistant trees. And as a result, now we have smaller trees that are more vulnerable to fire.

And so we have this legacy that we kind of have to deal with, and we can't pretend that that's not something that we've changed and changed in a drastic way. Right. We've in many cases five times, 10 times the amount of trees that are out there in the forest than there were historically before we started doing some of these manipulations.

And so just if you're looking at it sort of at the ground level, as this photograph sort of depicts. One, we've removed a natural process from these forests that is fire that would come very frequently, oftentimes every 10 years, maybe even less in some cases. That was constantly consuming fuel that was being generated. Every year trees are dropping needles, dropping branches, so that's fuel that is just going, going, and then the only thing that was taking it out was fire. We've kind of changed that.

Not kind of, we've really changed that. And so there's nothing else going on but maybe some decomposition, but otherwise we're pretty much just accumulating fuels on the ground. We've also, by removing fire, have allowed these smaller trees to come in, and those act as something we call ladder fuels, which then allow fire to transition from the surface up into the crowns of the dominant trees. And we've also increased sort of the crown fuels where now trees, even big trees, are touching big trees.

And when a fire does get into the crowns, it's really difficult to actually change its behavior because there is no break, essentially. There's continuity in the upper canopy. That is at one scale, that's sort of looking at the ground. If you want to look at sort of a much broader landscape and something frankly, a little bit closer to home.

This is a comparison of a giant landscape, about 130,000 acres in this particular neck of the woods, based on aerial imagery from the 1940s compared to aerial imagery in the contemporary time period. And what we're generally seeing is a shift, particularly in that leftmost set of bars, a shift towards more forest cover in this area at the expense of herbaceous shrub and woodland cover. So we're seeing that sort of densification, if you will.

It's not quite as simple of a process as we might see up in the Sierras, but in general it's kind of trending in that same direction. And I don't want to go into the second graph, but the point being that that is affecting some of the behavior of these fires. If you see more densely forested area, you're having more difficulty to control and perhaps more difficult or more severe fire effects, potentially, because of the structure of the fuels. Now, what can we do about it?

I think a lot of you probably know this already, but we really have two simple tools, and there's different ways and different intensities we can apply those. But we can do mechanical manipulation, right? People can call it logging, you can call it thinning, you can call it mastication, but in some way or another, it's getting machines in there and actually removing some of the biomass.

Some of it you can send off on a log truck, some of it you can ship and send maybe to a cogeneration plant. And a lot of it ends up, frankly, getting burned in giant piles like you see. But the point is, in this case, you're sort of doing what fire would have done had it resumed its natural role.

You're taking out some of the smaller trees, you're opening up gaps, you're leaving the bigger trees, and you're trying to remove some of the fuel on the surface. Although mechanical means are not very effective at all, frankly, at dealing with the surface fuels, they can rake them a little bit or you can kind of crush them, but they're not going to be nearly as effective as you would if you were to do prescribed fire.

And frankly, there really isn't a solution out of this problem without using fire. And that's one of the problems I think we see broadly. It's that we can't just say we're not having fire anymore, we just need to have more of the right type of fire, because otherwise, without some type of fire, in this case prescribed fire, there really isn't a way to deal with that surface fuel component.

It's completely unrealistic to think that we would actually physically rake the surface fuels, which, by the way, are constantly being added, right? Every trees are shedding needles every single year. There's no way we can deal with that other than with some form of fire. So here's what this is sort of your ideal condition, what it looks like after it's been treated.

In this case, it's been treated mechanically, where the trees have been thin, you can see big separations in the tree crown, so no way that fire can move from crown to crown to crown. And very little in that ladder fuel strata, if you will, where the fire, even if it got into the surface, it really has no way of getting up vertically. And so this would be your ideal treatment. Do we want this everywhere? Probably not. Right. Because it comes at a cost.

If you do this, you're foregoing some habitat for certain animals or even plants that are important. But the point is, if we do enough of this, we can absolutely change some of the behavior of these fires. Again, we won't eliminate them, but I think we can change the behavior of fire. And I'll leave it at that. Thank you.

Good afternoon and thank you for the opportunity to share some of the work we've been doing. I'm Dave Winnacker. I'm the fire chief of the Moraga Orinda Fire Protection District. I also lead the California Fire Chiefs Association wildland Urban Interface Task Force. And I'm a veteran fellow at the Hoover Institution Stanford working on this issue. As Dr. Collins mentioned, there is an enormous, perhaps multi generational effort required to restore balance forested landscapes.

From my perspective, that is an interesting problem for people such as Dr. Collins and the Forest Service to solve. I'm more interested on the wildland urban interface, that point where we see a transition of fire from vegetation to vegetation to vegetation to structure, and then structure to structure, which sets the conditions for urban conflagration.

I think these two are very tightly nested because, as Dr. Collins correctly pointed out, there are few, if any, long term solutions to balancing our forested landscapes that don't involve the use of fire. But the use of fire, either prescribed manlit fire or the management of naturally occurring fire is inhibited when we have nonprepared, non fire adapted, nonresilient communities in the landscape.

Managers cannot make full advantage of fire opportunities when they have concerns that a little bit of fire making it in proximity to the community could have negative impacts. And they are subject to not only personal pressures, where they are worried about the personal liability that assumes a fire manager assumes, but they're also worried about public pressure where a community has a sense that fire should be extinguished and that fire represents a threat to their community because their community is not prepared.

The work we have been doing with the Wii Task Force is focused on how we can align the limited resources and the limited time we have available to achieve the greatest results as we seek to create fire adapted and resilient communities. I won't bear down on this slide too hard because it was mostly covered before.

I will suffice it to say fire is a natural and recurring feature of the landscape and that some of the worst fire years we have had in 17 and 18 in 2021 were getting into the bottom end of the range of the natural cycle. That if fire were burning in a balanced ecosystem before we began suppressing and modifying the landscape, we would see something similar to those number of acres burned every year on a recurring basis.

We also have 120 years worth of exclusion of fire that we need to catch up for. So think of it as a high interest credit card with a balloon payment that has been coming due. And lastly, I would say from my perspective, climate change is a primary driver of Wooey losses insomuch as we are exposed to more of those fall wind Diablo wind days that occur all throughout the winter.

However, if they occur after the onset of seasonal rains, they're not associated with destructive fire so the compression of the rainy season associated with climate change means we are exposed to more of these damaging days where we have outsized impacts. This is some modeling of fire spread. And the thing I would point out here is on a wind driven fire and almost all of not the largest fires, but the fires that result in the largest number of homes lost.

And there's a reason those are separate lists from CAL FIRE. Almost all of those fires have occurred during a fall wind event. And as you can see in the modeling here, this is by hours, at 3, 5 and 7 hour spread, the fire very quickly becomes a wind driven fire carried by flaming Embers or brands.

And when those embers brands, sparks, et cetera, when they land on a receptive fuel bed, they start new fires of their own, which can rapidly grow to outpace the size of the main body of fire in an urbanized built environment. The fuel that is the receptive fuel bed is often a home. And when a home begins to burn, when we're in a structural firefighter setting, that is a very, very different beast than a vegetation fire.

Homes burn longer, they burn hotter, and they are more difficult to extinguish because the exterior of the home sheds the water we would use to fight the fire. And it's worth noting that Chapter 7 A of the California Building Code and R 337 of the California Residential Code, which is our fire resistant standard, it is technically called an Ember resistant Construction standard.

It is designed to protect homes against windblown embers, not against the sustained heat flux put off by an adjacent structure that has been ignited. So it is critically important that we recognize the degree to which our communities can be hardened against Embers, but they also run the risk of a very different fire when it transitions into a structure to structure urban conflagration. So to that point, we have a number of ways we can keep fire out of communities.

My colleague Mark Brown from Ren Wildfire will talk about how these are being implemented just down the road here. But from out to in. They begin with distant fuel breaks. The creation of splats or modified fuel treatment areas, extended defensible space or wooey fuel reduction zones around homes themselves.

The creation of defensible space to include a real zone zero, where we meet the science based five foot exclusion of all combustible items near the home and then home hardening retrofits for those homes that were built before 2008 and to whom the Ember resistant standard did not apply. Specifically, the replacement of shake roofs. Thank you. And the retrofitting of vents to 18 inch or finer mesh or ember resistant style that will keep wind blown embers out of the void spaces of the home.

All of these systems are well understood, they're well established, the science is in. They are not subject to a great deal of debate. The challenge is getting our residents and our communities to adopt them at scale. And because of the concerns associated with urban conflagration with the structure separation distance is less than 50ft, which is almost all of our suburban areas. If one home does this work, there is essentially zero value to that work.

It is not until 30% of the homes within a contiguous block have adopted these mitigations that we begin to tip the scale to actuarial significance, which then climbs to about the 85% mark. So we don't need everybody, but we need a lot more than the isolated onesies and twosies that will adopt these things because they believe in wildfire risk.

I believe, and as you will hear from other experts today, one of the most powerful forces we can align to encourage the adoption of these understood measures is alignment with the market's ability to price risk and access and affordability of insurance. The question I am often asked as a local government fire chief is how do I know if I do these things, my insurance will reflect these changes.

I think the Commissioner's recent announcement of the inclusion of forward looking cap models as a way for rate setting is critically important. Because communities such as mine that have made enormous investments in wildfire risk reduction and fire suppression capability in a backward looking historical loss model, they were unable to be credited for the work they have done.

I am hopeful that the new regulations will allow these measures to be more broadly understood and more broadly adopted because if we lose fewer homes to wildfire, all of our other problems in this space get better. If we don't address the underlying issue, which is the susceptibility of homes and neighborhoods to wildfire and to urban conflagration, everything else we do will be ineffective. So this is a simulation showing fire spread leading into the community of Woodside. And this is speed based, not intensity based.

Which intensity based fire modeling is interesting for forest management. It, however, is wildly inapplicable for the Wui problem, where it is a question of relative speed. Did the fire get to the community before the firefighting response got to the community with the appropriate weight to stop the fire? And in this particular case, we see that the pathways leading into the community, the lines are speed based pathways. The heat map is fireline intensity being used as a surrogate for Ember production.

But we see there are two primary points of entry into the community and the one we're taking a look at here is on the top center of the left screen. It shows where that vegetation to vegetation pathway transitions into a neighborhood that we see inset on the right.

This would be the sort of tool that would be used by a community to say this neighborhood is going to be prioritized for outreach, education, incentives, and unapologetic enforcement of either state law and SRA in the case of PRC 4291, or local regulations in LRA that can meet or exceed state law. And if we put in that combination of splats, extended defensible space, defensible space, home hardening, we can close off this pathway.

And if you look at the map on the left side again, you see how work done at this point of entry has an outsized impact on all of those downstream homes that would be exposed potentially to urban conflagration if fire made it past this point. So by using tools such as these, we can prioritize our limited resources with validation. This is one of many of the tools that are available for verification of work that has been done.

We are moving into a space where saying that someone has done good things is probably not going to be enough. We're going to need verification with an annual update to show that the conditions that will support fire have been removed and maintained from parcels at a landscape level.

This is work being done by the Western Fire Chiefs Association that provides a wildland urban interface response rating so we can understand how many firefighters, how good will they be at each of the fire pathways, veg to veg, veg to structure and structure to structure. And how long will it take them to get to that point so we can value the offensive and defensive actions taken by our firefighters that absolutely affect outcomes, but are not currently represented in our fire spread models?

These are two recent works that I would recommend to anyone who is interested in the topic. The one on the left, the cat models for Wildfire mitigation. This is a case study done in the community of Moraga Orinda, and then paradise is further work that took a look at the community of paradise and of Moraga Orinda identified buffers around the community and on the right side identified the average annual loss from the baseline risk.

Most importantly, they then took a look at what a 2040 scenario looks like with no mitigations and unsurprisingly, it shows the situation getting worse. And then they took a look at the value of various mitigations and found in the extreme example of the plus mitigation scenario that included the creation of buffer zones around the community, defensible space and home hardening. There was up to a 65% reduction in the average annual loss for that community and a 78% overall reduction in the community's hypothetical cost to insure.

I take these as an example of what can be done. The great challenge we have now is getting people to do the work and creating alignment between the fire service, our land managers, cap modelers and insurers so that we are all speaking with the same voice with regard to how risk is viewed and mitigated.

I don't claim to be an expert on pricing and wouldn't want to step into that lane, but I can say it is tremendously unhelpful in a community when, as the fire chief, I stand up and say, you need to do this, this, and this, people do it. And shortly thereafter, they either get a non renewal letter or they get a form letter from an insurer saying, you have tree canopy separation of less than 10ft.

Therefore you will be uninsured in a Mediterranean county in California, specifically in the Bay Area, there is no such thing as a running ground fire. Therefore, tree canopy separation is irrelevant to fire spread and to the risk of the home. It is an artifact of a one size fits all approach that is clearly unhelpful because the resident has now heard from two trusted sources, have heard two contradictory statements, and that reinforces the status quo bias and provides downward pressure on their willingness to do anything.

That changes their sense of place to make that investment in not only the cost and the effort of reduction, but that change in their sense of home that the vegetation that they have become accustomed to is part of. We appreciate the opportunity. We think this is critically important work. The Fire Service is here to be a partner. We understand we cannot suppress our way out of this. Fires are a natural and recurring part of the landscape.

However, fire suppression, fuel mitigation, and the pricing of the residual risk are things that can be understood. And it would be very helpful as we move towards an aligned space where the various stakeholders are speaking with the same voice around the basic science in this issue. Thank you.

Thank you. We're going to open it up for Q and A, but first I'd like to introduce Assemblyman Freddie Rodriguez. He's the chair of the Emergency Management Committee. Welcome. Freddie, did you want to say something?

Once again, thanks for inviting me here. Very helpful discussions. As chair of the Emergency Management Committee, obviously we're interested on making sure California is better prepared and safe. I always look at California as a disaster prone state. Fires, floods, and that big earthquake That's coming, right? How do we can better prepare our counties, our cities throughout this state with valuable resources, planning, moving forward, and lessons learned, right? It's a very unique time when we have with us the fires, the floods, earthquakes.

What are the lessons learned, what are we going to do better for the next time, right? And how we better prepare ourselves? California always looks to be the leader in a lot of things, so I think at this point, we need to be the leader in preparing our communities throughout California, whether it's the fire, the flood, or the earthquake. But once again, I want to thank everybody in here and thanks both chairs for having me join them as well. Thank you.

Okay, do we have any questions?

Someone would first of all, thank you to both of you. Appreciate that. So my district is really fire prone. Obviously, the largest fire this year, I think is the Smith River complex up in Del Norte and Trinity County area. And it's about 95,000 acres. So that sounds like a big fire, but in the big picture we've had a really, so far anyway, a relatively light season. But there's a difference, obviously when you're up there, it's federal responsibility.

Area federal fire agencies are just letting a lot of these fires burn because there's not a lot of risk to structure. But when we get closer to the Wui, which you chief are talking about here, then that's where for us, a lot of the rubber meets the road.

So I'm curious and appreciate the information there and what you're doing, but I'm curious, a lot of work has been done obviously by your agency on the benefit of the people that live in your community, yet it's not been reflected by insurance. So what do you think the Cap modeling is going to do to change that?

Are they looking forward based on where you are now or what do you think is going to be different because you've done a lot of work and that didn't impact rates and didn't impact coverage. So what's going to be the difference from your perspective?

So with the previous historical loss models, they only looked backwards and so it was not possible to report work you had done, not planned, but had completed because it was a lagging indicator based on fire loss on a much larger scale. As cat models come into use, as communities do work such as is being done in Marin County and in this county, the cat risk modelers want to run the most accurate model they can. They're running those models.

The combination of topography, weather and fuels based on a fuel model and the most accurate fuel model will equal the most accurate results. So as communities do work that modifies the fuel model and if the fuel model is modified, the results will reflect the change in the conditions on the ground.

And insomuch as those results result in fire taking longer to enter a community, particularly with the emerging ability to value the firefighting response, our belief is that the models will then accurately reflect the conditions on the ground. And in that, I believe we all have a shared desire to see accurate models and accurate inputs to reflect the conditions on the ground.

And in doing that, I believe we will set conditions to encourage adoption and maintenance of wildfire risk reduction measures because there will now be a direct outcome in the form of the modeling and the rates that come from the modeling that currently doesn't exist.

Is there a critical and final question? Is there a critical you talked about how some mitigation leads to a reduction in potential for loss. There's an area I walk my dog every day and there's three homes that live on it that are on a hillside. Two of them have done a fabulous job. They look a lot like what you pointed out and the work That's done in Forest. Dr. Collins yet this third one hasn't done a blessed thing.

And so for me, in my mind, after all what I've seen over the years, it just feels like that community is still at risk. Those three homes are at risk because one neighbor isn't on board with all of this. Is there a critical mass or a model there that does reduce that risk? Because I don't know how you get everybody on board. There's still some people who believe that every twig and everything is completely sacred and shouldn't be cut or removed.

So what is the critical mass and how do you get that message across to people?

Critical mass within a block of homes is 30% is the minimum threshold rising to about 85%? And I agree with you, we will never get 100% of the folks. There are folks who either feel strongly or are indifferent or don't have the means or any of a variety of reasons. And the law is certainly very deferential to a resident of their home around conditions, on their private property and close location home.

But from an actuarial standpoint, when at least 30% of the homes in a significant block, and that typically is about 100, have done the work, that starts to bend down the curve of modeled wildfire risk.

Thank you. Go ahead.

Yes, thanks. Chief, you talked about the retrofits for home hardening. So what would funding typically come to help some of these homeowners? Obviously the cost is probably quite a bit. But is there incentives from either states, cities, counties that would help to retrofit.

These homes at the state level? Kellos is undertaking a joint effort in four pilot communities now That's a little more extensive. That includes things such as siding and windows. The absolute bare minimum is woodshaped. Groups have to go. That's been reflected in state law for some time now. It has not been legal to put a non treated shake roof on in quite some time. And then for vents there are a number of local agencies that have incentives Marin County, My Community, Berkeley, others.

But event retrofit in the form of one 8th inch or finer mesh is a very, very inexpensive Proposition. Both Low cost of materials, Low cost of labor and outsized impacts. Because when taken in conjunction with creation of defensible space, That's been basis of state law since 1994. Well, 1967 really for 42 91. Fire just does not have a pathway to enter the home at scale. Now, there will always be onesies and two z's, there will always be outliers.

But the vast majority of circumstances that lead to structural ignition are mitigated with the replacement events and the creation of defensible space around the home, which is low cost, high impact, particularly when undertaken at scale.

Thank you as well to the panelists. Quick observation, then a question. Chief, wanted to pick up on your point, and it seems like the status quo right now is all too often, even as homeowners or neighborhoods, if you will, are stepping up and doing the right thing around home hardening, vegetation management, they're still losing their coverage or certainly face that risk. That's something I think we're all very concerned about. There's been legislation introduced on that.

So just sticking a pin in that, I think that's going to be an ongoing issue because it seems completely counterintuitive to what we're trying to accomplish. Following up on some of my colleagues and kind of from our vantage point, how can we be useful is, in your views, has the state taken the necessary actions and made the proper investments to reduce risk from future wildfires? And what more needs to be done?

Certainly the investment made in firefighting resources, firefighting aircraft, increased number of hand crews, increased event, that is very helpful. More firefighters are helpful when we are on those shoulder fire events that are not a conflagration. They're not the early phases of a fast moving, wind driven fire. As Dr. Collins showed during days one and two of the Creek Fire, no number of firefighters were going to stop that event. That fire was going to run until it hit rocks or the wind stopped.

There was nothing else to be done about it. So that investment is a good thing and is very helpful. The state has begun to put additional investment into the retrofitting of homes and increased its CCI investment in fuel breaks and other wildfire risk reduction measures. I would say a critical gap in the space in the CCI, fuel break, and fuel treatments is there is no money for maintenance included in those investments.

And when we put in a fuel break, depending on the fuel type, if it's in grass, you get six months of value. The next year, there is no residual value for that. In brush, it's about three to five years. In timber, it's more like five to fifteen, but when we put in fuel treatments in a brush fuel model without any maintenance funds, it is a statement of fact that within the next five or so years, there will be no residual value for that treatment.

And so, including the maintenance funds, which is pennies on the dollar, an initial entry is always more expensive, including maintenance funds in the form of prescribed fire, and lastly, I would suggest that the primary limiter on the use of prescribed fire in proximity to communities where it has the greatest benefit. I'm not speaking about the landscape level treatments and forest stuff because there are others who are far more experienced on that than I am.

But as we seek to reduce the vulnerability of our communities, one of the most effective ways to do that, beyond defensible space and home hardening, is introducing fire as a maintenance tool in areas that we have made an initial entry, usually through grant funds and the air quality management concerns and the limitations are the limiting factor on our ability to put more fire, beneficial fire on the ground the number of days where it is safe to burn.

And I'll say, as a fire chief, I sign the Burn Plan. I have personal liability, and if that fire gets away, I am a former fire chief. So I have real liability about this thing getting away and I have this tiny band of permissive conditions in the spring and the fall where it is safe to burn. Some of those days fall on areas where air quality will not give the approval for the ppm release, and so we are shut down.

And I don't disagree that they have an important job. I don't disagree that air quality is important, but currently prescribed fire, there is no consideration given for the offset and the reduction of future wildfires, and the emissions of a structural fire at scale dwarf anything we will see in well-managed prescribed fire, and every year we lose--particularly in our urban counties and regions--we lose prescribed fire days because of air quality concerns. And those are days then all that fuel just rolls over.

And as I mentioned before, every vegetative item that grows and is not burned just carries over to a future year. So, as Assembly Member Wood mentioned, this has been a relatively light year for fire. So was last year, and that's mostly because of the heavy rains. Everything's still very green. You can't get the brush to burn this year because it's too green.

All of that brush and all that great growth this year is going to carry over to next year and the year after, and our ability to thoughtfully get fire on the ground is the best way to maintain the fuel breaks, flats, and other fuel treatments that the state is generously funding, but is not funding the maintenance of.

I frankly don't agree with any of that. I think the other thing to think about, actually, just to add on to, is that these treatments are not a one off. They are a regime. We essentially need to commit to this regime of replacing what fire would have done. If it were resuming its natural role, we now take that on, and we take it on in different forms. But that's the thought. It's not as though we treated that, now we walk away and go somewhere else.

Assemblywoman Papan.

There we go. I just want to say I'm glad I came today. Not only are we taking off our shake roof this morning, but there was controlled burn just about in my area, about, I would say 5 miles north of Woodside that you showed us. In that exact 5 miles as the crow flies, controlled burning last Friday. So to all the carriers in the audience, I'm hopeful that my rates will come down. I'm just saying.

No, but in any event, I find that very interesting: the maintenance part of it and the trouble with air quality when you try to do it, but it did happen last week in my area, and I'm feeling like I'm going to rest easy tonight.

Thank you. I'd like to thank both of you for being here. This information is especially helpful. I actually happen to live in an urban area that's part of the WUI, and so I see this when I go in my backyard. These hills haven't burned, I don't know, probably a hundred years, and I think our Homeowners Association just hired a herd of goats but there aren't enough goats, you know, to create a defensible space in my mind. So I appreciate you being here. I'm going to turn this over to you now, Damon.

Great. Thank you, Chair and thank you, Panelists. We'll move to our next panel: How does California become resilient to wildfires? So, as our next panel, we will be examining the steps California has already taken to become more resilient to wildfires and the actions still required to reduce risk and better protect our residents. To help address increased wildfire risks, the state has taken several steps in recent years.

In 2021, the state budget guaranteed nearly one billion dollars in wildfire prevention funding for the 2021-22 fiscal year and required at least 200 million dollars annually in additional funding for the next six years. This funding commitment was nearly triple what was approved for wildfire prevention and resource management in 2020. More recently, in July 23, the Governor announced 113,000,000 dollars in new funding made possible by the 52 billion dollar California Climate Commitment budget. These monies largely went to various wildfire grant programs.

For example, the funding announced, 'this past July will support 96 wildfire prevention projects across the state with more than eight in ten grants directed towards vulnerable or underserved communities.' So to kick off the panel, we have Mark Brown, the Executive Officer of the Marin Wildfire Prevention Authority, a local agency we're very proud of. So welcome, Mark.

Thank you very much. Appreciate the invitation, and, yes, like Assembly Member Connolly said, my name is Mark Brown. Prior to being the Executive Officer for the MWPA, I was Deputy Fire Chief for Marin County Fire with 30 years of experience, 15 years on a CAL FIRE incident management team as an Operations Section Chief which means I was assigned to some of the most devastating fires in the state's history.

Six years ago, I was the Incident Commander of the Nuns Fire for the first 24 hours and back in 2020, the Glass Fire burned through my neighborhood in Santa Rosa and to your point, nine homes in my subdivision were destroyed because three homes became ignited, and there's a walk that I take through my neighborhood, and I took pictures of the defensible space because some people had done great work and one person was responsible for five homes right there.

And so part of my transition through my fire service career is 30 plus years of putting fires out and I decided it was time to stop suppressing fire. For me personally, it was time to start working on the prevention side of the shop, and we need more people doing that. So the MWPA--I want to recognize we are not doing anything that's really novel. What's novel about the MWPA is our governance structure, dedicated funding, and the pace and scale at which we can do work.

That's what's novel about the MWPA. So I do think we have a replicable model. We did create a strategic plan with five goal areas. I'm going to start in the middle because we have a house out approach, but these goals show that we take a systems approach and we have to apply all of the systems in order to be successful. So, first part is defensible home evaluations, and we target to evaluate one-third of our homes within our jurisdictional area every year.

We move in to improve evacuation systems and also improve our evacuation routes. We're reducing wildfire fuels both within our communities along the wildlife urban interface boundary and then working with our land managers with fuel reduction and forest health projects as well. It is so important that we educate the public. We won't get the public to come on board to do their work until we provide the proper education.

Just coming onto someone's property and saying you need to do this because we're the Fire Department doesn't work. You need to show them the why. And then we also provide grants for our residents and senior low income tax exemptions. We're fortunate to have a 20 million plus dollar a year budget thanks for the passage of Measure C two weeks before COVID, so really glad the timing worked out well there. Ten cents per square foot of building space is what the property tax is.

60 percent of our budget goes towards what we call core projects. So vegetation removal, evacuation route improvements, public education, grants, and then defensible space--20 percent of our budget. So 4.4 million in change goes towards defensible space evaluations. Measure C sunsets at ten years. Of course we're going to try to renew that, but after ten years and we look backwards and we look at the successes of the MWPA, I believe our Defensible Space Evaluation Program will be seen as the single largest success.

And then the last 20 percent is a pass through to our 17 member agencies because our law or our fire agencies know their communities so well, they know what their communities need and they are able to use those monies in the same way that we use them for the core projects. Again, we are working on a house out approach. We feel that too many of the residents have their houses at their backs and they point at the wildland and say, 'that's the problem.'

We are trying to get them to turn around and look at their house and say, 'if you can keep your house from igniting, then the home to home spread doesn't happen.' So we're really trying to get residents to focus on their houses. Again, our Defensible Space Evaluation Program has been a pretty big success. We have about 80,000 inspectable properties in Marin or within the JPA. We're averaging about 33,000 inspections per year.

This year so far, we've conducted 27,000. 60 percent of the people who have received an inspection have taken some form of action. It doesn't mean they did everything we asked them to do, but they have taken some form. It's probably not possible for people to do everything that's on that list. So we help them prioritize what needs to get done, start with the riskiest items, the low-hanging fruit, and move on from there, a year by year process.

We also have the ability to have the report exported to the Insurance Institute of Business Home Safety only if the resident wants that to happen. We don't share any data unless the resident gives us permission to share that data. Then they can receive potentially a Wildfire Prepared Home designation. We are also inspecting for all of the items within the Safer form Wildfires regulations, both positively and negatively.

So if a resident, let's say, has Class A roof, noncombustible siding, and noncombustible closures through fences, we'll actually know that within our system and we can tell that to the homeowner and they can go to their insurance company and say, 'hey, I have these items. Here's a report that says I have these items. I'm supposed to get a discount.' So that's one of the things we're working on as well. Our Resident Grant Program has been remarkably successful.

Last year, we expended 800,000 dollars in homeowner grants, both for defensible space and home hardening. Defensible space is 1,000 dollars per residence with no match, up to 5,000 with the match required for home hardening except for key items: gutter guards, vents, and a seal underneath your garage door we feel are just too important that we don't have to have a grant in order to receive those items. This year, we've distributed 225 grants already. We've expended 458,000 dollars of MWPA revenue, but what I think is important is that 3.2 million has been expended by the residents.

For every dollar the MWPA is putting out, the residents are putting six dollars out. So we see that as a huge return on investment. The return on investment for the resident, for the taxes they're paying, they're able to get a grant. Their neighbors are getting a return on investment because their neighbors have made their home safer, and then the MWPA is getting a return on investment because we're investing in the community and they're stepping up.

This doesn't include--that 3.2 million doesn't include people who didn't apply for a grant and we're adjusting our data collection system so we can start capturing that data as well. Chipper Days: after you receive an inspection and there's vegetation that we're suggesting that you remove, sometimes removal of that vegetation, taking care of it, is one of the most expensive items. We could sign up for Chipper Days.

Truck pulls up, picks it up for you, hauls it away. Last year we hauled away over 1,000 dump trucks worth of material. This year we're about 60 percent ahead of where we were last year. And then Public Education: a tremendous amount of effort going towards a public education but that bottom left picture is my favorite form of public education, and that's in our inspectors meeting with our residents. That is the best way. We also have Ember Stomp, which is a wildfire festival.

Last year we had 2,000 people attend. This year we had 5,000 people attend. And the vendors and contractors who come to that festival have said that Marin is the most well-informed when it comes to wildfire safeties of any of the communities they've gone to and we think that is an indication of the success of our public education. Evacuation Route Clearing: the picture says it all. I won't even say anymore, but we're doing a lot of evacuation route clearing throughout Marin.

This is one thing that's novel. I don't know of anyone else who's done this, but we've also conducted an evacuation ingress/egress risk assessment. We're evaluating every roadway within our Joint Powers Authority, not just for wildfire threat, but also its ability to communicate cars up and down the road. Are there parking problems? Are there traffic control issues? We're also looking at our communications network. If we can't get the evacuation notifications out to people, how do they know to evacuate?

We're also modeling how people behave during evacuations. So this way we not only know if a road is risky, we know why that road is risky and now when you know the why, you can actually do something to fix that and make evacuations that much safer. Of course, we have to have prescribed herbivory or grazing. Shaded fuel breaks: along the Wildland Urban Interface boundary is one of the things that we're doing quite a bit of.

Twenty-two of our projects are shaded fuel breaks, but what they really are is increasing defensible space along our Wildland Urban Interface boundary from one to 300 feet. We're not expecting these shaded fuel breaks to stop the fire. We're expecting these shaded fuel breaks to decrease the fire intensity, decrease the rate of spread, and it increases the amount of time that our residents have to evacuate under a safer environment, and it provides access for our firefighters to actually go in there and suppress fire.

It works both for the small fires, that three acre fire that gets on top of a house faster than a fire engine does, but it also supports us during these mega fires. As the embers are broadcast from the approaching fire and land in the shaded fuel break, they're less likely to ignite a new, intense wildfire up against our WUI boundary. And the Greater Ross Valley Shaded Fuel Break: 38 miles.

That data up there is actually wrong. We're about 22, 23 miles completed, and then we have a 60 mile project in Novato that we've started, and we're about five to seven miles in there. We are using science to model where we are putting these shaded fuel breaks, how wide they need to go, but also we know that we can't do it all at once, so we're using modeling to pick the riskiest areas, and we're hitting the riskiest areas first.

And then finally, one of the types of projects we're doing are Strategically Place Local Area Treatments. This is an example of the San Rafael/San Anselmo SPLAT, and it's in an area that has a lot of fire history, and you can see that fires will get onto the community very, very quickly there, and with the onshore flow pushing fires, we've had numerous fires that started to the left of this picture and transitioned through that area that we're planning to create the SPLAT, and has impacted homes immediately.

So now we are working on a project that we will start next spring. We're not removing all the trees and the vegetation in there. What we're doing is we're thinning it. We're removing the dead and down and so as the fire approaches that SPLAT again, its intensity goes down. Our residents have more time to evacuate under safer conditions, and our firefighters have a chance to succeed, and with that, I can pass it on to the next speaker.

Take questions at the end of this panel again. So we'll next hear from Mike Noonan, manager of training, compliance, and assessment for Wildfire Defense Systems, and then from Mike Peterson, Deputy Commissioner for Climate and Sustainability at the California Department of Insurance. It's Mr. Noonan. Welcome.

Good afternoon, Madam Chair and Mr. Chair. Members. Appreciate being here as you introduce me. I'm Mike Noonan. I am here on behalf of Wildfire Defense Systems. I may refer to that as WDS in the presentation, so thanks again for inviting us. I entered the fire service 1979. I retired as the Unit Chief of Tuolumne-Calaveras Unit, CAL FIRE. Actually worked over here. My career, three different assignments, so I'm pretty familiar with the country, so it's nice to hear some of the work that's going on around here.

It's an honor to be here. Throughout my fire service career, I picked up a service dog. This is River down here. She accompanies me wherever I go, and she's doing pretty good today. She's got a little training going on, so thanks for having River as well. So what's WDS or Wildfire Defense Systems? What we are is a qualified insurance resource and I'm not going to bore you with trying to explain that, but I'm going to read you what your law claims that we are.

And 'we are personnel and equipment working for or contracted by an insurance company with a mission to mitigate risk to insured structures and operating in compliance with instruction and oversight of the Incident Command or Incident Management Team of the authority having jurisdiction.' So this service that we provide, it's key to know that this is available to all of our insured, alright? The rich don't come first and take precedence. If they have a policy written into the insurance company that we contract with, we go out and provide services.

So our mission is protecting insured properties from being destroyed or destruction from wildfire and here in California, if there's a significant fire in California these days in 2023 and their structures threaten, Wildfire Defense Systems is probably there, okay? It's becoming more the norm. This is a picture of our National Coordination Center in Bozeman, Montana. Not only do we have services in California, but we're in 21 other states. So we cover 22 states.

In California itself, we have a regional coordination center in Riverside, one in Visalia, California, and one in Sacramento and we have a lot of assets that we deploy. We are the nation's largest provider of wildfire response services for insurance companies. We're measured by coverage area and wildfire fighting resources and assets. If you compared us to all the other agencies or wildfire producers, we're number three next to the federal government in the State of California. In 2023, our service covered in excess of 2.5 million California single-family homes.

What we do in WDS is we do wildfire monitoring. We've got a sophisticated system set up in that National Coordination Center that you saw a picture of slide before last. We have a lot of people, staffing, that were monitoring fires in the 22 states that we mentioned. California is our busiest state by far. We access coordination. So once we discover there's a fire, we do a smoke check on it. We feel that we have assets at risk. We deploy.

We go out and perform pre-fire front mitigation, and this is very different. This is a new concept. We're not here doing structure protection, we're doing mitigation. This next bullet point says we do structure protection, but what we really do is structure preparation. We're interrupting that chain. You've heard that chain of events that happens that lead from the vegetation within the WUI that lands into the structure and then goes structure to structure. We're there to interrupt that chain of events.

We also hang around and do post-fire front mitigation. So we make sure that there's not rekindles and we make sure the fire is fully extinguished. We work hand in hand with agencies that have jurisdiction. We ask their permission to get on fire. We provide them information about our assets, including addresses within their incident and their hazard area. We have a whole team that I mentioned, folks in Bozeman.

We have a lot of engineers and folks that are doing really good work and coming up with new ways and innovative ways and some of the simple tactics that we do is we'll go out and we'll cover vents in advance of the wildfire that may be threatening a structure. The reason for that is to keep embers from entering into the structure. We'll close up any other openings that might be an avenue to access the structure and start the structure on fire.

The second slide or the middle slide there is we remove combustible debris. This is an example of this, especially where I come from in Tuolumne County. Pine litter is a significant problem. This is something that will mitigate in advance of the fire. We have some fancy devices on our leaf blowers, so we get up in rain gutters and remove vegetation from that. Seems pretty simple. Very effective. Like 99 percent effective.

Creating safe zones is something else we do in front of the pre-fire front intervention. We deploy sprinkler systems that comes with a collapsible tank that will deploy, and then we apply retardant at times, and as we're speaking right now, we're testing new product up in Bozeman, and our engineers are doing some testing on a new product that we're looking to put into service Fire Season 2024. So our innovation is real, some of it's simple, some of it's high tech, but the outcome is fantastic, and the principles are very simple.

Again, after--part of the post-fire front intervention that we do, I mentioned it, hotspot mitigation. We hang around and we'll make sure the fire is fully extinguished. If we do have flare ups in areas on one of our properties, we'll deal with those and then we rehab the property, and one of the neatest things that we do is we're providing real-time photographs and information to our insurance contractors, and they're in contact with the homeowner, and the homeowner is getting real life data and information about their home.

And you can't believe the letters of appreciation that we get. When we were all firefighters, and I was growing up as an Instant Commander on an Instant Command team and an Operations Section Chief on a CAL FIRE team, I was telling one of my partners in the back here, it used to bring tears to my eyes when we'd get ready to leave a fire and there was 'thank you firefighter' signs that were up there.

It really meant a lot. You spend several weeks, sometimes months back in the day on these incidents and to get that recognition, that's not what we do it for, but that's the kind of recognition and the appreciation that our firefighters with NWDS is getting. I wish I had some time to read some of these letters for you. This is new and innovative, and it's very much appreciated by the homeowners in California.

So what we have at our assets, we have over 500 wildfire service experts and professionals. I've talked about some of them from firewatch commanders to engineers to dispatchers to people that track the resources. We have 180 qualified insurance resources at our disposal. Interesting thing is, we're one of the only private industries that's affiliated with the International Association of Firefighters, Local 96. So our firefighters are union members and since our inception, we've monitored over 100,000 fires.

We've dispatched resources and provided structure protection services for insurers on over 1,200 wildfires since 2008. We've served over 33,000 individual properties since 2017. You see a correlation here? And we have done this at a success rate where we've intervened on properties at a 99.6 survival rate. Our broad footprint lends us to the ability to which has happened. Been on 26 separate fires in five different states, all in the same day. Wildfire monitoring and dispatching: I've mentioned that already.

WDS National Coordination Center is open 365 days a year. We're staffed with fire behavior analysts, fire officers, programmers, database specialists, GIS specialists, Professional Services Division, and data science and engineer teams. We monitor for wildfire incidents, wildfire weather, fire activity, fuels conditions, local resources, and activities. I wish I could all put you in a car and take you to our National Coordination Center. It's pretty impressive. You have some things that rival that here in California, obviously, with OES and CAL FIRES, two different regions.

Continuous intel exchange with field operations happens all the time. We're feeding information back into the National Coordination Center. It flows back out to our resources on the ground and obviously, we are very proud of the state of the art Information and Intelligence Center that we have. So, in conclusion, I was talked out of retirement because this thing's pretty special and I take a lot of pride in what we're doing.

The folks that through our training and the innovations that we're coming up with is state of the art, second to none, and again, we're the largest such company in the United States and I see this as another tool in your toolbox for this very important topic that you're talking about. Since 1979, I've seen a complete change in the landscape of wildland fires in California. Thank you very much for your time. Appreciate it.

Thank you. We're going to go next to Mr. Peterson.

This question is central to how the Department has approached the challenges posed by climate intensified wildfire risks for insurance availability in our state. I'm also pleased to provide these follow up remarks from when I testified before the Assembly Select Committee on Wildfire Prevention at its informational hearing held earlier this summer regarding the similar topic. The overarching approach of Commissioner Lara has always been to prioritize reducing risks to California communities.

The Department of Insurance has focused a multi year effort on engaging with consumers and stakeholders as it assesses how new tools can improve risk management, make residential and commercial insurance more accessible and reliable for Californians, and maintain competition and ensure stability in the state's insurance marketplace.

The Department has been very clear that benefits to and protection of consumers are of the utmost importance as we strive to meet the interlocking goals of Commissioner Lara, namely making insurance more available to Californians, creating a resilient insurance market, and protecting communities from climate change.

Today, the focus of my testimony will be Commissioner Lars Safer from Wildfires framework, announced in 2021, which has been a collaboration among the state's wildfire preparedness agencies to communicate home hardening and community mitigation actions to Californians and the subsequent continued strides made as a result of this framework. Wildfire risk reduction is the result of the combined work of entire communities, neighborhoods and individuals to take the actions necessary to make us all safer and is critical for insurance availability, affordability and reliability.

We've heard many examples already today on the combined efforts that are ongoing in our state. Insurance has historically been about pricing risk and being a source of resilience funding that occurs after a devastating wildfire. What we are doing at the Department of Insurance is taking specific actions so that insurance incentivizes risk reduction before a disaster occurs, saving lives, reducing losses, and bringing down costs. The Safer from Wildfires program was launched in 2021 by Commissioner Lara convening the major wildfire preparedness agencies and I'll list them briefly.

The Governor's Office of Emergency Services, what we call Cal OES. The Governor's Office of Planning and Research. The California Public Utilities Commission and CalFire. And I appreciate the effort by every agency on this overall initiative. Our goal was to establish a list of home hardening and community mitigation actions that were based in fire science.

In one year's time, we met with the research experts from the Institute for Business and Home Safety, the University of California, consumer groups, insurance, trade associations, fire chiefs, and wildfire safety experts, among others. The Institute for Building and Home Safety is a research organization that tests home hardening strategies and determines those that are most effective to reduce losses to structures. The University of California has researchers across the state that are studying wildfire risk to communities and developing strategies that bring down that risk.

In early 2022, the partner agencies publicly announced the Safer From Wildfires framework, a consensus of core home hardening actions and community mitigation designations. Actions that are clear and consistent, effective and achievable. The actions recognize that we need structure hardening. We need to work outward from the structure to the surrounding property and also together within our communities, starting from the structure itself.

There are six structure level actions in Savior From Wildfires a class A fire rated roof, five foot ember resistance zone around the structure, a non combustible six inches at the bottom of structure walls, ember and fire resistant vents, double pane windows or added shutters and enclosed eaves. Some of those actions, like replacing vents, can be relatively economical and can be accomplished rather quickly in a day or a weekend. Other actions will take longer. The key here is for consumers to get started.

Many local fire chiefs and local fire districts are providing important coordination and encouragement for homeowners and business owners moving outward from the structure into the area immediately surrounding. There are three actions in Safer From Wildfires first, cleared vegetation and debris from under decks. Second, sheds or outbuildings that are moved at least 30ft away and third, trimming of trees and removing a brush in compliance with state and local defensible space laws. And then finally, moving from the individual parcel level to risk mitigation for the entire community.

There are two community level designations that are recognized and Safer From Wildfires. First, neighborhoods that form a Firewise USA Committee community, of which there are over 700 in our state. And then secondly, cities, counties, and local districts can become certified as a Fire Risk Reduction Community, which is a designation established in state law and implemented by the California Board of Forestry and Fire Protection.

What I verbally shared just now is essentially the list of home hardening community mitigation actions that are included in Safer From Wildfires, which is also additionally outlined in the Committee's background paper for those communities facing Wildfire risk. This framework can be used to focus effort on the consensus actions of the five partner agencies. Our next step was to make Safer From Wildfires most impactful to insurance consumers and the public.

In 2022, Commissioner Lara, under the authority as California's Insurance Commissioner, finalized the first ever regulations by any US. State to require homeowners and commercial insurance companies to provide incentives to policyholders who take these home, business and community hardening actions. This process included public workshops and incorporated the Saver From Wildfires framework. In addition to Wildfire mitigation, this regulation is now requiring insurance companies to provide consumers with the property's risk score and a right to appeal that score.

The regulations were finalized in October 2022 and insurance companies had to file new rate findings by April 2023 in order to comply with these rules. The rules state that insurance companies must incentivize risk reduction for each and every action on this list. That means that the more work you do, the more you can save. This will be an ongoing incentive to harden homes and businesses and invest further in community risk reduction across our state.

This regulation is one step in what has been a four year effort to encourage home hardening. In 2018, only 7% of the state's policyholders had access to home hardening incentives. By 2021, that number had grown to 40% of policyholders. The new wildfire mitigation regulation being implemented by the Department will ensure that 100% of policyholders have access to these incentives. One key here is that homes, businesses, and community hardening actions that are contained in our regulations are consistent across insurance companies.

This will help give consumers the confidence that their investments in risk reduction will be rewarded. Every insurance company writing residential or commercial coverage is required to provide these incentives. The important thing is to encourage homeowners and businesses to get started with what is achievable today and then work from there. We have an outreach and education team that is working with communities and stakeholders all across the state to assist consumers with questions on this issue.

Specifically, I also want to emphasize the importance of alignment across agencies, state and local, to make California more resilient to wildfires. Insurance pricing will be one incentive, but there will be state grants and local grants that can help neighborhoods and homeowners achieve the actions in Safer from Wildfires. Some of these actions are not new.

But what is new is that Commissioner Lara's new wildfire mitigation regulations are making risk reduction actions more clear and requiring incentives that increase adoption of home hunting actions that save lives and property. In closing, the Safer from Wildfires framework is an essential piece of making California more resilient to wildfires and supports Commissioner Lara's recently announced sustainable insurance strategy.

I do want to briefly note that in the background here that there are specific numbers on total claims, both for fire losses over four years from 2018 to 2021, and also those that incorporate smoke and wildfire. These numbers are really important and notable, and I do want to continue to work with the Committee to resolve and clarify some small differences in the numbers that were reported versus the numbers that are in our reports that are on our website.

In particular, the claims and losses are a bit higher than what is in the backgrounder, but are similar in interpretation and scope. I look forward to working with the Committee further on that effort. In closing, I'm happy to answer your questions about wildfire safety mitigation. Thank you very much for having me. I appreciate it.

We will bring it back to Members for questions. Yes.

Hello, Mark. I believe when you're talking earlier regarding the clearing of the brush around properties, is that something should be depending, I guess, where you live, That's something should be done yearly or every other year?

That's a great question. So obviously we want our homeowners to be maintaining their yards every year. Actually, times like this, probably more than that. But when it comes to the fuel types of our shaded fuel breaks, it all depends on the fuel grass. We're going to be going back every year and treating the grass brush. We anticipate three to five years. Timber, seven plus years.

The good news is the amount of effort that it takes for the first pass is up here, and then the amount of effort for the subsequent is down here. And so what we look at for the MWPA is that for the first several years, new and emerging project funding has been up here, maintenance is down here. We've already started in year four, starting to see new projects come down and maintenance come up.

I anticipate by year seven we're going to be maintenance is here and new projects are down here. Good news again, the maintenance is a lot cheaper.

And I just have one more question for Mike from Walland Defense System. So I'm looking at your handout, which you're presenting, and it looks like is it your dispatch center, your monitoring center? Now how do you guys work with, like, CAL FIRE? OES because I know they kind of all do similar things, and I know things can get hectic on that fire line right when things are kind of getting out of hand, so to speak.

But how does the coordination with all the different entities working together, you're kind of almost doing the same thing, but not really. So I guess it depends on the incident commander, where all the information is going through to make sure we got the resources going to all the right places. How does that work, that coordination?

Great question. Assembly Member Rodriguez the bottom line is when we arrive on incident, we meet with the incident command team or incident management team, and we ask permission to incorporate into their incident so they can keep track of the resources and we don't become a liability. And it's very important for us to be transparent and disclose where all the properties are that would be in the influence of that wildland fire setting.

And the work that we do is very different, and it's very important for us to announce that our work is very different. The agencies or local government are very concerned with perimeter control. Obviously, That's not our mission. Our mission is to get out in advance of the fire at a safe distance and take mitigation measures. You keep talking about hardening the structures and that kind of stuff. That's essentially what we're doing.

We're going out last minute hardening structures that our clients of the insurance companies that we contract with. And those simple measures have proven to be highly successful. But what it does do is it enhances the agencies or the local government's ability to focus on their job and not have to take care of some of those tactics and strategies that might work on these particular structures that belong to our clients. I hope that answers your question, sir. But our mission is very different.

We coordinate with the agency or the local government that has jurisdiction on the fire and coordinate our activities. Thank you, sir. Great. I'm done. Thanks.

Thank you to all of you. Really appreciate all the information we've heard a couple of times now. Maintenance is really important. These are not one and done issues. I know in UK we had a big firebreak that had been done for years and then neglected. So the cost to go back 10, 12, 15 years later to do that is really high.

So that's something that's a takeaway for us as to how do we find a way to incorporate in these grant programs a maintenance component of that so we can keep these going. Question for Mr. Brown. You talked about a lot of things. Are you utilizing control burn as part of your strategy as well?

Yes, it falls within our Member agencies. The fire agencies will actually be conducting the prescribed fire, but we either do pile burning, which is prescribed fire, but we also have broadcast burns. We just had three days of burning in Nevada that Merck County Fire was coordinating state parks. China Camp is going to be doing some burning soon. And then Marin Water is going to be burning a 30 acre plot up on top of Mount Tam later this week, where we come in to support.

We can provide some of the funding for the project work, but we can also help with the environmental compliance. The whole idea, Chief Winnicker put it very well.

You have to look for the right. Windows of time for these prescribed fires to occur. So what we want to do is be able to get all the environmental compliance completed upfront, get the plan created, and have all of our air quality permits approved. And then when that right weather window comes into play, then we can go burn. And that's what is happening this week.

I appreciate that and I'll just note, and I'll get on a little bit of a soapbox here for a minute because I know the air quality management districts all operate in such somewhat of an autonomous way. That's really challenging for people in different counties. There's also I know that in some counties there is no cost for a burn permit and in others it's hundreds of dollars, which is an impediment.

I've heard multiple times over the years of agencies and groups all staged to do a controlled burn and be shut down by the air quality. And my frustration is, and I don't know how to get around this, because I think if you want to talk about autonomous, we'll talk about CARB for a second here, because at some point I would rather see a little bit of smoke than live with days and weeks of smoke from fires that are in communities.

Yet there seems to be a lack of coordination or understanding by CARB on some of this. I understand that. So I would welcome from any of you ideas about what we could potentially do there because I understand and I appreciate and respect what CARB is trying to do. But at the end of the day, if we can't do some of these controlled burns and have a little bit of smoke and mitigate risk, we're still looking at these big smoke events.

And look, I was up in a couple of weeks ago up in Del Norte County, and that smoke that you saw in the Bay Area for the days was coming from up. So that was a federal responsibility area, different animal, but the lack of consistency with the air quality management districts, the ability to coordinate with CARB is really frustrating. So if you have some ideas about what might be guidelines that could be helpful, I'm all ears because we're trying to figure this one out.

A couple of thoughts. First of all, you're right. Smoke is a pay me now or pay me later Proposition. And pay me later is a lot more expensive than pay me now. If you look at the type of smoke That's coming from prescribed fire and compare that to the type of smoke from high intensity fire, there's no comparison not only in the volume of fire, but what is inside that smoke, much more dangerous smoke.

There's some research going on that is talking about the avoided wildfire emissions. So that yes, we might release some carbon, we might take some trees that are sequestering carbon away, but we're improving the health of that forest, a healthy forest sequesters more carbon. And then we are also preventing that large carbon emitting event from happening. And then there could be regulations that we could put in place or encourage the air quality management districts to exempt prescribed fires from parts per million type activities.

Smoke management plans just make it a little bit easier for us to go through the regulatory process, streamline it. Sure.

Thank you. So this question is for Mike Peterson. Can you go into a little bit more detail on how the safer from wildfire framework works and what kind of discounts can consumers anticipate?

Absolutely. Thank you very much. So the way that this works is the department's regulations require these 11 factors in every rate filing that uses wildfire risk as a rating factor. And so no matter who your insurance is, if they're rating you based on your wildfire risk, these factors will be integrated into it and bring down that risk in terms of what you pay at this point in time. We received the rate filings in April of 2023. The Fair Plans rate filing has been approved.

So those who have fair plan policies and are in the highest risk areas will see the beginnings of those discounts as they're implemented. And then the remainder of the rate filings are under review at the Department and we'll have updates in the upcoming months.

But in General, if you think about it, if this is related to your wildfire risk, then the riskier you are in terms of hazard or the area that you're in that has higher hazard, this discount will apply and will potentially provide a bigger discount in higher risk areas than it may in other areas as well. But that's the goal is to provide a clear and consistent statewide set of factors.

Different insurance companies will have different ways of implementing those factors, but every consumer, once these rate findings are approved, we'll see that in what's offered in terms of their premium.

Thank you. One more follow up. And what does a wildfire risk score mean and how is that factored in?

Thank you. So, for the past several years, many insurance companies, if not all of them, have used fire risk scores that are a combination of different broad factors like access roads, fuel load, slope of a certain property. And that gives you a score that's been used in premiums going back probably the last 10 years because of the recent regulations. Now mitigation has to be part of that scoring and these safer from wildfires factors become part of that.

So these are now things that a homeowner can control to a certain extent of vents and roofs and 5ft of non combustible space. And so it does sort of merge with some of the ways that insurance companies have looked at pricing over the past 10 years. But what it does is it gives consumers that incentive that if you do some of these, take some of these actions and you build through that, over time, you will be rewarded in the insurance pricing.

Okay, thank you.

Great. And just zero my go ahead.

Yeah, Mark Calderon's questions. So we hear a lot about this idea of pricing based on prospective risk. And I'm just curious, how does that come into play with trying to mitigate damages that could happen around your home or home hardening or safe space or whatever it may be? Are those considered one of the same or is that something different?

I think it comes down to two different approaches. So what has been used thus far has been a look at historical losses over the last 20 to 25 years. And so in those losses, there's no specific factors for certain risk reduction actions. They're sort of integrated. If they've had an impact historically, then they're part of that history.

But anything recent and you think of what we've heard from today, from Dr Collins in terms of prescribed fire, or Chief Whitaker in terms of an expanded focus on home hardening, those are more recent safety measures that wouldn't be fully reflected in that historical record. What catastrophe models allow for is a look at the risk assessment for what it would be today and in the immediate near future.

And that's in some senses, that is likely much more accurate to what the risk is at the moment, as opposed to what it may have been, as you average over the last 25 years.

Is it that the prospective takes into account, then, what an individual might do to mitigate as well as what climate may impact in the future? Is it a combination of those two? And right now we're only looking at what an individual might do to mitigate. That's the only perspective part we've gotten so far.

So on the perspective part, I think there's sort of a distinction here. It's what is the most recent types of mitigation actions that have occurred and that information that can be integrated into a model. So it's not prescriptively assuming that I am going to put in a new roof in five years or something like that. It's in the very recent past what mitigations have taken place that we can demonstrate and that could go into a model.

The perspective nature of it is that when it comes to climate change and looking at how wildfires are likely to burn, are there's sort of scientific data that can inform what we expect from next year, which is the year that insurance companies are looking at in terms of their policies, is what's going to happen next year?

And so that's the prospective nature of it is using the science that we know about how fires are burning, what we know about mitigation, what we know about forest management, into what can be projected into the next year when the insurance decisions are being made.

Questions.

Okay, just a couple, starting with Mark Brown. In your view, is CAL FIRE getting grant money out the door in a timely manner.

With the Fire Prevention Grant program? Yes, I think for the resources that they have internally, yes. The challenge, though, is for those of us who have many projects and having to apply for each individual project at times can be very cumbersome. We would really enjoy to see a block grant type program. We've been working with one Tam, our land management agencies. They've created a fantastic forest health strategy that has a chapter of all their projects.

We're combining that project list with our project list, and we're calling that our Regional Priority Plan. And we feel that if you present a regional priority plan that you can lean to point to, then a block grant program can be very successful and that'll be able to increase the pace and scale that people are doing work.

Yeah, and as you know, I happen to agree with that, and we're pushing some legislation on that and we'll continue to do so. Related to that, from a community perspective, could this grant process be improved or streamlined in any way? Is it really the best way to do that through a block grant model.

For the community resiliency? I think so. We've applied for some grants along that lines, but the demographics that we're in are not putting us on top of the list for supporting that. But I do think it's a lot easier to funnel money into an organization like ours to support the residents rather than the residents having to go out all on their own.

Okay, great. Have efforts to expand access to home hardening programs been successful, in your view? And particularly, are the grants being successfully distributed to low and moderate income households?

Yes and yes, we are seeing a lot of work being done. We are definitely always trying to improve the program. Right now, we are treating all of the hazards as equal risk. Our next rendition of the grant program, it will be prioritizing the risk, so we'll be having people remove the hazards that are the riskiest items or improving the items on their home that are the riskiest items first. So that is one tweak that we have there.

Accessibility that is one of the weaknesses of our current program right now. It is a reimbursement program. And so those without the financial resources for a reimbursement program, it isn't great, but we have some beta tests that are going on now where we are coming in onto the property with the property owner's permission and getting the work done so they don't have to leverage their own finances and then get reimbursed by us.

Great. And then to Mr. Peterson, you mentioned the Sustainable Insurance Strategy, which was recently unveiled. If you could just kind of quickly summarize what you see as the implementation strategy for that plan.

Absolutely. Thank you. So, as Commissioner Laura announced, our timeline is sort of immediate and urgent, and so we are looking to implement it by December of 2024. As part of that plan, there's three main goals. How do we expand insurance availability in at risk communities? How do we stabilize rates and coverages? And then how do we protect communities better from climate change?

And so, as we move forward, we've had two workshops on catastrophe modeling so far, two public workshops on catastrophe modeling, where we've garnered testimony from many stakeholders. Our most recent was about a week and a half ago. And so we're reviewing that testimony and coming up with next steps moving forward. But as the Commissioner articulated, we are looking at a number of new sort of regulatory ideas and also what types of expertise we can best bring to bear to make communities safer.

And so it sounds like the public will have an opportunity to weigh into that process.

Consistent with how safer from wildfires was done. There were public workshops. We've had catastrophe modeling workshops so far, and we'll continue to have those types of public events and workshops.

Great. And then final question, you started to allude to this. In terms of catastrophic modeling, how will that account for climate change?

First of all, I can't speak for all catastrophe models in one broad brush, but generally speaking, catastrophe models have been used in the insurance sector for several decades when it comes to underwriting properties. And so they do take into account things like landscape level management, meteorological information in order to produce the catastrophe modeling results that are used in underwriting when it comes to climate change.

Given that we're now into California's fifth climate assessment, we are learning more and more scientifically about the impacts of climate change on wildfires flooding, heat waves. And so that scientific information goes into hazard maps, it goes into risk assessments, and modelers are able to integrate that into what they produce. In terms of what you'd expect for the probability of catastrophes in the next year, I think what is really important is that we are learning more and more about the risk mitigation actions and their impact.

And so over the last three years, the state's invested, I think, $2.7 billion into wildfire resilience. As that money comes to fruition, as the prescribed fire increase regimes come to fruition, you're going to have scientists who are looking at those mitigation actions, better understanding them, and that information will lead to better models that reflect safety measures, I think, into the future.

Yeah, you literally just anticipated my final point. I think that is just point blank. Catastrophic modeling should better account for wildfire prevention projects, the mitigation features we're talking about today. So appreciate that. So with that, I'll turn it back.

Yeah. Thank you, gentlemen. This has been very helpful. We appreciate you participating today.

Thank you for having us.

So we're going to start our next panel, which is going to focus on the question of can consideration of risk and resiliency lead to property insurance market recovery? On this panel we have Karen Collins, the Vice President of property and environmental at the American Property Casualty Insurance Association Robert Harrell, Executive Director of the Consumer Federation of California Saran Taylor, Vice President at Personal Insurance Federation of California, and Amy Bach, Executive Director of United Policyholders.

Welcome. And I think we'll start with Karen, whenever you're ready.

Good afternoon. My name is Karen Collins. I'm Vice President of property environmental policy issues for the American Property Insurance Association. For those not familiar, we are a national trade supporting auto, home and business insurers. And we are an established organization with a legacy of over 150 years. And our Members do represent all sizes, structures and regions here in California, across the US. And also globally as well.

In my role, I serve as a policy expert on property and natural catastrophe issues with a specific emphasis on mitigation resilience. And that really focuses on developing state, federal, international public policy recommendations for our membership itself. So I appreciate the opportunity to share insights on today's insurance market here in California.

I do want to cover as a starting point an overview of the market challenges that we're facing and then dig into a discussion on how greater resilience to the wildfire issues will resilience to wildfire is going to help improve the insurance affordability and availability here in California. So, starting at a broader high level, the US. Property insurance market is in fact facing the hardest market cycle in over a generation and it's impacting catastrophe exposed markets. Really across the US.

There's a number of factors that are impacting this. I've listed a handful of those. Really, the top factors that are driving the most recent cost pressure includes significant inflation, elevated natural disaster activity, and also land use policies which are exacerbating the effects of climate change. And I'll touch on some of these briefly to start. Just for example, between 2000 and 22,022, the US. Has experienced over $287,000,000,000 in insured natural disaster losses, making it the costliest three year period ever for US. Insurers.

For loss events that have occurred since the start of the COVID-19 pandemic, specifically, the costs and time frames needed to rebuild and also replace the contents inside of homes have also been further strained by the rapid onset of inflation, which just last year reached a 41 year high of 8%. Looking specifically at construction costs for single family residential homes, the construction materials in this time frame have shot up 35% and labor separately has climbed 30% as of June of this year.

So this has resulted in much higher loss costs well beyond the typical demand surge effects that we might normally see after natural disasters. So the impact on the homeowners market insurance line is that we've seen a combined ratio of 100 for five out of the most recent six years. And anything over 100 typically means that insurers have spent more than they have collected in premiums.

And we're seeing the same pressure in commercial lines as well, with a combined ratio above 100 for the last eight years in a row. So, looking at California, among these losses, California has experienced seven of the 10 costliest insured wildfire loss events in the world just between 2017 and 2022, according to Aon data. We are also seeing the state has experienced its largest fires in recorded history by acres burned. You can see some of those stats here in this chart.

A recent analysis from Milliman, a well respected actuarial firm, has noted that the losses from 2017 and 2018 in California specifically, were so significant that they wiped out over 20 years of underwriting profits for homeowners insurers. And we've been trying to climb back from that since. Of concern, though, the threat of catastrophic wildfire losses is continuing to climb.

This is in part due to the growth in population in communities in our wildfire prone regions as well as the impacts from climate change which is resulting in hotter and drier conditions as many spoke about today, which is enabling fires to ignite more easily, spread more rapidly and burn more intensely which is essentially making them more difficult to control and suppress. I'll highlight briefly the Dixie and Caldor fires from 2021. They're not notable in the sense of they're not the costliest insured loss events.

But when you talk about fire behaviors changing for the first time ever, conditions enabled wildfires, these wildfires, to burn clear across the Sierra Nevada mountains from one side to the other, the first through the Dixie fire, only to be repeated a month later by the Caldera fire. This is unprecedented in recent modern history. Now, there's some other issues that are inflicting additional pressure in states which are amplifying the effects of this current hard market.

For example, in the aftermath of the severe wildfire losses here in California, we've seen a flurry of legislation and regulatory changes that have been enacted. Now, these have been well intentioned, intended to help protect consumers by providing more robust coverage under their insurance policies. I'm a California resident, I appreciate them. But these policies have also introduced higher costs and volatility. That makes modeling and in turn pricing wildfire risk more challenging.

And insurers have also faced some significant constraints in managing the growing risk that we do have in our state, such as the lengthy time frames to secure approval to increase rates, and also limited access to certain tools that are critical to managing catastrophic risk in General, wildfire included.

So the result is that some insurers as well as reinsurers may be more hesitant to deploy capital due to the uncertainty of expected future losses, the prospective losses, and the ability to collect adequate premiums to cover those prospective losses. Finally, insurers are also facing higher costs for capital, which is critical to provide coverage in any catastrophe prone region. For example, reinsurance which for those not familiar is like insurance. But for insurance companies, that has surged in cost.

In the US we have incurred over 70% of global insured losses in each of the last three years and we are on track to repeat that again so far this year. So the large volume of natural disasters has resulted in much higher reinsurance prices for less coverage for companies, while other forms of capital, such as catastrophe bonds are also similarly experiencing higher prices.

So as a result, insurers are diligently working to manage the costs as well as the capital that they have to ensure that they can fulfill all their obligations for all the risk they do take on. These are the collective pressures that are contributing to difficult decisions from individual companies that may need to adjust what coverage they are able to provide to consumers in the marketplace today. So where is the intersection of resilience to addressing this current market challenge?

I think it's important to first recognize that there are two distinct challenges that we do face in California the challenges of insurance availability and separately, an affordability challenge. Now, addressing the availability challenge largely stems from whether insurers have the ability to navigate and adjust to market pressures.

And that just largely has not been the case, unfortunately and why there are a lot of discussions underway for the reforms that have been talked about earlier to ensure companies have the necessary tools to manage the rapidly evolving risk and costs associated. Now, setting those issues aside for today's discussion to address the rising costs and the risk that our communities face, which in turn are impacting the affordability of insurance, we need to focus on the underlying issues. We need to bend the loss curve down.

So mitigation this is the key strategy to achieve that, which is where California's Safer from Wildfires framework does come into play. In wildfire regions across the US. Insurers have long advocated for reducing the excess fuel loads that we have accumulated in our Wui areas and re examining where and how we build communities in these wildfire prone areas.

This includes the local land use policies, the adoption, enforcement of not just building codes, but for us in wildfire defensible space standards and strengthening the existing homes and businesses so that they're more resilient. When these actions are done at scale, it should result in a meaningful decrease in losses and that's what will ultimately translate to more affordable and available coverage for consumers.

So as insurers, we strongly support the Safer from Wildfires framework because it strongly aligns with the science through the Insurance Institute for Building Business and Home Safety. They have an evidence based framework known as Wildfire Prepared Home and these programs are very strongly aligned and they do provide critical steps that consumers can take to protect their homes under the Safer from Wildfire framework.

Yes, insurers are required to provide insurance discounts for their actions, though what we as insurers want to stress is that the science shows that these actions, they need to be done together. They must be taken together to meaningfully reduce risk. So a onesie twosie here or there, picking one and not the rest is not going to fully address that. It needs to be taken together to reduce that risk. And that's what we've been working very closely with fire officials in California to educate on that.

We're also working at the federal level to steer more resources to support these efforts at the state level. For example, our President and CEO, David Sampson has been serving on a Federal Wildland Fire Commission focused on ways to mitigate and manage wildfire losses. They actually just released their final report on September 27, just two weeks ago, and it includes up to 148 consensus recommendations to help our nation mitigate and manage the risk of wildfire.

Several of the key themes in the report encourage greater collaboration, shifting from reactive to proactive, increasing of course, investments in resilience, and employing urgent and new approaches. This is a national crisis that we are trying to tackle. And the consensus of the Commission is that it, even though comprised of a diverse group of experts representing numerous federal agencies, state, local and tribal governments in the private sector, all strongly support the focus and need for greater mitigation.

Now, what you can see here is that there's a number of stakeholders impacted by this. It's not just the insurance companies, but it is many stakeholders yourselves, state and local officials overseeing the land use policies and codes and public safety. We are also working closely with those in the construction industry, those that set the codes and standards and those that build, and also the financial services industry. We must work in alignment, as was mentioned earlier, to help bend the risk curve down.

The alignment really requires a more holistic approach to funding and incentives. And I do believe that we can achieve this. There's a lot of talk about grants. Grants are important. There's also opportunity for low interest loans waiving or reducing fees, or providing tax credits for resilience in addition to the insurance incentives that have gotten a lot of attention. We're working towards implementing those. But we do need this to be a holistic strategy that all reinforces this in an aligned way.

So with that, I know that we have several on this panel. I do welcome the discussion and I'm very happy to answer as many questions you folks do have. But I wanted to start with that as kind of just level setting.

Good afternoon, Chairs Calderon and Connolly and Members. I'm Robert Harrell, Executive Director of the Consumer Federation of California, or CFC. I also spent six years previously as a California deputy Insurance Commissioner. Thanks for the invitation to discuss the consideration of risk and resiliency and its impact on our property insurance market.

I'll discuss that and also make a few broader comments in my few minutes here, and I should note that, especially competing with the visuals from the first two panels, I smartly chose not to have visuals for my few comments. For insurance companies, risk is part of their business. Let us not forget, however, that these are for profit enterprises. What does that mean? It means maximizing premiums is good for an insurance company, and so is minimizing or reducing claims payments.

While that is clearly an oversimplification of many of the moving parts, it is relevant to any discussion about risk and resiliency. Here's why despite rhetoric coming from the insurance industry, California remains a very profitable market for insurers. I'll use data on industry loss ratios to make this point, and a hat tip to my colleague Doug Heller with the Consumer Federation of America on this loss ratio data. Again, this is data that comes from the Department of Insurance itself.

The lower the loss ratio, the more profitable the business for the insurance industry. According to the Department of Insurance's own data, these are the following loss ratios for the homeowners line of insurance for California over the past four years rounded to the nearest percent in California in 2019, the loss ratio was 33% in 2020, 38% in 2021, 46% and in 2022, 55%.

By comparison, here are the nationwide loss ratios for these same four years in 2019 58% 2020 67% 2021 69% 2022 71% even in the least profitable of those four years, nationally California was still more profitable. What this data means is that, on average, California insurers only had to pay out $0.43 on every dollar of premium they took in, while nationally insurers paid out 66 cents of every dollar between 2019 and 2022.

So the California homeowners insurance market has been significantly more profitable than the nation as a whole from 2019 to 2022. I believe that contrasts a little bit with the data you just saw from APCIA, which is why I'm using CDI's own data. The 2017 and 2018 wildfires were devastating disasters to Santa Rosa and other nearby communities with significant loss of life and property.

These were also, for insurance companies, two less profitable years, though it is important to note that insurers got back about $12 billion from PG and E and Edison to cover many of those fire losses, since the actions of those utilities, and inactions in many cases caused a number of those fires directly. So when insurers talk about risk and argue for, among other things, forward looking catastrophic models to be built into insurance premiums, which usually means they're going to go up by the way,

The view of CFC is that California should develop a fully transparent and publicly developed tool leveraging our world class public University systems and others that would help insurers better assess climate related catastrophic risk. I want to emphasize that point. We are not opposed per se to forward looking models, but we do think that there are some really important public policy questions that must be answered as you endeavor or as the Department endeavors to go down that road.

Such a tool, such a public tool, would not be perfect, but neither are private, proprietary models made for by, let's face it, for profit companies. A more transparent model would help build confidence in the very communities left behind, as some insurers have limited or refused to write new policies in California. This forces homeowners to the Fair Plan, as I know all of you know all too well, or the completely unregulated surplus lines market. So historically a surplus line insurer.

My example was always like a Lloyds of London. You're an actor or an actress or a singer. You're trying to insure a body part. This is not something you walk into your farmer's office and get coverage for. But they have now jumped more into the market, and we've also seen a lot of growth in the Fair Plan. Without a doubt, that trend started when I was still over at the Department and has clearly exacerbated since then. But they're unregulated, completely unregulated. This brings me to resiliency.

CSC has asserted for years that a much stronger connection is necessary between homeowners who take steps to harden their homes and enhance resiliency and the rates and availability those homeowners face in the marketplace. You've heard plenty of discussion about that already in the first two panels. It's an important topic. The Department has taken a first step, as Deputy Commissioner Peterson noted, in that direction. But we believe if homeowners and communities do the right thing, then they should be able to access insurance.

And currently that connection is unfortunately far weaker than it really ought to be. Peterson mentioned as well some of the proposals that came in from April, and he said the Fair Plan had been approved. We would love to see in this area more rapid action by the Department to approve some of these mitigation discount plans.

We think that that would really help get us to, as you heard in the first panel, the fire chief and others talking about that sort of critical mass of 30% and beyond, especially in those suburban areas. We think that's very important. For example, incoming Senate leader Mcguire and Assembly Members Connolly and Aguara. Curry, you're all authors of a Bill, SB 672, that would ensure that homeowners insurance is available to those who have followed the current California best practices for wildfire building hardening and property level mitigation.

That's just common sense. It's not a panacea. But home hardening works, and the data, as you've heard, is getting stronger and stronger all the time. That Bill is currently located at the Assembly Insurance Committee. I'd like to make two other brief points as I wrap up my comments this afternoon, and thank you again.

First, a significant public policy dilemma facing public policymakers and regulators beyond just insurance, is the use of algorithms, models and technology in such a way that it is difficult for regulators and lawmakers to keep pace. This is not brand new, but we're seeing new manifestations of it in this and other areas. This is a challenge vexing policymakers throughout the state, nation, even the world.

And appropriate public policy responses must err on the side of transparency, so that policymakers, regulators at the Department and the public can see and understand and pick apart what is going on and why.

It is only through that process that you wind up with an optimal public policy solution, or at least as close to optimal as is possible, that maximally protects consumers while still allowing, as Prop 103 does, for substantial profits to still be made by private insurance companies via rate filings submitted to the Department for prior approval. Remember that the regulator does not have unlimited resources. They cannot match, for example, the market rate for numerous professions.

One that really jumps to mind for me from my experience is actuaries. It has been very difficult for the Department historically to retain, let alone get in the door top notch actuaries because the pay scale is just dramatically different from what they can make from the private insurance companies. All of these things together contribute to the deep need for transparency.

Finally, I am a little bit concerned that the Department might be putting the cart before the horse or falling victim to assuming a particular set of solutions that many stakeholders have yet to see. I heard recently from Insurance Commissioner Lada a lot of what insurers have wanted and asked for for years higher rates via forward looking cap models, which I've addressed in my comments, and allowing for completely unregulated reinsurance costs to also drive up rates.

And you just heard from APCIA that reinsurance is one of their issues. Again, that's another industry that is completely unregulated. So when you allow those costs to bleed over, we view that as a danger of a double charging. When you take an unregulated industry that can basically make their price whatever they want and then you allow those costs to bleed over onto consumers, it's usually consumers that wind up holding the bag.

And we haven't seen that push and pull where by paying more, they're retained in the market or they're not cut off in other ways. What I heard less of from the Commissioner a couple of weeks ago was the strengthening of resources to help homeowners and communities increase their resilience, though in fairness, it is mentioned as part of the plan, we just haven't seen the details yet. I'm also concerned, to be honest, that many stakeholders have been largely shut out of the process until now.

My participation has been when there's been public fora, public fora that is open to the public. But there are other conversations that are happening that we think all stakeholders must be in. Even just looking at the APCIA's slide from a few minutes ago, that was all industry partners linking arms together, consumer organizations people representing consumers are stakeholders in this area, and we should be part of the mix in a meaningful way. The details are forthcoming on the Commissioner's plan.

I look forward to seeing them and we're happy to play a constructive role in trying to help consumers and help California move forward. With that. I'll conclude my comments and I'm happy to take questions at the end of the panel. Thank you very much.

Okay. Thank you, Sarah and Taylor. On behalf of the Personal Insurance Federation of California, thank you for the opportunity to participate in today's discussion. Before I start, I've been weighing in my mind whether to briefly sort of comment on Mr. Harrell's unique opinion that insurers are somehow leading very profitable lives in California. Beyond the most obvious point that it makes no sense these companies would be hitting the pause button on this supposedly lucrative California business.

And I hate to get into a sort of he said, she said or Twainsian Lies Damn Lies and Statistics but I thought it would be notable since he's talking about the Department of Insurance. This is in fact the Department of Insurance California Sustainable Insurance Strategy. It's on their website.

In this document from the Department of Insurance it says over the past 10 years homeowners insurance companies have done far worse in California than nationally direct underwriting profit countrywide 3.6% California -13.1% direct profit on insurance transactions countrywide 4.2% California -6.1% Direct return on Net Worth Countrywide 7% California 0.8% and that's from the National Association of Insurance Commissioners. Profitability report released January 2023. So just set a little record straight there.

And I think I'd also just note that Am Best, which is a 100 year old company that issues financial strength, measurements of insurance companies ability to pay claims they're designated as a nationally recognized statistical rating organization, by the US. Securities Exchange Commission and the National Association of Insurance Commissioners. And just three weeks ago, Am Best revised its outlook for the US homeowner segment from stable to negative, specifically because of the deteriorating homeowners performance related to all the factors that Mr. Collins noted earlier elevated natural disasters, rising inflation, hard reinsurance market.

So I just think this notion that insurers are doing fine and it's sort of a disservice to everyone who's working hard to find solutions. With that, I will sort of get on my comments. I think Mr. Collins thoroughly described a fantastic job talking about the financial, regulatory and climate related challenges insurers are currently facing.

I'll try not to be repetitive and instead focus on this core question of can consideration of risk and resiliency lead to property insurance market recovery? And the short answer, I think, is yes. When paired with fair rates and reasonable regulatory processes that provide timely results, California can restore insurance availability and reliability, the new normal of climate change, and massive increase in catastrophic wildfires over the past six years. It's really clearly pushed California's insurance market out of balance.

In a way that the existing 35 year old regulatory system just never envisioned and it wasn't prepared for. I think, however, with the Governor and the Insurance Commissioner's recent announcement of the plans to implement this California sustainable Insurance strategy, we are very optimistic that together we can restore that balance.

And the new strategy clearly envisions that mitigation programs, such as the IBHS Wildfire Prepared Home Program that Ms. Collins referenced, the Safer from Wildfire framework that Mr. Peterson discussed, these will be critical to help reduce risk and loss from wildfire and increase insurance availability. And in fact, the Commissioner stated that as insurers focus on moving consumers out of the Fair Plan and onto traditional insurance, first priority will be given to homes and businesses following the new Safer from Wildfires regulations.

So we understand people want guarantees that if they follow one of these mitigation frameworks, they will get pricing, discounts, and coverage from a traditional insurer, as opposed to the Fair Plan, which is itself a guarantee of coverage for all Californians. And mitigation is extremely important, and it's meaningful. And since there's no standard in the world that guarantees a home will not burn down in a catastrophic wildfire, mitigation must be paired with fair and adequate rates as a starting point for increased availability and mitigation discounts.

And based on public rate filings, we know that many carriers are currently 20% to 30%, even 40% rate inadequate today. And that's also listed in the Commissioner's document here. And I guess the question is, is it reasonable to expect insurers to further discount rates that are 20% to 40% underpriced today? Is that something one would expect of your local bookstore, your local barber, your grocer, a family restaurant? Probably not, because nobody would be able to stay in business.

And the same is true of insurers under the current prior approval rate system in California, wherein all rate filings must be approved by the Commissioner and are subject to private party interveners. There's tremendous uncertainty about when, or even if an insurer will receive approval of their rates. It can take years to finalize a contested filing if hyperinflation increases the cost to rebuild a house by 30%, as Ms. Collins talked about. Just happened. Too bad. Insurers just need to eat that losses until something changes.

There's no guarantees of rate adequacy under the existing rules, which, unfortunately means it's not possible for an insurer to provide a guarantee of coverage underwriting mandates, which force insurers to provide coverage regardless of the risk, regardless of the fairness of the rate. It's a direct path to insure insolvency and further market instability or even possibility of market collapse. That's what we're talking about. However, not all doom and gloom.

I mean, we believe the pathway being urged by the Governor and developed by the Insurance Commissioner is intended to address these complex issues. The goal is to provide consumers with much greater insurance availability, appropriate discounts, increased transparency, while also stabilizing the insurance market with new risk assessment tools and improved processes. We talked about cap models. New catastrophe models will recognize home and community mitigation and hardening requirements to appropriately price rates and discount benefits that's not available in the current rate making process.

Today, California, like other catastrophe prone states, is going through a difficult period, sudden change and adjustment. And it's important to provide thoughtful leadership on these complex problems so Californian communities can get the insurance market stability they need to protect themselves from disasters. And we appreciate your time and this Committee's time investigating these important issues and really great questions and presentations today. So thank you. Yes. Sorry. Thank you.

Good afternoon. Always fun to be the last speaker, but I think we're all pretty engaged. I can tell you're all listening carefully. It affects your constituents, affects you personally. So thank you for your time for convening the hearing. I'm Amy Bach. I run a national nonprofit organization called United Policyholders. We have rolled up our sleeves. We rolled up our sleeves, I would say.

Well, right after the Oakland fire, when there was a little bit of unavailability problem where insurers non renewed, some of the folks there in the Oakland hills, we thought, well, That's weird. I mean, things burned. Why would they pull out after things have burned? But we came to understand how the red ink would get a CEO's attention and they would take action even if it wasn't fully to our minds logical.

At that time, we were able to help consumers get their insurance renewed by sending them, introducing them to independent agents, and introducing them to a broader range of professionals. Obviously, fast forward today we have a very different scenario. Our organization has been around since 91. We don't take funding from insurance companies, but we consider ourselves problem solvers.

So we work in coordination with the Department of Insurance, with the Realtors, with our fellow consumer advocates, with the firefighting community scientists, to try to really get our minds around what's happening today, which is sort of a manifestation of this changes everything. So we do a lot of work in California, primarily.

I mean, this is our home base, our roadmap to preparedness program developed out of the wildfire recovery work that we do where people would come up short on their insurance and we would say, okay, let's get the folks who burn to be ambassadors in the community to say to people, you know, you really ought to pay more attention to your insurance. Make sure you've got enough. Right?

But when this problem that we're here dealing with started manifesting in 2016, we had to kind of pivot a little bit and stop focusing on reminding people how important it is to be insured of value and start to really help people who are in crisis. And I make no mistake, there are some communities in the state that are really suffering right now. They're suffering from crippling premiums. The stories we are all hearing are mind blowing.

So I know Sarah threw out some numbers, but we know what's going on in the marketplace in real time. Condos premiums HOAs going from 50,000 to 500,000. Up has an open survey going where we've been taking people's temperatures on what is your premium today compared to what was it? And it's breathtaking. Some people are in the 12,000 8,000, and we all know what's going on. That's why we're here. That is me on a ride along with the firefighting agency in Maraga.

Back in 2016, right after the tree mortality crisis hit, the Governor created his task force. It sprung an insurance subgroup. We all started meeting up in Sacramento, Cal Fire and insurers. And I learned at that time that there were a lot of fire departments in these rural areas that when their residents would get a non renewal notice, they'd call the fire Department, or they'd run into the fire chief in the supermarket and say, could you help me convince the Insurer not to drop me?

And that was working. The fire agencies would go out. They'd do the inspection, write the reports, give a letter. The person would use it to their Insurer would say, okay, all right, we'll reconsider you're back on. So we thought, there's a gem of an idea. Let's see what we can do with that. Right? This is a complex crisis here, right? We all know that.

You heard Karen talk about inflation and the hard market and all these externalities that are affecting our market, completely unrelated to Prop 103 or any of the arguments about prior approval. There's a national phenomenon affecting the PNC sector and the reinsurance sector. Right. So what are we seeing? You all know, That's why we're here. These risk scores, which have had a very dramatic negative effect on homeowners, just kind of like a credit score, right? It can really, really hurt you financially. Drone imagery. Insurers are scaring.

Basically, they're getting scared out of doing what they do, right. By this magnified risk. zero, my God, look at the propane tank. Look at the tree over the house, all those things. So this is all what's bringing us to where we are today, right? Yes. We are all frustrated. The Mitigation discounts that the Commissioner worked hard and we all worked hard to put into place. The Insurers filed their plans in the spring, and we were hoping by now we would be seeing the discounts.

So far, we've only seen one approve, the Fair Plan. And it's good. It can be up to 15%. And we've already done two programs, my organization, one of them in partnership with Butte County, educating residents on how you get that 15% Fair Plan discount. Why are the other ones so slow? They were less than indicated. The Insurers did not really come in with a full plan that honestly would give the appropriate discount.

So I think the Department is wrangling trying to figure that out so as not to disappoint, because it is so critical that we get these discounts. Because when you talk about the two, when Assembly Member Wood talked about two out of the three have done their thing, and the one is sitting there, and we know we need community wide. Well, okay. So if we need the one to be penalized by paying full rate while his or her neighbors are getting a discount, right.

That's the kind of signal that we need. Those discounts have to get in place to inspire people. Okay, I'm on a tight budget, but I'm going to spend some money here to fix what honestly doesn't seem broke but the experts are telling me I need to do these things, I'll do them right. That's what we need. So evolving priorities. I talked about this. What's the bottom line for consumers? We know in brush heavy regions and areas impacted by past wildfires premiums have doubled and tripled.

We are seeing more people going bare. We saw it in a lot of these smaller wildfires that we've been responding to. More and more people have no insurance. We know how important the agent community is now but they're of course also in free fall and hurting. A lot of agents are really, really struggling to put their people anywhere. But the fair plan.

You heard Robert mention the non admitted the surplus lines, companies that picked up a bigger share and they were also providing these DIC pair that you can pair with a Fair Plan policy so that you get your liability coverage and your water and your win. But even that market is a little I don't know janky, can you use that word right now? But we don't know what percentage of consumers have gone with these non admitted companies.

We don't know what percentage of consumers have had their lender, their mortgage company forced place. We should have a national survey and the Federal Insurance Office was ready to do it two years ago but then the state said, no, we're going to do it. So now we're still trying to figure out where things are. All right. My organization is in the trenches all the time doing webinars and updating people telling them what the rules are.

You get non renewed, you need every day of the 75 days to shop. Right. People are shocked. What do you mean the government can't force an insurance company to offer me a policy even if I do everything. That's a political hot potato for you. All right. And that Bill that Senator Mcguire introduced, which we are very supportive of, we feel like we got to go there because when you go to other states that pass sort of light mitigation mandates and insurers should give you a discount.

They will tell you honestly today we should have ordered a specific we should have either ordered a 15% discount, which was where we wanted to start, but the insurer said don't force some artificial not warranted by science number. But I think forcing a discount is critical because insurers, they are going to act on data and where are we? It's going to be a while before we get the level of mitigation penetration that we need.

But if we are so anxious now to look forward you can project that for darn sure. With the brick grants, with the state grants that are coming down and all the programs now that are in place, there's going to be a lot more mitigated. So we do have some progress here. I'm going to skip through all this. You heard the concern that the people who are going with the non admitted insurers don't have the protection of Sega, of the insolvency Fund.

That's a serious concern because I just did a webinar last week for Hurricane Ian people and the people whose claims are going through FICA, their version of Sega, they're actually getting their claims paid. But the people that are with these really funky companies that are sort of private equity funded, they brought them in to take people out of their citizens, which is their fair plan. They're not processing claims so well.

So it is important that we have these safety nets and that people are not out there without a safety net. So we teach people how to do their homework. This is more bad news. A lot of insurers have stopped offering installment payments. They were making people pay their premiums in full up front. That's something Legislature maybe could do some work on. We all agree Mitigation is a good thing. That's the one area everybody is on the same page, but it is easier said than done, right?

So we are surveying to keep things going. But my organization now, since about three years, we've had a monthly meeting. We call it the Wrap Group, Wildfire Risk Reduction Asset Protection Working Group. We've got counties, officials, we've got CAL FIRE, IBHS. We've got professors, we've got all the citizen groups with firewise and fire, safe and Cope. Everybody's talking. zero, how do you convince people who are reluctant? How do you move the needle here? Right? Because this is the low hanging fruit.

If you don't want to force private insurers to take customers they don't want, and there's an argument that we maybe should, then you got to do everything you can to substantively reduce the risk, not just to get people eligible to keep insurance, but to be able to save homes. So we've made a lot of progress. I think we helped bring about the IBHS standard, the Safe from Wildfires, which are largely the same.

We all now agree these are the things you need to do that move the needle. Now we're working hard to make it financially viable for people to do it. This is just one of the screenshots, and we've got some of the exemplary programs that we showcase. Marin is leading mark's Agency is leading the pack. We've been exposing other communities to what they're doing right. The matching grants. My organization got a grant from OES. We have a Wrap resource center.

So you can click on your county and you can find out who's offering grants, who's offering events to help. Very, very concrete. You heard Chief Winniger talk about how things will grow back and how maintenance is important, and that remains a challenge. But now we have a designation. Certified Wildfire Mitigation Specialists. It's a thing. You can get that job now, and we're going to have a lot more of those folks going around and working.

And this is an example, in Marin, they had some of the people in their Department get that specialty. Now they go out and they've done 5000 at that time. Evaluations completed. And here's Napa. They just got a $37 million grant. They're doing defensible space matching. There's great energy going on here. Look at Nevada. Now, admitted, they have community Members who have the means to kick in for a matching grant.

Not every community does, but this is the innovation that's going on and is going to be moving the needle. We need those rewards. We need the discounts. For all those reasons, the structure less likely to burn, improving people's risk scores and getting things back on track. IBHS has a great program, little slow takeup because it's tricky to do everything on the list. So although their program has been going for a year, they've only certified 68 homes in California. So we definitely love that.

The Safer from Wildfires is a little more flexible and we're hoping that that's going to get us where we need to go. So in wrapping up lots of progress, you've heard all this innovation on shaded fuel, brakes and everything else. Challenges remain, right? Insurers are still kind of on the fence with the discounts. They're still kind of wanting to we want to see more data, but again, we don't have the time for that. We know people are going to be mitigating more because they're desperate.

They're desperate to keep their insurance. So we want to see a little more flexibility with the 5ft of clear space because That's such a hard thing for so many people to swallow. And a lot of fire experts say 2ft is enough, but I respect the opinions of those who say it has to be a hard five. We do need to model for homeowners that you can still have an attractive house even if you do all these things. That's sort of a mindset thing.

And one of the biggest challenges is the enormous power I'm wrapping up that reinsurers have over our market. You can see that the fact that we don't really have an alternative, that our fair plan is dependent on there being admitted insurers writing business in this state has us in a bind. That is one of the reasons why I've tried to listen so carefully to what insurers are saying they need in order to come back.

And that's why we support the Department in innovating and saying, okay, if cat models might not be the instruments of Satan since every other state is letting us use them. Make sure the Department has the resources to continue rigorously enforcing the prior approval laws. Looking at the cap model assumptions and not just taking them at face value, because we do know that most of the cap modelers are for profit companies selling their wares to insurers.

And we do know that insurers are going to guess high to protect themselves. And it's our job to protect the consumers from that. So in closing, the Legislature has done some very important things. You've got lots more work to do, potential solutions. I've just got four. And I'm done. Enhanced resources for the Doi, so they really have enough hands on deck to review those rate filings.

A low interest state loan guarantee for the Fair Plan and CEA that would allow them, instead of buying their full complement of reinsurance, which is costing them an insane amount of money, that maybe they can buy maybe two thirds of their reinsurance and know that that other third is going to be a loan guarantee from the state or the Feds. I think that is a critical tool we have to develop because you can see we don't have a lot of leverage here.

We don't have a plan B. Our whole system of property ownership and real estate buying and selling is dependent on the private insurers. We do need a public cap model. And I do think that just like the municipalities were allowed to get together when insurers abandoned them and they were allowed to do self insurance pooling, we're going to have to explore the feasibility of letting maybe condo associations form their own self insurance pools because we really just can't keep going this way.

The Commissioner has been granting rate increases at a rapid pace and you can see where things are and you still have insurers saying they're not getting enough rates. So we have to be creative here. And thank you so much for your time and for this hearing and I appreciate the opportunity to answer any questions. Thank you. I'm going to open up for questions right now. Go ahead, Sambalom.

So you mentioned public cap model just at the very end. First of all, I want to thank everybody for being here. And Mr. Harold talked about transparency. So what's come to mind? And you talk about resources or Department of Insurance, all of those things.

What's been rolling around in my head for a while is perhaps, and it's been suggested we have some independent source that people pay for, people insurance companies pay for, and we're all going to be bound by that independent science as to what the modeling should be. If you want to comment, comment, go ahead. It's really not a question. It's just something That's been rolling around in my head and then we're not fighting about it anymore.

Right. All I was going to say is like, Cal Poly, Cooperative Extension, Stanford, a lot of academicians and fire scientists have been on this, on the modeling thing. And so it's really a matter of having a model that is not commercially derived to be a benchmark.

Right. And insurance companies could do their own too. And know, I want to compare my science with your science, but that one seems like it's easy to solve for me, but maybe you all don't like it. I don't know, but I'm just trying to get to the bottom line here.

I even mentioned it in my comments. I think tapping into, as Amy just mentioned, the public entities that are either already doing the work here, but are very interested in doing the work, there's really no reason not to. And I haven't explored this in great detail, but there's probably a way for some of the private modelers to participate. Having said that, they've just got right now, there's a different motivation. I get it.

If you're a for profit company, you're trying to sell your product to the insurance company, and more often than not, sometimes for the scores, they sell the product and then it kind of gives them plausible deniability. Well, we don't make any decisions about whether you get renewed or non renewed or whatever. We're just providing that information to the insurer, and what they do with it is their business.

And I think that's frustrating for consumers because it feels like, hang on, everybody's telling me do these things, right? And as Amy pointed out, we're all I would never put words in the mouths of my insurance industry friends, but I do think you heard consistently mitigating doing these things. These are good things. If we're all in agreement on that, then why is the consumer getting discordant message? It's troubling. And as a Member Conley, you mentioned.

That as well, just one follow up comment. So I appreciate what Amy does, because the insurance business is a very sophisticated business. I've been a lawyer for 100 years and I still find it sophisticated. I applaud what you're doing to at least get the public on board. I just want to make a comment. And that is I do think people have religion right about now, because it is from here to the hithers that people are concerned.

And if you folks are losing bleeding money to the extent you're bleeding money, let's get beyond that because we're all frightened. And while inflation might be a problem, if people go out of business, it's going to be a whole lot worse. So I'm hopeful that there can be that connection. That's more of a comment than a question, but I think we're on the precipice.

I think you have enough people's attention that you're going to see more and more Hode Hardening I didn't want to spend the money, but I'm going to spend the money now because my two other neighbors have a far reduced premium than I have, or whatever it may be. We're not quite there, but I think we're on our way, for what that's worth.

Assembly Member yeah, just to add, actually, we've never opposed a public model, and in fact, I can say PIF we supported. Assembly Member Friedman had a Bill that included a public model. I was part of that work group myself. And this idea of having public models, that can be a benchmark and you can use private models as well. And they say, Why are they different. Let's talk about what assumptions are different. That's That's always been fine. I mean, that concept has been fine for us, so.

Really good panel. Thank you. So one question, and I think this goes back to kind of the fear out there, is that we embark on some of these reforms. It results in rates going up. How can we ensure that insurance providers will not leave the state if there is another catastrophic wildfire event? And for example, the experience of Florida comes to mind. So mainly to the insurance folks, but anyone who wants to respond.

When it comes to providing coverage for catastrophic risk, it's about managing your capital. And That's why there's been so much attention on what is the cost of capital today and can we continue to provide that? Florida has its own unique set of challenges that they've fortunately enacted a number of reforms. Different states have different shades of different issues. Their issues were more of extensive abuses of the legal system and roofing schemes that really started to bleed out insurance companies absent a landfalling hurricane over several years.

And those practices became so proliferated that companies and the reinsurers that provide a lot of that capital finally had to say, this is just not a sustainable model unless you enact reforms. And last year you saw a number of companies that became insolvent because of many of these costs, even without a landfalling hurricane prior to Hurricane Ian at the end of the year. So they've taken steps to reform those. You see similar challenges in some other states.

Louisiana is another example That's been in the news quite a bit, and they've had some of the similar practices that have kind of proliferated in some of the neighboring states, Louisiana being one of them. In California, the challenge for insurers really is the regulatory flexibility to manage what is increasingly volatile loss patterns. If you have losses that are stable over the last 10 or 20 years, you can use historical losses to price what you think is going to be future.

But we just don't have that same stability. There's too many new pieces of volatility, whether it's climate, whether it's the land use policies, whether it's inflation, all these different pieces are resulting in much, much higher future expected losses. And so when you're going to see increasingly volatile conditions, we know we have evolving climate impacts are going to result in more fuel and more challenges.

If you just don't have the tools available to manage not just the ability to predict that risk as well as the ability to reflect the cost of capital which is needed to pay for that level of catastrophic exposure, That's where you can't provide coverage for catastrophes. And That's where you're seeing companies having to pull back because they can't just provide coverage for everything else but wildfire. Our laws, our standard fire policy laws, do not allow that.

And That's why you see companies that have to pull back and they end up in the Fair Plan, and then they come back and say, well, we have enough capital to do non catastrophic. And so we'll offer that unless we can raise more capital. And so right now you're seeing those decisions from companies individually looking at kind of what is their capital position, do they have enough for what the future risk of losses is going to be?

And if they don't, That's where you're seeing even impacts where financial ratings are being impacted. As mentioned, AM best other financial rating institutions may be evolving and looking at these and saying you need to strengthen your financial position or that can have a downgrade which then even further deteriorates their ability to raise capital through the different entities.

So all of these are interconnected but it's the flexibility that we need in California more than anything else that is what's distinctly different from Florida or Louisiana and many other states is that companies are just so their hands are so tied in the ability to timely adjust and raise if they can't get these other pieces. And so that is what we're trying to work very closely with the Department and many of you as well in recent discussions to address.

And Amy will get yeah, I want to hear from you maybe to tee it up more, just kind of real on a human level as we pursue some of these reforms, rates are going to go up by and large and we're really looking at what is the value proposition to consumers in the insurance market if it's simply hey, you're going to pay higher rates, perhaps significantly and the payoff is insurance companies aren't going to leave the state.

That seems unsatisfying, particularly if there's no guarantee they're not. So really what I'm trying to get at is what is the value add to consumers in terms of as we go down this pathway? How can we as representatives say this is how your lives are going to be improved, you're going to have better access, you're going to have more guarantees to available adequate insurance if you do the right things, you're not going to lose your insurance and PS, you're potentially going to get discounted rates. So just kind of the tie into that. Go ahead Amy.

Listen, I don't envy any elected official in this environment here because it's easy for me to say to a group, as I did probably six years ago the days of paying under $1,000 a year for your homeowners insurance in California are over. As comfortable saying that. Okay, maybe they would double 2000. People would be thrilled in a lot of these areas.

I would say certainly as part of the Commissioner's announcement it sounded like, and I really am not privy to the details, but that there's an agreement that insurers will start taking people out of the Fair plan and a certain percentage 85% of their market share in that, that would be great. I think we do need some guarantees.

I think starting to watching what's the trends I do think we have to be working on a little bit of a plan B. That's why just so that the insurers don't have so much unfettered control over people's financial health in the state. And also because we don't know where the sweet spot is of really what is the right premium. Right. It feels like going from 1000 to 10,000 doesn't seem fair or right. So it is in the math here. Right.

And That's why I think it's so important that the Department beef up its resources and the Legislature help them beef up their resources to really do their job in the prior approval system. And it doesn't have to be dependent on an intervener. It shouldn't. It should be dependent on their own capacity to look at what the insurer's assumptions are. And That's, of course, another concern we have about the cap models is that it's very hard to peel back. Well, how did they get to this number?

Because for you and the last thing I would say I'm in favor, having watched the flood program, which has the Max you get is 250,000. Having watched the CEA, they just had to reduce some of their limits. I don't want consumers to get lowered expectations of what they're going to get, but I think a lot of people would rather get something than nothing. So maybe a little bit of developing a model basic policy which we're supposed to have. I mean, That's what the fire policy is.

It's just that this wildfire knit is throwing things out of whack. And the last thing I'd say is we do want to not pit different parts of the state against each other. There's been a lot of fighting in the Gulf Coast states between Inland and coast, and we all are in this. Listen, people who live in the city like to go to Tahoe, okay? So it's really insurance works best when it's spread. And you see what happens.

We cut out earthquake and then no one buys it because it's too expensive. So we don't want to cut out wildfire unless we have some better idea. There are some agents that are proposing this idea that the fair plan be only wildfire, that we take wildfire out of the basic policy. And again, I think anytime you segment, it makes insurance work less well and become more expensive.

Yeah. Thank you. So if I might, I mean, I guess I'm struggling a little bit with some of the comments. This idea that, well, $1,000 what I used to pay, and now 10,000 doesn't seem fair because at the end of the day, actuarial science is a science. Insurance is about pricing risk. It's not what feels right to me as a fair price based on what I had paid five years ago. I mean, prior to 2017, wildfire wasn't even a thing for insurance.

It was practically a giveaway in your insurance policy. No one ever imagined a $15 billion loss in California. It never happened in history. And then to have it back to back was you know, there's a lot of catching up that is going on right now in a market that was really wildly, in hindsight, underpriced, and consumers are getting this rate shock and no one likes it. Insurers don't like it. This is not a happy time for insurers.

I assure you that if we could go back to 2016 and not be talking about cap models and not be talking about reinsurance and not be having these hearings and not have you hear from your constituents, we would be quite happy to go back to that as well. And it's just unfortunate that That's not where we are and we have to come up to this new reality, this new climate change. We talk about these cap models as if they're mysterious things.

The California Earthquake Authority, which Ms. Bach referred to, the Governor, the insurance Commissioner, and the state treasurer are the board of the California Earthquake Authority. They are having the exact same this is not some for profit entity. They're having the exact same problems that the admitted market is having hard reinsurance costs. Their exposure growth is through the roof. They're having look at double digit rate increases. It's not like this is a made up thing.

This might not be cold comfort, but at least I'll say relative to Florida, your concern there, the hurricane losses, dwarf wildfire losses in California. It doesn't make wildfire losses any better. But, I mean, when they're looking at we're looking at, since $2020 to $50 billion in losses in wildfire, they're looking at 100 to 200 billion of losses from hurricane. And then, of course, Ms. Collins point about they have an entirely different issue going on with legal system abuse.

I think they have 8% of all the homeowners claims in the nation, and they have 80% of the litigation. And I know it's difficult, but as I've been thinking about this, I think what we need to start thinking about is first you have to think about insurance, actuarial science. It's a market signal about risk. It's how do you connect rates to the actual risk? Step one, then you have a market.

How you then get at this affordability issue, I think, is a critically important question for everyone, right? Because you can't have a product that no one can afford. But at the same time, California, how do we manage this if the risk becomes so unaffordable? What does that mean in California? One thing it does, maybe better than any other state, is we have an incredible safety net. There's ways to think about obviously, in Covered California, there's premium subsidy programs.

There's other ways for the Legislature to think about the affordability issue and let the insurance be about the actuarial science and the pricing, the risk. And then so I think Mr. Harrell's point and everyone's point here, the medium to longer term thing is we all agree we have to bend the curve on risk and loss. That's the only thing that's going to bring prices down. All these tools to price risk are great and then you can have a market.

It may not be respectfully satisfying to have an insurance market, but it's better than not having an insurance market. But to really get at the medium and longer term affordability, it's all about bringing down that risk and loss curve. And I think we talked about, Mr. Winnicker talked about you need to have 30% minimum herd immunity to have that be meaningful. You have to have this ongoing commitment.

It wasn't that long ago there was virtually no state money for mitigation that became part of the cap and trade program only back in 2017. And then I know, in fact, Assembly Member Wood was very important as part of the Utilities Wildfire Fund driving the Brown Administration to make a larger commitment to wildfire resiliency with cap and trade funds. And it's just recently, now that the budget's even looking at that, but now budgets tightening up.

One of the first things to go in the budget this year was money for CAL FIRE inspections, right? And they were only doing one third of the Wui every three years and that was what they were supposed to do and they were barely hitting 15 or 20% of that. So this ongoing commitment because you have to have the maintenance, it's not a one and done when you do your defensible space. I think the zero to five foot zone is incredibly important.

The science that we see, That's one of the most meaningful things you can do. But this is all ongoing. It's like once you get it clear, you have to stay on top of it. And unfortunately, I think those are a lot of things that go when the budget times get tough and then where does the money come from? And frankly, a lot of communities, your district was actually very good about approving taxing themselves to pay for mitigation. That's not the case in a lot of communities.

Even high fired communities up in the North State who said, no, we don't want to pay for mitigation, we don't tax ourselves for mitigation, but we don't want insurance to go up either. So now what happens? Right?

I would say the one thing that I would add to that is that with catastrophe models, it doesn't suddenly invent new risk. The risk is on the ground. It's a question of are we already able to price for that? And with the historic look back period, as an example, there was insurance companies that had filings, I believe back in 2015 or 16 that saw this growing risk, couldn't get a rate approved for that.

Then the 17-18 wildfires occurred and then you see this increase in the need for rate to be increased because now they can include it in their loss experience. They knew it was always there, but they couldn't price for it until it happened. And what you see as a result for consumers is now you have this knee jerk reaction where now you got to spike prices much higher, much more quickly.

And I think That's the worst for any kind of consumer because as you're trying to manage your budget, a gradual increase is easier to absorb and plan for if you're buying a new home and your budget is going to be monthly costs when you get like a balloon payment, like on a mortgage. And suddenly you have to come up with all of that and That's not on your radar. That's more difficult and more of a financial destabilizer where it suddenly becomes unaffordable for you.

So there is going to be growing costs. We aren't going to sit here and tell you that that's not going to be the case. Every state that I am working with is having these same conversations, unfortunately. But we can create more stability in how we gradually adjust to risk as a long term. This isn't just in the next couple of years.

This is going forward with knowing our risk is going to continue to amplify as more of these climate conditions and more of these exposures of new communities in these areas continue to pose a threat where we have to continue to do reconstruction as these events do occur. So it's creating greater stability not just for insurance companies and how they manage it, but also for consumers on what they should be anticipating from a cost and budget perspective.

Thank you. This has been a very interesting discussion and appreciate it very much. I kind of want to bring it back to kind of the bigger picture from what we're seeing in our world. I'll give you an example. I have a staff Member, I hope I have the numbers right, but you'll get the General gist of it. I think the insurance premium to cover their house and suburban part of or actually more rural part of California was $2,200. That policy was canceled.

They went to a Fair plan which ended up being $4,800 for less coverage, not complete coverage. And so for them, for that person, the idea that if a plan went up 30 or 40% looks really appealing. 600, $700 more, less than 3000 versus 4,800. But I've got comprehensive coverage here. And so the idea that everything should be all focused on the rates and doesn't belie the reality of the market and what's happening out there.

And I appreciate consumer groups, I understand where you're coming from, but that's the reality of what a lot of people in my district are facing. This area are facing no coverage or go to the Fair plan, pay huge amounts of money for less coverage. And that is the reality. So I'm appreciative that the insurance Commissioner now has, through Executive order, the ability to move forward. But that doesn't necessarily mean it's going to happen in a timely manner.

He has until the end of December 31 of 2024. So I think part of us is to keep the feet to the fire to actually move things more quickly. Because even with those in place, when do you see as the market, when do consumers see the relief potential of a stable market? Because we need competition. We need as many plans in the mix as possible. Less competition, higher prices. We see that in everything.

The more competition there is, the more chance we have to get a rate that actually works. So, realistically, tough question for the insurance company representatives here and won't hold you to it ballpark sort of idea. But as these tools become available, do you think, number one, that creates the stability you're looking for? And number two, how long after regulations are out there do you think that that stability will translate to availability for consumers so they're not forced into the Fair plan?

I think what you've just described is that competition is your best solution. When you put all of these higher risk properties into a fair plan, it's naturally going to be much higher. And so for those residents in those high risk areas, I live in El Dorado County, so I'm just in that same region as well.

You want the private market access and to get the private market access in these regions is where companies are saying we need that regulatory flexibility and ability to reflect the cost of claims. The first and foremost option that our Members express is the timely approval of rate changes. So we've had this influx of inflation after they've tried to recover from these catastrophic losses of 17-18 and other recent years.

So trying to just get close to rate adequate, it may not be the extent of what you see in the Fair plan, but for a private company like just getting those closer to what their indicated need is the reinsurance. And the catastrophe models are another tool to help you get there. And so they're kind of like a second layer that works together with that.

And so the catastrophe models help inform what that risk is going to be, how to do it over time, what your overall concentration is going to be, and then the reinsurance can then help provide the additional capacity to write in those high risk areas. If you don't have that market capacity through other financial mechanisms, whether it's catastrophe bonds or reinsurance, That's where that rate increase by the primary company has to keep pace with that.

So just the rate approvals, which are what we are working closely with Commissioner Laura on, is the very first line of defense. It will get it there quicker. The regulations which allow the use of the reinsurance and the cap models do need to go through the regulatory process and those would take a little bit longer, but those are kind of like the top three essentially, if you were to try to prioritize what those would be, at least from our perspective. Seren, a few others to add.

I was just going to add, yeah, let me do my carnac this date, give you a date, and then get in a lot of trouble later on that point. I think there is a piece That's happened That's really important. I mean, obviously it's hard to know and I don't know the extent to which the Department has been impacted by. There were COVID retirements, the skill set of having Actuaries, and people who know how to do rate filings.

It's not a lot of know coming out of college going, I can't wait to work at the Department of Insurance to do rate filings so they have to staff up for Ms. Bach's alluded to insurer foot dragging. I don't think That's the case. There's hundreds of filings sitting there for discounts. But I think the Department needs that help. Now, what a lot of people the press isn't talking about a lot, but That's really important.

In one of the last budget bills that the Legislature passed was language and authority for the Department of Finance to work with the Department of Insurance to bring in contract staff to add bodies insurers. And we told them, said Department of Insurance is all funded by fees on insurers, hundreds of millions of dollars every year. And we said, what do you need? We'll pay for it. Go get all the staff you need to move this stuff along. And so I think that is the key.

It's getting them the resources. Because I believe the Commissioner and the senior leadership there is dedicated to addressing this problem. Obviously, he's made some very public commitments about getting at that. And so they need to have those resources. And as much as we're all focused on the cap models and reinsurance issues, as Ms. Collins was talking about, just that simple day to day getting those things moving could be really don't.

I don't have a sense of what the pool of people or the ability to contract for that is or exactly what the workload is. And again, I don't speak for the Department. I know they recently actually already put out an RFO where they're requesting for an analysis of what's our workload need and how are we going to get there, how are we going to start hitting in Prop 103, it talks about actually 60 day approvals and then if you go to administrative hearing, 180 days, right?

We've never even come close to anything like that. So if those are the new targets and they start staffing up to that, we could see meaningful movement happening quickly. But the truth is, it's taken us many years to get into this problem. And as typical with complex problems, it's probably not something that turns around in a week or a month. But certainly we would hope we're going to see meaningful progress well before December of 2024.

Just a quick note of maybe positivity. Yeah. I don't think we want to scapegoat the prior approval process or the intervener process. I don't think those are the causes. I think those are something that the insurers have been complaining about from day one. I have heard this week two good rumors that we like. One is that the reinsurance market is predicted to soften in the spring. So that is good.

I've also heard that a major insurer has just at an agent briefing last week said that they are going to open up some zip codes. So, I mean, I think a lot of us when we saw this Memorial Day announcement, we were like, okay, this is political, you're going to make this announcement on a three day weekend. And there were a lot of insurers that have been quietly quitting the market. You probably know that. And so we just heard a few high profile.

We do have a really pressing situation. If you look at how many applications the Fair plan is getting every day, it's scary. And I know you know that that's why we're here. So I just really appreciate your time. I do think that insurers will get thirsty again for the premium dollars, for sure, but I still think we have to be working on a plan B so we don't find ourselves in a situation long term.

Assignment Member Wood and others, if I might, just very briefly, I know it's gone long, although I feel like it's been a hopeful, productive conversation and interesting one. Let me begin on a positive note. I think we all agree on resources for the Department. Look, I was there for almost six years. Those are good people. They work hard. It doesn't have the allure as Mr. Taylor just kind of alluded to that.

Some other places do, but they do good work and they really do work hard for the people of the state. So I don't think anyone disagrees with more resources there. It's a question of kind of making that happen in a thoughtful way.

Okay. On Ms. Bach's reinsurance rumor, if I had a nickel for every time an unregulated industry started to hear rumors about the potential for regulation or people looking at it and then made an announcement that maybe the market might soften up, I'd be a rich man. I wouldn't have to work for the consumer Fed, although I probably would help him out anyway. So I take all that with a grain of salt. I hope she's right.

I can tell you, Assembly Member Rodriguez, you know this better than almost anyone in this room. CEA and Sarah mentioned it. CEA is just at the mercy of the reinsurance industry and there's a whole nother conversation obviously about earthquake and the number one thing that increases takeup rate of earthquake insurance is guess what? A big quake. And of course it's too late for anybody who was damaged in the big quake.

But. It's a challenge, it's a real challenge. And by the way, we appreciate going back years and I was still at the Department when this started. All the work that you've done on Brace and Bolt, Brace and Bolt is the mitigation version in Earthquake, a variation of the conversation that we've just had for the better part of the past 3 hours here rate filings.

I would not be doing my job if I didn't mention that while I did not personally work on rate filings when I was at the Department, I wasn't personally looking at them or reviewing them. I obviously was talking to the people who were.

While I don't want to paint with too broad a brush, what was not uncommon at all, what was quite common was a rate filing would come in from an insurer and it would ask more questions with the incompleteness of the filing than it would answer in the filing. The Department doing yeoman's work would then work very hard to try to work through that and ask those questions. Those questions would then be submitted back to the insurer.

Crickets. And then the insurance industry tends to not always, in fairness, tends to say look at the delays at the Department. Many of those problems could have been avoided with a more thorough, more comprehensively written, better quality rate filing to begin with. That's what I saw. Now, things maybe are a little different now, I don't know. The other thing that I know is that for the past few years there has been kind of a green light on rate filings.

They are getting moved through pretty quickly, they're getting approved, the data is overwhelming. Insurers are getting, I believe Amy is about 95%, give or take of what they're asking for. And so this demonization of kind of people who are just doing the best they can with limited resources and the intervener process, I think is unfair. That's a debate That's been going on for 35 years, since Prop 103 1st passed in 88.

But I do think that there are a number of takeaways for all of you where there are opportunities to move forward to help consumers. That pain in those communities, Assembly Member Wood, that's real and we understand that and feel that too. We just want to make sure that there isn't such a waving of transparency and fairness and we have rules and prior approval that have historically and there's many reports on this saved consumers billions and billions of dollars and really helped them.

And then that's important that we kind of throw that out, but that doesn't mean that anything, no system is perfect and we'd be the last people to say that. So thank you very much for the time and the question.

Well, this has been incredibly helpful, great discussions and great questions. So I'd like to thank my colleagues and especially as some of them. Would for offering to host here in his district. I think this has been one of the most successful hearings we've had this year, actually. So I'm going to turn it over to Damon. Thank you all so much.

Yeah, and I want to echo that as someone who represents the district, like a half mile away. So much appreciated and thanks to the Chair and Assembly Member Wood and our other colleagues. So we're going to open it up to public comment now. If folks would like to speak on these issues, please come forward and we would ask, where do we have the mic? There it is. If you could start lining up in front of the microphone and maybe try to keep your comments to a couple minutes, if you can. Welcome.

Hello. My name is James Ely. I'm an actuary with 40 years of experience, somewhat semi retired, mostly retired, underutilized. Might be interested in some of that work. But I wanted to comment on two things. First of which is the catastrophic modeling. Cat modeling. It's well proven and very successful in hurricane modeling and also earthquake. But both can be modeled essentially events as circles, and they hit on coastlines or fault lines. And so the modeling in that sense is relatively easy.

In wildfire, modeling is far more complicated, and getting any real transparency is going to be extremely problematic. There are two types of modeling. One type involves identifying individual risks, individual locations or communities, and scoring them. And there seemed to be a lot of confusion on the panel or an expectation that prospective modeling would mean that we would do a better job at identifying which locations or insureds deserve a discount. You don't need cat modeling for that.

You didn't need cat modeling to give you an antilock brake credit on your car. So cat modeling is about sizing up the total risk, the total dollars involved. Don't think that cat modeling is about finding discounts. Cat modeling is about raising the prices. I say this. I am here as a consumer in Petaluma, currently under notice of cancellation.

Now, I don't mean to just bag on the insurance company, but the representative of the Department, I think he kind of soft peddled that element of it and talked about prospective modeling in terms of discounts. But when you talk about a functioning insurance market, it does need higher prices. You're not going to have a functioning market. The current prices are too Low.

And I don't have a stake in that. I don't own stock in any personal lines, property casualty insurers in California. But I say that as a consumer who wants to be able to buy insurance in a competitive market and know that that is going to be essential to the functioning of the real estate market long term as well. And I will take exception with the intervener process. The Prop. 103 regulations work great for auto insurance. The Prop 103 Regulations describe short term models.

Wildfire catastrophe modeling for property is a long term problem. So there are fundamental flaws with the Prop 103 methodology that actually could be fixed in transparent ways if you could get the people of California to vote on it. So we have a political problem. You don't need a sophisticated cat model that can't be explained to anybody. What you need is a trend factor on the 20 year historical period.

I'd prefer it for a 40 year historical period, and that would be a simple, transparent solution that could get you partway. There also the second pointero, also, that just the trend period of five years for the inflationary trend is too short, as some insurers will have tubs fire losses at the beginning of their experience period now and are seeing a downward trend in cost. That's ridiculous. You need a longer trend period. So there are some easily identifiable problems with the Prop 103 methodology.

Only as far as it goes for homeowners insurance. I have no objection to the auto. Now, the intervener process makes it extremely difficult for insureds to catch up when they fall behind. And we are in a position where they have fallen behind. They cannot catch up because of the intervener process. So we're going to need to find more creative solutions that don't involve a vote of the citizens of the state. Some creative solutions. Amy Bach talked about maybe a new policy form.

Well, if that policy form isn't subject to Prop 103, I'm all for it. We've talked about a. Public models. I'm all for public models, but how do they fit in the Prop 103 framework? You've got problems. Finally, one specific solution that may seem a little weird right now. The Fair Plan assessments go to property insurance writers, which creates a vicious cycle. As the market shrinks, their Fair Plan exposure grows. You could disconnect that, break that cycle by rewriting the Fair Plan legislation to assign that risk to auto insurers. That would break the disincentive and allow people to write. Thank you.

Thank you, other Members of the public. Okay, looks like that wrapped that up. All right, well, thank you again, everyone. Really appreciate everyone coming out. Those tuning in, great discussion today. As Assemblymember Wood noted, this will be the first amongst many, obviously a crucial topic and a complex one, as we got a taste of today. But I think we got a lot of great information. So thank you again.