Senate Standing Committee on Insurance

All right. Welcome. Thank you for your patience. This time we will convene the information hearing of the Senate Committee on Insurance, and appreciate all of your patience. My understanding is we do have committee members making their way to the committee room.

We have a pretty distinguished set of panelists and speakers for this information hearing.

I think it's important and probably goes to some degree without saying that our state at large is facing something in some ways not unique to the Western United States, but something unique in scale and scope, in terms of a challenge for this state and its modern history, myriad of impacts particularly of the effects of climate change, the challenges that presents on our resiliency efforts, collaboratively, statewide, and regions, and in local communities, and the impacts that has on resources and clearly here on the availability and stability of the insurance market, issues wide ranging from resources and land use planning to legal liabilities to the effect on investor owned utilities and other public utilities.

It is a perfect storm of a lot of very complex factors. Terms of how we bend the risk curve, how we reduce risks, understand, the mechanisms through the lens of how this affects the insurance market in the state of California, what that means for people's affordability, livability, ability to retain, maintain homes, access homes, access lending. All of this is intricately balanced and connected, and presents a substantial challenge for this state.

One that is gonna take some thoughtful and careful response. We have are pleased to be joined today by a distinguished series of panelists to address different segments of this issue. For the panelists, I want to thank you again for your participation and presence here today. I think in terms of timing, generally speaking, I'll invite the panel and speaker up. Please feel free to make yourself comfortable at the witness table.

Probably about seven to ten minutes or so, I think we have room for, given the block of time that we've noticed for this information hearing. And then we're happy to entertain some q and a from members and some good informative dialogue. So with that, mister vice chair, do you have any comments to open with?

Not much to add to what you have said, mister chair. We truly do have a unique challenge being regulated by an initiative that was passed at a time where circumstances were completely different than they were now. Kind of handcuffing our flexibility in in addressing these issues. So we'll do the best we can. I agree.

The panelists that we're gonna hear from are all distinguished and highly qualified. And I look forward to hearing what they have to say. I think we could have been served maybe a little bit better if we'd have also had some members of the insurance industry testifying before us today because they are certainly a significant part of how we address these issues. So that's the one.

Of nothing against what we have because as I said, it's a distinguished panel and I very much look forward to what I have to say but, I think it's missing that, that one component if I could, be so bold as to, submit that.

I appreciate and hear that, mister vice chair. And I think that, as always, the industry is ever present, ever engaged. I imagine we'll hear from them in this venue and many others, and I take your take your point. Other than that, I would like to remind everyone that a big part of why we're convening today is also because of SB 254, which was authored by one of our distinguished members, Senator Becker.

That report was just released in April that takes a comprehensive integrated look at the issues that we're facing across a multitude of dimensions.

And so with that, I'll offer Senator Becker an opportunity to make some opening comments as well as the author of SB 254.

Well, thank you, chair. Mostly just ready to I'm excited to to dive into the discussion. I think, you know, as you mentioned the report, we had a good discussion, energy committee earlier today. And we have a lot of lot of meaty pieces to dive in there to there and and a lot of interesting ideas that I know in this committee and others will be will be, vetting and discussing over the upcoming months. So I just appreciate it.

Appreciate this this opportunity to, have this discussion here today and look forward to working with your chair.

Thank you, Senator. Alright. First panel, is dealing with, the impact of climate change catastrophes on all Californians. At this time, I'd like to invite Amy Bock, Executive Director, United Policy Holders. Welcome.

And again, five, seven minutes presentation with some Q and A. And welcome. Proceed when ready.

Alright. Thank you so much. Good afternoon, members of the committee, chair and vice chair. Thank you for convening this hearing, and giving, an opportunity for my or my organization to contribute to your fact finding. I guess I do wanna reassure the the Vice Chair that several of the speakers today, one of them was formerly a lobbyist for farmers, and he's was, I think, extremely knowledgeable is extremely knowledgeable about the insurance, industry's perspective.

So if that gives you any consolation, there it is. So my name is Amy Bach, and I am here to represent United Policyholders. I've had the privilege of being with you earlier in the session. We are an independent nonprofit that educates, helps, and advocates for insurance consumers, disseminates guidance on adequately insuring assets and collecting full, fair, prompt claim settlements after loss, and we work to problem solve in the property insurance ecosystem.

So through a wildfire risk reduction and asset protection initiative, which we call the wrap group, We have been working to advance risk reduction across the state since 2017 as a strategy.

One of the strategies for restoring affordable available options and helping bring back a competitive marketplace. So we have been, coordinating with stakeholders to facilitate, incentivize, and reward individual and community level risk reduction, here in California. So I do have a a PowerPoint. I don't know if you wanna, I mean, I can just keep keep blasting away. Okay.

So the impact of climate change catastrophes on Californians is all around us. Obviously, drought conditions increase wildfire risk. That was a major factor that was identified when we had the tree mortality crisis came to light. And that was the time that people in the Foothills communities started to lose their insurance and competition was stopped filling in the gaps, to to restore options for those people who got dropped.

We since that time, of course, we've seen, a lot of pretty awful things, in terms of the mega fires.

Also, severe convective storms that are associated with climate change increases flood risk. That's a huge, uninsured risk that we have here in the state. And it's not just climate change, and the impact on our environment. We unfortunately had a simultaneous phenomenon. The explosion in SureTech, risk scoring, risk models, AI, aerial surveillance, plus inflation, all kind of combined with climate change and the terrible fires that we've had, to really shake the property, insurance system, at its core here.

We have obviously reduced availability, reduced affordability, reduced competition. So where are we now? We now have official standards for a wildfire risk reduced home. That's a good thing. The number of Firewise communities in the state, that's communities that are proactively facilitating risk reduction, have grown significantly.

The CDI sustainable insurance strategy is in progress. We are seeing some improvements. We just saw yesterday farmers announcing that they're gonna be thank you. That they're gonna be lifting oh, okay. There we go.

Little little visual to help us through here. Okay. Alright. Okay. So and I think you're gonna hear from somebody with the department, so we don't need to go into details on the SIS.

I think probably by now, most of you could could talk to what it is and and and how it's going. But we also have a little bit of good luck and sort of good luck. The reinsurance market has softened somewhat, so that's part of some of the progress I think that we're seeing is from that. Some insurers have lifted sales quota caps on agencies and increased writing because of the sustainable insurance strategy, but also probably because of the softening a bit of reinsurance prices. Insurance incentives and rewards are work in progress, right?

Like we you've had some bills already come through that would mandate that insurers offer a policy to a home that has gotten their wildfire prepared home certificate, and there's there's some some challenges with that that as a policy. So we are hoping to see this continued adoption voluntarily by insurance companies of rewarding households that get their certificate. There are significant obstacles to getting that certificate, not just the cost of it, but also just a lot of other obstacles.

The Fair Plans policy count has slowed, but it's still way too high. I know you all know that.

To me, one of the biggest challenges is that many more homes now in California are insured through non admitted surplus lines insurers that are really not that regulated. They their rates, their forms are not regulated. They have they don't participate. They don't have to share in the fair plans liabilities. They don't have to contribute to CIGA, the the insurance, guarantee association.

And what what really makes me most nervous about it is that that that they have a really unfair advantage over admitted insurers, and admitted insurers are the ones that we want consumers to be with. So I think that's something that really is gonna need some some brainstorming because generally speaking, non admitted insurers say that they can't be, regulated. So, we are seeing an increasing number of households without mortgages going there, and then obviously the LA wildfires last year were a tragic setback.

So how are we doing in terms of dealing with the impact of climate change and these other factors? We're we're on the road, I would say.

So the top the top image there is from my organization's landing page for this risk wrap initiative, which includes online resource center. People can go to find out whether there are grants in their area to help them with the home improvements.

And then the bottom left is a, I was just at this this is a panel that I moderated on last Saturday in Agora Hills with Victor Joseph, the COO of, Mercury, as well as a representative of the Fair Plan, two independent agents, and an entrepreneur who is innovating with communities and risk reduction. And interestingly enough at that hearing, you'll hear the Mercury kind of articulated that they're feeling pretty bullish on the market here.

I realize they're only one company, they're domestic, but they are not holding five feet of clear spaces and absolute bar to being willing to insure a home.

So I thought that was very interesting. And then on the bottom left is, that's a presentation by a behavioral psychologist that CSAA has retained to help understand how people make decisions about money and spending money on risk reduction. So what lies ahead now that insurers are getting the regulatory changes and rate increases they want? Availability should continue to improve.

The commissioner's regulation should help people in distressed areas, but affordability is really only gonna improve through increased mitigation community wide, insurers competing again, and continued rate regulation by the DOI to ensure that the rates are fair and not excessive.

So we are seeing some progress. I mentioned Mercury. Everybody's seen their commitment in Paradise to write more homes. CSAA has also been very much rolling up their sleeves, coming to all of my working group meetings and having a very open mind about, acknowledging the efficacy of risk reduction. Zone zero, as you know, is soon going to be a statewide requirement, and that's going to be, I I think helpful to restoring insurers confidence.

We also now have two identical, almost identical official standards plus we have the IBHS' program and their commercial relationship with a company called Inspectify that goes out and certifies that that it is in fact reduced risk. So, just a few more things, and I will pass along to the other, esteemed panelists here. Risk scores have become a huge deal, for, determining whether somebody gets a policy or not and what they pay.

And right now, there's not a whole lot people can do to, improve improve their risk score because those are proprietary, programs. So, political risk, your elected officials, you know, nobody is enthusiastic about rate increases on their insurance.

And, so that is gonna continue to be a challenge, and a and a dynamic for, all of us. And that, wraps up my snapshot of, how climate change is affecting, and related catastrophes are really, affecting Californians. I'm happy to answer any questions.

Thank you very much, Miss Bach. Appreciate you as always. Didn't realize I was rushing that thorough presentation a little bit. I will, turn it to, any committee members who might have a question or clarification or follow-up. And if not, we can Senator Becker?

Well, thanks. I'm I'm kinda going through. I mean, I'm sure a lot of things you've touched on will also be discussed today. So I don't know how, you know, other panels. I'm just just debating personally how how deep to sort of go into things.

But I do, I guess, just to summarize a few things. You you talked about the same insurance strategy seems to be working. In fact, the folks coming back. There's some non admitted carriers, you know, but that's gone up significantly. And yeah.

I guess I mean, I'll just ask you this question, then we can can move on. But, you know, in in the energy utilities committee hearing this morning on this report, Peter Mark Toney from from Tern, you know, really asked you to red alert, you know, saying that there's a crisis for utility rate payers for sure, but also for in the insurance market too.

I mean, how are you how do you sort of, you know, react to that overall just in the sense of, like, you know, your your general sense of of the market right at this moment. I mean, you said the fair plan is is slowing, but you said so it's still, you know, way too high, which means, you know, I think that I I don't have my report in front of me, but it Yeah.

It's like they're $6,600 something thousand. Something. Yeah. It's way too high, obviously.

Yeah. In in risk. Anyway, so what any quick thoughts on that?

Sure. You know, a number of years ago first of all, I'm a I'm a I like to think of myself as a GSD, get stuff done person. Right? So so calling something a crisis has limited value. Right?

I'm much more interested in what are the solutions that that smart people are advancing. Right? And that's, that's why, you know, I'm getting so much positive energy from my wrap working group because these are people from around the state, Cal Fire, IBHS, you know, what I call the good Karens, the people in the communities that are volunteering for their Fire Safe Councils. And and and because I'm seeing some progress, that that kind of energizes me.

So, I do think, obviously, that, the word crisis has been gotten out there, in the in the public domain.

It certainly has been, you know, kind of a little surreal to have the gubernatorial candidates sparring about their ideas for the, you know, solving the insurance crisis. And maybe I'm a little bit too much of a Pollyanna, but just that I'm in the in the middle of it talking to consumers. We we were, you know, doing our surveys and talking to agents and brokers and and keeping my ear to the ground and staying in close touch with the FAIR plan.

I feel like because people, have rolled up their sleeves from all the quarters, you know, I'm talking about, state and local firefighting agencies, the philanthropic community, you know, is trying to to to get into, you know, fund mitigation. And we now know, you know, you're gonna hear from professor Gohner, you're gonna hear, you know, about the research that shows that we're not powerless in the face of climate change.

So I think because things are because people are doing good things, like, what what is the that famous line of, you know, if you're feeling despondent, you know, look for the helpers. So because I that's me. I look for the helpers. So I think, well, there's a lot of people that are on the road to bringing some solutions here. Obviously, I think we probably do need some sort of state backstop for, you know, to try to balance what's going on with the FAIR plan.

But I I do think that one of our biggest challenges is the fact that the non admitted carriers are moving so quickly in to residential risk, and they had not been in that. They had always been sort of more on the commercial side, more sophisticated buyers. And now we have these crazy policies out there with $80,000 deductibles for wildfire, and you don't see that with an admitted carrier. So that I think is a is a very significant challenge.

Yeah. Just last question on the the report talks from under insurance being a very significant problem. Yeah. Comments on the under insurance?

Yeah. I mean, that that that is a problem that United Policyholders has been trying to help solve for for since we were founded. It's after the Oakland Berkeley fires in '91, people were under insured. So this body has done quite a number of things to try to address that with the the standardized disclosure form.

Certainly our my organization and the DOI, have been out there for years trying to encourage people to, to to look at the the amount per square foot that their dwelling is insured for and talk to some builders in their area and see is it at all realistic.

We also have been pursuing a lot of different channels to hold insurers more accountable for why they continue to keep using these low cost estimators. And that that I would say remains a work in progress. So I think we're going to always have this dynamic where people are never going to be enthusiastic about paying for home insurance. Right? You can't drive it, eat it, enjoy it, and laugh at it.

And so it's a necessary evil and and people are always gonna think that insurers are ripping them off. That's just sort of a normal consumer viewpoint. So it is tricky. Underinsurance is tricky, but we are seeing it manifest just so badly right now in LA. I mean, our surveys have been pretty much two thirds of of wildfire survivors Harabedian underinsured.

That's been a consistent number for thirty five years. LA, it's more like 90% or 8080%. Right? And that's partially because of these factors of, you know, we had the tariffs. We've had a lot of, you know, labor kind of, you know, low low cost labor moving out of the area.

And then we have inflation and we have you know, people are talking about 800 to a thousand a square foot, you know, for regular homes while most people are insured in the range of $3.50 to, you know, four if they're lucky. So we we, you know, the easiest solution is you put a clear legal duty on insurers to get it right, get that number right as close as they can. And if they don't, then it should be on them.

Or you do what eight seventy six has in it, which is you say, okay, that that people should be buying 50% extended replacement cost endorsements, and that will give them more of a buffer. You know, the the the better solution for us I mean, the the problem is, of course, it's always gonna be this balance.

Right? If you force insurers to, you know, to increase their limits, they're gonna charge for it. And we're already kinda having an affordability problem. So that's why I kinda go back to some kind of a backstop like Florida's hurricane catastrophe fund, which is sort of a public reinsurance facility for some of the where insurers can can can put some of their catastrophic risk at a lower price point than buying retail reinsurance. Something along that line.

But we are not in favor of taking wildfire protection out of the basic home policy as a solution.

Okay. 90%. That's significant.

Yeah. Okay. Thank you.

It's insane.

Thank you, sir. I would say I would just add, I think, let's be honest. Just a couple quick. That's the exploitive beyond a degree. But I understand the opportunity for some in looking at potential markets using that term loosely.

I mean, fundamentally, there is a sort of a clear dynamic. Reduce risk And introduce more riders into the market. Right? More riders in the market mean there's more consumer choice. That has another material impact on how we're assessing risk, but more importantly, how we're pricing product. Right.

Right? In light of those conditions. Right? So fundamentally, when you're looking at this just from a pure market standpoint, it's what are we materially doing to bend the risk curve. Right?

And then how are we encouraging people to be entering the market with product that is competitive. Right? And we're a little bit away from that, it seems to me. Yeah. But there are some to your I think earlier testimony you used the phrase softening, that there are recent petitions at the department that were approved for rating structures.

Are bundling, providing product into high risk areas where they're bundling product and achieving what they're they put in their petition would be net reductions overall in cost. So an improvement there for consumers and policyholders. Seems to me that that's almost a little bit of a soft proof of concept. If you're able to achieve more scale, bundle product, hard hardening, or risk reduction, and couple that with a pricing advantage. I mean, that seems to always be the conversation.

Do you wanna expound on that a little bit? Because there have been, and I think that and we'll hear from the commissioner later today. Pretty proud of that. Those recent approvals, you wanna comment on that?

Sure. Yeah. I mean, I've been tracking the CIS filings and and, you know, and yesterday's announcement that Farmers, you know, was gonna that they they resolved their rate filing, and we're gonna do, like, a 1.5 overall rate increase, but that they were lifting their sales quota, caps. And, you know, I think I'm not I'm in favor of entrepreneurial activity. I mean, competition, fine, good.

My problem with a lot of the non admitted with them all coming in is that it's a it it since they don't have any responsibility to contribute to the FAIR plan, you're disincentivizing admitted companies, you know, from from wanting to expand their market shares. The more they they grow their market share, the more of the fair plan, you know, responsibility they have. And then it feels, you know, that's why you see some admitted insurers opening non admitted subsidiaries. And Allstate did it. I think Farmers did it.

So I think, you know, just as public policy, elected officials, I just wanna make sure everybody's, like, you know, processing this. I think that, we are hoping to see insurers compete to give the best reward for a risk reduced home, but we also know that what people need very much to reduce risk is money.

They need, you know, mitigation grants and they and they need to know if Aye, you know, if I if I don't go on vacation and I use that money to, uglify my, you know, get rid of my beautiful, you know, bushes and all the other things you're telling me I need to do, replace my wooden fence with a metal fence, that I'm not gonna have to worry about my insurance again.

And right now, we can't give people that assurance, so we're kind of try you know, we can continue to to try to increase insurers confidence obviously, you know, that they will get adequate rate. But but we also need to continue to try to provide more funding for mitigation so people can actually afford to do those things.

And that's primarily the question. Right? The state's most impactful potential investment or role or partnership. And this is not gonna be a purely market driven solution. There's gonna have to be a way to encourage and leverage and make available support for what's broadly fundamentally an infrastructure problem statewide.

Right. And we have no strategic or integrated plan around that. That has a price attached to it. It's gonna be up to us to decide how do we wisely and strategically decide to be a partner in that effort. And where where is the biggest return on investment there?

I agree. And I think, you know, getting the message out that we're all in this together so that, you know, people who are saying, oh, I don't want to be subsidizing people who are living in harm's way. I like, okay, understand wherever you are, you've got some risk.

And that's the whole way insurance works is that we're pooling and we're so I think a statewide strategy is is, you know, in order and that's I mean our wrap working group, we've got people from all over the state participating and it's really interesting how, you know, the more affluent communities like Marin for example can afford to do matching grants. You know, their their residents can can kick in some.

But there's a lot of rural areas where people just do not have the dough period. So, you know, getting and and things like, you know, when when, Marin passed, you know, a bond measure, their voters were willing to fund tax themselves. I think Oakland, Berkeley did the same thing, but there's a lot of counties where that ain't gonna happen. So, yeah, I think the state has to has to be, taking a comprehensive

Miss Mark, thank you for your, testimony and your participation, your work as always. Thank you very much.

Thank you so much.

The next, segment will be dealing exactly on bending the risk curve as we're calling it here. I'd like to ask Nancy Watkins, principal and consulting actuary at Milliman, to come on up. And Michael Huarra, PhD JD, senior director for policy sustainability accelerator at the Durer School of Sustainability at Stanford. Senior Research Scholar at Woods Institute for the Environment. Welcome to both of you.

I will leave it to the two of you. I imagine, Miss Watkins, you'll go first. And then mister Water will give you each about seven to 10 each, iterative process here. Thank you for your participation. Proceed when ready.

Thank you. Oops. Thank you, Senator, and, thank you to the committee for having me, invited here today. I'm, principal and consulting actuary with Milliman in San Francisco. Milliman's a global international consulting firm.

I've spent forty plus years in as an actuary, pricing insurance and reinsurance, and I've I've worked for most of the large insurance companies and trade groups that you've heard of, and said things about maybe from time to time. I've also, spent my last ten years focusing on property insurance markets. How do they get broken and how do we put them back together? So in that journey, I've done a lot more work, with, other stakeholders in the, ecosystem that we're in.

Recently, my team and I supported the CDI in their implementation of the sustainable insurance strategy.

We've worked with IBHS and the California Fire Chiefs Association on efforts to make home and commit community level mitigation data visible to insurers and catastrophe modelers so that they will be reflected in the risk transfer space.

We've worked with the towns of Paradise and Rancho Mission Viejo right now are working with one of the largest utilities in the state that are entering fire prone communities and doing what I call mitigation makeovers, to to to try to get the highest return on their mitigation dollars spent both with respect to safety and risk reduction and also, where we come in is is on insurability.

So through all this and through a bunch of volunteer work that I've done, I've learned a lot of, I've learned from everybody on the panel today. We've worked, I've worked with all of these people. And Aye, as a volunteer, I'm sharing my thoughts today.

I'm not representing anyone else. One thing I will say is as a resident of a high, very high fire community, Orinda, we've been, non renewed twice. And the second time we got serious and cleared our zone zero and still couldn't get a quote from the admitted market. So I was thrilled to get a non admitted policy. So I just want to put a plug in for when there's a gap having a good insurance company to to help fill that gap.

So I guess I'd like to start with why I think we're having problems with the California insurance market still. And I think the easiest way is to think about it through an analogy where, like, say you've got a job, you've had it for many years, and in the beginning, you were getting paid enough for, for, to, to, to, to live the way that you wanted to live.

But over a decade or more, you had either zero raise or minimal raise, while the cost for maintaining your household were just going up and up and up. So at the beginning, you would have been fine, but then over time, the gap between what you're earning and what you're, paying out in expenses gets wider and wider and wider. So if you're in this situation, then what are your choices?

You could, you could dip into your savings and you could try to fund the gap every year. But it, and, and this actually does work if you have like a catastrophe or something for your household. But if you're, you know, looking at this as a solution in the long term, obviously your savings go down and you may run out. So, for an insurance company or a consumer, your income is supposed to help you build your savings, not to deplete it.

So, that that option is not a great long term option.

Another one is to cut expenses. That's what most people would do. And they probably start with the biggest expenses first that they're able to cut. This parallel has been playing out in the insurance market. They've been cutting the highest risk policies, in order to balance out their income and, and what their, expenses are.

So, this is why we have had availability issues and still have availability issues and it's why the fair plan grew so so fast. The third option is to ask for a raise. You you might be able to close the whole gap with a raise but only if your boss is willing to grant enough of a raise to to cover the gap. And so if you are able to do that then you're gonna increase cost for the bill the businesses.

So this is, in the insurance paradigm it's going to hurt affordability.

So, the last option which, is available to some people is to change jobs. If you're if you're able to change jobs and you could move to one that pays better, then, you might be able to fund your your household the way you want to. Most insurance companies do have the option to deploy their capital outside of California. If if if they have been here a long time, they often don't want to move completely out of the state.

But this option does get more and more attractive if the other states are offering higher risk, I mean, higher return and lower risk or both.

So, given where we are, my recommendation for California for the insurance market is a combination of two and three. To cut expenses, we reduce the risk in wildfire exposed communities. To raise income, we continue with a sustainable insurance strategy and allow the insurers to justify actuarially sound pricing. I I will tell you that the CIS just started to take effect. So, like, if you are really, really sick and you got a course of antibiotics, you would not expect to feel good on day one.

You've got to keep going all the way through or you will not get better. And so, I just I understand that people are sick of rate increases and they're and they're they're really upset about all the sacrifices they've been asked to make. But we're not at the point where we're out of the woods. I I think both of these recommendations to cut expenses and raise income are in the SB 254 report.

But if you want availability and affordability to happen faster, you need to close the gap faster.

We, as a state, need to close the gap faster. If the gap persists or if it increases, insurers could get pessimistic about California and they could go elsewhere. I I hope that they don't. So to get the highest and the fastest results on the money that we need to spend to reduce wildfire risk, I believe that we need a state mitigation framework.

And, Senator Padilla, you just said that the state has no strategic plan right now to come up with the most impactful support, and I really agree with that.

I think we need to focus on reducing the vulnerability to urban fires, which are the most costly types of fires that have, that burned down the most houses and of most affect the California homeowners insurance market. So, one of the the materials in your, brief briefing books today, is an article that I co wrote with, Michael Warra and, retired fire chief Dave Winaker explaining what a state mitigation framework could look like and and what it would involve.

A few just final high level messages to go along with the the messages we put in the article. The build up of wildfire risk is a state and a local issue. It's it's arising from climate change as as Amy talked about.

It also arises from decades of decisions that we've made, on on land use, building, fire suppression, and and, decades of regulatory, decisions, which, you know, we we heard about at the very beginning. Nobody is gonna save California from our decisions. They're like they they had reasons to be made at the time, but now we look back and we know that continuing to make those same decisions is not going to work for us. It doesn't serve us at this time.

So the problem is bigger than bankrupt utilities and disrupted insurance market.

We've got a huge economic and social and environmental cost whenever there's a fire like the Palisades fire or Eden fire. There's so much more going on than insurance when we lose those communities. We cannot address this problem through ignition reduction, fuel reduction, or fire suppression. And we we definitely can't get it just through early detection. This all has to include home hardening and defensible space within communities at a much, much greater scale than has been done.

The nibbling around the edges that we've done has not built bent the risk curve yet, and that means that the state has to really step in and be more strategic about how to make things happen faster. I do believe that new housing can be built or rebuilt in fire prone areas.

We're not I don't think that, we're looking at it pure retreat situation, but the development and redevelopment has to be informed by the science about how to live safely and accept fire as a permanent feature of the natural landscape. I do think that it's great that you all are asking experts what we think.

And I'm hoping that with collective action, if we accept where we are and we have political courage to face the problem and lead our constituents as a state, we do, we will find that wildfire is a solvable problem. Thank you.

Thank you, very, very much, miss Watkins. And because of the nature of the topic, I think what I'll do is I'll go to questions for each of you one at a time. So it just sort of stays a little more clear. And I appreciate that validation and your focus on strategic action resonates with me. I'm reviewing and I appreciate the issue brief that was submitted by Milliman.

And I'm looking in two two two, the need for collaboration coordination. The brief points out, one of the dynamics that's difficult to sort of deal with that's very relevant to statewide potential partnership and that is expectations and efficacy about the individual property owner or policy holder around what is or is not sort of a validated mitigation measure, how that is implemented, and what the expectations are about the adequacy of that by any potential measures.

And you you spend a little time speaking to that in the brief, which again seems to me to reinforce the need to be very and to undertake measures that are meaningful, that they be valid, that they be coordinated and strategic, and they actually have an actual measurable impact. Because and that they're aligned with what an actuary looks at in assessing risk, and what a provider or underwriter looks at in setting price, and then making it, something that other, you know, writers Wanna Join. So that's really an interesting thing.

Do you wanna comment any further on that on the expectations and and the efficacy and that you have different folks deciding that there are different standards of how we measure efficacy and mitigation?

It's it's so complicated. And and and the problem that you're pointing out and and thank you for your kind words. Making my head, explode with with, pride here. But, I think it's tricky because the problem is changing fast. There's not this giant body of fire science that we could draw on that we we really started experiencing all of this, in 2017 as a as a state and and really as a country.

And so, you know, Michael Gohner and lots of others have have have struggled to catch up and so is the insurance industry. What what I would say is, like, think about I don't know if any of y'all are old enough to remember when you started a job and you sat there smoking cigarettes at your desk all day long and nobody had a problem with that.

I mean, my parents drove around smoking in the car with the windows up and and, you know, I'm sure we didn't have car seats. We were rolling around in the station wagon. All of these things were just the way that that we did.

And and people didn't stop smoking because they got discounts on their health insurance or because they were told that smoking was bad. They stopped smoking because you stopped being able to smoke in restaurants and airplanes and offices and it got less and less convenient and the price went up. So that that was there was also education.

But, they're like same with seat belts, motorcycle helmets, things that we know work coming out of the scientific industry and, you know, to some extent from the insurance industry, but informed by government policy. The government has to back up the the science at some point with some rules.

And and the rules are what people follow. People buy flood insurance because they have to buy flood insurance. Very few people will buy flood if they don't have a federally insured mortgage that forces them to buy it. So there are, there's there's a time and a place for discounts and and nudges and education. But if you really wanna make the difference, you make it almost impossible for people to do the wrong thing and make the wrong choice in high impact situations.

Thank you. And other questions, mister vice chair?

You mentioned that you bought a policy from a non admitted carrier and you're happy with it. I begged them to quote me. I'm not kidding. They're a client of mine and they treated me really well because I knew them. And I was lucky because I knew they wanted to come into California.

I've I've been introducing them around because when you have a gap and and when nobody like think about this budget like the the companies I I know other actuaries at other companies and they're they're nice people and they would like to say yes to me but their premium budget isn't big enough to take on another high risk policy in a in a in a town like Orinda.

And so they cannot say yes to me and do their job right. So right now, the budget isn't big enough to increase the expenses for those companies. And this is just my policy, my, you know, anecdotal search. But in the meantime, I didn't want to go to the fair plan. I wanted another option.

So it's like having permanent employees or versus contractors or lots of other choices that you make. There are trade offs. But the non admitted market springs up to fill the gaps for, difficult to ensure markets. Smoke is a very tough risk for wildfire and it's becoming increasingly hard to ensure. The conflagration risk has changed a lot and that makes wildfire, like, more tricky to measure and manage.

And the regulatory restraints on getting the prices up to where they need to be create another source of risk that, and the political risk of, what's going to happen going forward. Those are all risks that make it harder for the admitted market to to grow right now.

Was the policy, competitive with what the fair plan would have been?

I expect that we would have ended up paying at least 80% more for a fair plan plus a wrap. I mean a difference in conditions policy. The rate increase over my expiring policy was probably about 60% and the terms were about the same. But I would have gladly paid my expiring insurer, 60% more to keep that policy.

Your, testimony somewhat conflicts with the testimony of the previous panelist.

Well, I don't think so. No. I I I think Amy, and I agree on a lot of things. She's she's said that non admitted carriers don't contribute to the guarantee fund. And if one of them goes under, you're not protected by the guarantee fund.

I took that risk. The, non admitted carriers don't contribute to the FAIR plan. And if we do, get out of balance and the admitted market, Think about if you're a bar with your buddies and, everybody drinks and then they maybe throw down a few bucks and leave. Like at the end of the night, if you're the last person at the bar, is that is there a risk there?

I mean, that's what you don't want with the non admitted market and and the admitted market getting out of balance.

For the fair plan to get so big that you're actually accelerating the admitted market withdrawal. We are hopefully not at that point yet. I'm not sure. But, I mean, you think about what happened when Silicon Valley bank went went under like how tricky it was for other banks that were in that same business. So politically and financially we have a tricky balancing act as a state.

The non admitted market will help, reduce the, I guess, the frantic desperation of people like me who can't get insurance while we stabilize the admitted market and I'm grateful to them for that. But there is certainly Amy's not wrong. There is a risk involved in in going with those those carriers.

The bottom line though was your premium went up higher than the admitted companies are able to even begin to charge you.

Correct. I mean, what was politically unthinkable back in 2017, was happening just a few years ago. I'm sorry to keep talking about Orenda, but it's like I met an actuary for a California company and he said that we're his worst nightmare. So we're we're very, dense vegetation and, a lot of, structures that that sort of like the Palisades could have all burned at once. And people in our town council meeting were coming up to the microphone going, please raise our rates, please raise our rates.

Like, did you see that coming? But that's the way that that that the problem has evolved from, let's just starve the insurance companies to make their premiums as low as possible or otherwise, our constituents will be mad to let's be realistic about the cost of providing this, you know, new this this coverage. And believe the carriers that they cannot they cannot keep writing the same amount at the same level if they're not getting enough premium to cover it.

And that's the the important issue there is and as I stated it your unadmitted carrier was able to charge you a rate that the admitted carrier cannot charge you because of the regulatory process that we have. The sustainable insurance strategy, I think everybody would agree is a good start. But still, it is very difficult for admitted companies to adjust their rate schedules to what circumstances demand because of what they have to go through to get their rates where they should be.

The biggest risk in all this is that our constituents are gonna have to pay more money for insurance. And maybe we're afraid that we're gonna take the blame for that as the elected officials.

But the fact of the matter is that's a huge problem with the marketplace and they can't adjust it fast enough because of the process as well as the role of the ever present intervener. We all realize that particular roadblock. The other side of it is the mitigation. And what I think what you're saying is we we talk a lot about forest management which for the sake of wildfires generally in wildfire areas that certainly can can contain the intensity of the fire.

But I think you're saying far more important is is home hardening and it has to be done on a community wide basis.

Yes. I I would just clarify that what I'm saying is more important that hasn't been done yet. Yeah. What's the next thing to do?

Because all it it is important to manage the forest and the utilities hardening is is also important, but we can't get ignitions down to zero. Fast fires can happen in grassland land. In fact, out of out of the fast fires that represent, you know, the the what 80% of all structure losses from 3% or so of fires, most of them originated in grassland. And so there's there's not a way of reducing the vegetation to nothing.

There there has to be a way to slow the spread of fire once it gets to the outside of the community so that suppression takes over.

Frank Frivol is behind me laughing because I've spent so much time learning from him and and and chief Whitaker. But that's what we've, that's what's what's finally been understood is that we're not looking at a Smokey the Bear situation, for for our insurance related problems. There's other issues when forests burn. And if we do home hardening, we can do more prescribed burns near the edges communities, which will help with with other kinds of fuels treatment.

The intervener thing that you you asked about, I I completely agree the 6.9% is a de facto cap on what a lot of companies will ask for.

If you went to your boss and asked for 6.9% raise and you thought you'd probably get it within a year, that was one of your options or you could ask for a bigger raise and then you'd have to go to court against your boss and you might end up with a salary cut. And it would take you a couple of years like what what would you do? So that's that's our regulatory process.

Yeah. Yeah. I made that comment at the beginning. Thank you.

Thank you.

Thank you, vice chair. Any other members of questions for miss Watkins? Senator Stern, like, do you have a question? Welcome, Senator Stern, the chair of emergency management joining us today. Welcome.

Also want to note that my esteemed colleague, Senator Richardson, has joined us as well. Welcome, Senator Stern.

Thank you for the hospitality and, and, for for honing in here. Maybe, a thread I'll just pull since all these issues tend to eventually overlap. I I appreciated the truth telling around, the hardening versus forest management dynamic. Up to this point, I think it's been about a ninety ten split, give or take.

We're gonna hear numbers tomorrow and the other committee from the LAO exactly what it's been, but from just a pure landscape management driven spending strategy on mitigation versus actual community based or home or risk or property risk based.

It's actually the origins are in a our forest carbon strategy where the original intent was actually to reduce greenhouse gas emissions from wildfires. So you can imagine if that was your metric, you would spend as much money as you can reducing the number of acres. Right? So it becomes the projects are essentially the metric is dollars per acre. So if you can cover more and more acres then you win the game of the grants.

And so how could a community that's all consolidated densely into the Orinda Hills beat, you know, 300,000 acres in Northern California somewhere. You're never gonna do that. So we're going through a reckoning, I think, on the mitigation side that we wanna sort of try to pick up the thread on tomorrow and pull from here. But I guess for your purposes since you're the actuary, what what works? Like what what what's really effective?

I wanna hear your thoughts maybe on the zone zero, for example. You said no smoking areas. Know, that's sort of the no smoking area if you will of hardening. Do you just have a quick thought on on sort of what those no smoking area tools might be?

I do. But you definitely should ask Michael Gollum this question. Because he's he's gonna be the the the direct source and I'm just the person that's, you know, quoting. So

But your eyes matter because you actually are the ones who you take that data and then you make it into our rates. So it actually matters what you think about it just as much as the

That's true. The what science what science do I believe? It's the science that's coming out of IBHS, which would it's based on the zone zero definition that I believe IBHS and and Michael have been using is five feet. And that's where all the data has been collected and the science that supports clearing zone zero flammable materials. There's been a new version of that, I understand approved at the board of forestry, which is, it's not supported by data that has been collected, I guess I would say.

It might it might be helpful, but but there's no there's no actuarial or scientific studies that we can point to. So that doesn't mean it has no value. It just means the value is very difficult to to quantify. And it's not the same as the value, that has been measured. But Aye, from hanging around with Frank Frievold and Dave Winicker, my understanding is that where the house is that you're mitigating, changes the answer to your question.

If we're looking at, houses on the edge of the community, they're going to need, and I think Michael even understands this better than I do, They're they're gonna need to be hardened against direct flame and against embers. When you get farther in, and the houses are farther if if the houses are farther apart than what, 30 feet, I think, then they can't burn each other down so much with direct flame, but they will, be susceptible to embers.

And so you have to think about, the the screens that keep embers from getting into your attic. You have to think about, what's the six inches up from the ground where embers can collect on the ground and, as long as it can't burn the siding, the, that's effective. The class a roof is always effective, but I think most houses in California already have that.

And then and then the zone zero, and the ladder fuels leading up to zone zero are the most important. So one of the things in our state mitigation framework paper that you might be interested in are the point that you just made that measuring the the metrics you pick matter a lot in terms of how you prioritize your spending, and your messaging. The message of acres treated is not effective in this situation.

We need to be looking at, like, the time, how fast a fire burns through a community and how much time you have for fire suppression. That's not traditionally been the way that models worked.

But it does change the outcomes and that will affect insurance eventually. So so understanding how how you can slow the fire the most effectively, will tell you how you can reduce the number of structures that burn the most effectively. And if you match the mitigation with where the structure is and how closely packed, there's some structures that are so close together that it there's not gonna it's not gonna matter very much what you do or that they're so far down oops. Sorry.

They're so far away from the the the source of the ignition that they're just burning each other down.

And so, spending a lot of money on mitigating there isn't all that effective. So look at thinking about a moat, from where the fires are gonna come from as the most, high priority to save the community. And once again, you gotta you gotta ask the scientists and the fire guys. But as an actuary, we're we're we're putting this information in front of other actuaries for insurance companies and modelers and saying, will this change your view of risk?

If, if Paradise does this, will this make you wanna write? If Grass Value does that, will this make you give them a better price? So hopefully that answers your question, Senator.

Yes. It's very honest. Okay. Thank you, mister chair.

Thank you, Senator. Great question. Alright. Doctor. Wara, you've been very patient. Thank you. Feel free to present again. Same time frame and welcome again.

It's an honor to be here. I'm Michael Wara. I direct the Climate and Energy Policy Program at Stanford's Woods Institute for the Environment. Today, I'm speaking in my personal capacity, but I am gonna use some slides. I guess they're kind of Stanford branded. So I let me see if I can advance this out here.

I think I'm just gonna reiterate something that's been said a few times, which is that the insurance business depends on a reality that premiums need to roughly equal expected claims plus expenses. That's how the business works.

That's how it's a private business and not a government provided public good. And the reality in California as this figure shows over the last ten years is we are burning down too many houses. So the claims are very high, which implies that the premiums need to be very high.

And I think really your focus on bending the curve is absolutely essential because we actually need to change what this figure looks like in order to be successful in having a healthy insurance market where there is available coverage at affordable prices that people can afford to pay to actually fully insure their homes. And we're really losing ground. We've lost ground on availability since the tragedies in 2017 and 2018.

We're beginning to gain some availability ground back at the cost of affordability. But I think there are real political limits that we're gonna encounter in the state, you know, similar to what maybe Florida has encountered in terms of affordability of home insurance coverage, and that's gonna lead to even more erosion, in terms of, you know, having people fully covered after disasters. The kinds of problems that Amy Bach on the prior panel was mentioning in terms of what's happened in Los Angeles.

So I'll just say well, I just said this. Improving insurance market outcomes requires burning down fewer houses.

There are obviously other benefits from burning down fewer houses as well, like intact communities, like kids who are not traumatized by the experiences of their childhood where their community is ripped apart, like people who don't have air quality related complications to COPD or even to things as normal as pregnancy. There's tons of evidence that preterm births go way up after wildfires. There's emerging evidence that surgical complications significantly increase post wildfire. So I think there's a variety of reasons to be thinking about burning down fewer houses.

I'll just say that, you know, we're about to come out with a lookbook that actually will show you for all of your districts.

What Cal Fire's view of the total structure count at risk is, we're expanding that to include a zero to one mile buffer zone because in our experience in the urban conflagrations like what happened in Altadena in particular and also in 2017 in Santa Rosa. The Cal Fire hazard zones actually are not they they under predict hazard in very significant ways.

And building on that work, we're gonna be showing structure separation distance, which is as Nancy was just describing is a really important predictor of loss. When houses are really close together and a few of them start burning, they essentially act as fuel from a radiant heat and convective heat perspective and also, of course, embers and you can lose entire communities. That's what happened in Paradise.

It's what happened in Santa Rosa. It's what happened in Altadena as well where you had, you know, effectively and Pacific Palisades, small side yards. Right? That's the normal way we think about this is if you've got a small side yard and your neighbor has a small side yard, your houses are pretty close together. And that really drives risk as does structure age.

We know a lot more today than we did twenty five years ago about how to build a house that will be resistant to ignition. Homes built prior to about the year 2000, but certainly the advent of the WUI code, the wildland urban interface building code in 2008, are much more likely to ignite in these fires.

And so this combination of houses built on small lots close together that are old are the places where we really need to be focused as a state, where we can take steps, meaningful steps to reduce ignition risk and drive positive outcomes in terms of average annual losses in the insurance market, and therefore, positive outcomes for insurance customers and the broader affordability questions in the economy.

And I would just note also, you know, if I went back to that other slide, I could tell you about 50% of structure loss over the last decade is due to electric utility ignited fires. So if we can harden communities and lose fewer houses in any kind of fire, whether it's started by an Uber driver's dropped cigarettes or a power surge on a idle transmission line.

Right. We will improve outcomes. I'll just note that we follow closely California utility related mitigation. And I'll just say we're we're starting to cover publicly owned utilities in our current survey. And this just shows the picture for California.

What you see in sort of a tan color are the large investor owned utilities. In our view, they are doing a pretty good job. Does that mean things are perfect? No. But they are doing the basics.

And and in general, nationally, the investor on utilities doing the basics. The key part of this figure that I would call out is that little red spot down in Los Angeles. That's the the service territory of the Department of Water and Power, And they are not taking important actions to create fire safety in a context where some of the most high risk large large clusters of high risk houses exist.

So we think POUs really need to be a focus moving forward and we're intending to highlight that in the upcoming report. In terms of the health of the market, I actually think this figure is a really important one to look at.

This is from our insurance data and it just shows the percentage of new mortgages. So first purchase mortgages that are reliant on the fair plan as an insurer. And here what you can see is that leading up to 2025, we are on a very disturbing trend up to the point in '25 when 13% of mortgages were relying on the fair plan purchase mortgages. We're down to 11% approximately. That's a real improvement.

I think we should, you know, pat ourselves on the back to Nancy's point. This is the effect of the first dose of antibiotics from the sustainable insurance strategy. Hopefully, things will continue to improve, but also 11% is approximately double the current fair plan count. Right? If there's 12,000,000 structures, you got about 680,000 in the fair plan.

If we went to 11%, that's a million or a little over a million structures in the fair plan, which should be a very negative outcome. Ask anybody who has fair plan coverage. They do not want it. As Nancy said, she would have been willing to pay a lot of money to stay with her admitted cover. She went to a surplus lines cover.

I'll tell you, I'm insured by the largest admitted lines cover in California. And every time I get an envelope with that red writing on it, I am scared to open it because of where I live. I live in Mill Valley in a place that is a not a very high but it's a high hazard severity zone. So we need to work on that. I just want to touch on a few questions that I think are brought up by the 254 report.

The first is about who pays and I want to try to stay within your subject matter and legal jurisdiction here, but I think it's very difficult as has been acknowledged. How do insurance premiums relate to utility bills? We're in this conversation because of that. I think a key difference is incidence across households. Both bills are coming out of everyone's wallets, but insurance bills tend to be more progressive because they vary as a function of the value of the house and they are priced based on risk.

By contrast, utility bills are flat residential rates and in practice, electricity consumption does not vary much across households. I think another really important question that's already come up in the hearing today is what role should the fair plan play relative to surplus lines and admitted lines coverage? Admitted lines is obviously the first and best option if it's available for people.

But I think the real question and it's one that we have sort of backed into an answer on is that the FAIR plan is the best insurer of last resort. And I actually think I'm fair I'm far from confident that that is the case.

And in many ways, the fair plan is being relied on by say second homeowners in Lake Tahoe in ways that create a lot of concentrated risk Bear Valley. If we're talking about Southern California, that may not be appropriate. And I think it is worthwhile to think about what is the role of the fair plan relative to surplus lines.

And should we be at least questioning the position we've taken in the state of California where the fair plan is where you go, most people go when they can't get a middle line coverage anymore. There's obviously a variety of perspectives that have been aired about the 254 report and and the urgency to act.

The ensure perspective, I think it's fair to say is let the cyst play out. The utility perspective is act now. I think we should really be thinking about what is best for consumers and the consumer wallet. Right? The monthly bills that consumers have to face in California as they're struggling to afford housing.

And the reality is probably somewhere in between. But I would emphasize that these questions cannot be evaluated in isolation because of subrogation. Insurers collect on average about $700,000,000 a year in subrogation from utilities. If you look over the last decade, that's a that's a compared to $20,000,000,000 in total premium. And because of the problem of worsening under insurance.

Under insurance creates the business model for wildfire lawyers who sue utilities. I think insurers might be perhaps might be open to offering more coverage a to customers if they felt they had adequate rates and that, you know, essentially that's just selling more insurance. That's selling more of the product they are there to sell.

If we could get to a situation where there was better coverage a for people and I'll tell you personally, I've been shopping around for insurance lately and discovering that when I try to buy insurance both from admitted lines, the fair plan and surplus lines, everyone is trying to under insure me. They're telling me that I can rebuild my house in Mill Valley for $300 a square foot.

When I talk to contractors, they say $7.50. So and that's pre disaster when there's not a thousand people just like me trying to rebuild houses in the same place. So I think there's a big problem there that is squarely in the jurisdiction of this committee. And if I had to say where the work needs to be done, it's the principal agent problem between brokers and their customers. Brokers want to sell product.

They earn commission on products. They're competing with other brokers to sell the lowest price of something that consumers don't understand. I mean, you know, read your insurance. We've made all made efforts to make this comprehensible, but what is code upgrade coverage? How would someone understand how much code upgrade coverage to buy?

How does someone understand how much coverage A to buy? These are complicated questions and we should be imposing some responsibility on the people that are in effect providing answers to them to consumers. To bending the curve, are we spending efficiently on risk reduction? Utilities are spending probably too much money on risk reduction that's spent a lot of the run up in rates we've seen. There's been attempts by OEIS especially to make that spend efficient.

But I think my argument has long been that we are spending far too little on community and homeowner risk reduction and probably too much out of the homeowner's pocket via their electricity bill on utility ignitions. But a key unanswered question in this sort of community homeowner space is who pays? Should the state pay? Should local governments be paying? Should the state government be I'm sorry.

Should homeowners be paying? And answering that cost share question, I think, is a fundamental importance. It is not realistic to think that the state, given the budget situation, is gonna come up with enough money to harden the homes that need to get hardened. It's just not going to work. Homeowners need to pitch in.

Local governments, like it's been mentioned, Marin, Truckee, the East some communities in the East Bay are pitching in. We need to think about what is the match. I think a model for this is somewhat similar is a school capital upgrades where, you know, school the state pitches in 60% of the money, the locals pitch in 40. We need a rough and ready, rough justice model for getting this to scale.

I'll just close by saying that I think that there are reasons to ask whether insurance the insurance bill could be the place where with proper governance where mitigation is funded. Currently, we have a 2.4% premium tax in insurance. It's possible to imagine a well run targeted along the lines that Nancy has described in our paper. I would note along the lines that Senator Becker authored a bill last year, SB 326 that was ultimately vetoed by the governor.

But doing that targeting would allow us to build an efficient mitigation program that was targeting the risk where it was greatest, and that is gonna feed back into reduced premiums.

Right? The cost that a customer pays is the premium plus the premium tax. If you raise the tax, say, 2%, but lower premiums by more than 2% because you're reducing risk where it really matters, I think there's a path forward, and it's gonna be very hard to find money as we know in the general fund. It's gonna be very hard to find money where we've gotten it for the last ten years. Assembly member Wood was sitting behind us.

I don't know if he's still there. There he is. You know, it's gonna we're seeing GGRF going away as a source of wildfire resilience spending probably given what's going on at ARB. So we need to be thinking about where can we get some state capital, demand that the locals also contribute, demand that the homeowners contribute where they have means to do so, and really buy down that risk reduction. That's hard work for all of you.

Thank you for your time. Happy to take questions.

Thank you very much, doctor Moore. Any questions or follow-up for that? Senator Richardson followed by Senator Becker followed by the vice chair.

Well, I wanna commend, our chairman, and also, mister Stearns, Senator Stearns, who was here earlier, and Senator Becker and earlier this morning, we had a committee in energy and we were discussing kind of some of these same things. And so I'm encouraged that at least we're all kind of understanding that not only do we have a problem, but collectively we're gonna need to kind of come together and have a collective solution. I'm gonna first ask the question then I have a few comments.

You mentioned DWP is not taking enough steps. Could you describe further what you mean by that?

What would be some appropriate steps? I represent all of LA County is in my district and supported by DWP. Sure.

I'd be happy to. Standard of care for large electric utilities in the Western United States that face significant wildfire risk at this point is really composed of a couple of things. One is much greater situational awareness of risk. So you need to know what the wind speeds are at pole height. Then you need to be able to take action when the wind speeds exceed the design basis of your infrastructure.

What that means is, unfortunately, public safety power shutoffs. It also means a technology that has different names depending on which utility we're talking about, but it's called Fast Trip or Edison calls it FastCurve. PG and E calls it enhanced power line safety settings.

What it basically is kind of it's sort of like the difference between your circuit breaker in your garage and the little circuit breakers in your kitchen or your bathroom where if you drop your, like my wife dropped her her hair straightener thing in the sink one time and it flipped the breaker at the sink. Right?

Those are more sensitive. And utilities can invest in distribution management systems that allow them to change that tuning depending on the wind speed and the relative humidity and how dry the fuels are. In the Palisades on January 7, there were multiple utility ignitions including a transmission system ignition that may or may not it's alleged. I'm not a lawyer or a fire lawyer for sure. I am a lawyer, but not that kind of lawyer.

But, you know, there were definitely ignitions that would have been extremely dangerous, but for the fact that the neighborhood, the community was already burning down. And they're well documented on camera, these ignitions occurring. And so some of those, you know, no utility is perfect, and the expectation of perfection is wrong. It leads to unaffordable electricity bills.

But LEDWP is really one of the only large urban utilities with significant fire risk in the country that's taken the path that it's taken.

It's actually the only one at this point. And I think we should be worried about that because of the number that the number of structures at significant risk in Los Angeles. So that's what I mean. It's not undergrounding. It's these operational changes that make a utility aware when things are really dangerous and also make it poised to respond to that danger in a targeted way to reduce the chances of ignitions.

Well, very helpful. Thank you for your information there and I'll certainly be following up. I'll just, summarize by making some comments, similar to what I made earlier this morning. For me, the question is, who pays? And whether that's is it the utilities?

Is it the state? Is it local government entities? Or is it rate payers? Or is it all of the above? And then the question leads to, well then, what are we paying for?

So from the rate payer perspective, if we're gonna pay into a fund to assist to minimize risk, then I think at a minimum, those rate payers are entitled to having accessibility to insurance and then having that insurance affordable. So what do I mean by that?

If we're paying into a fund, that helps deal with catastrophes and it kind of takes off the table this huge burden that insurance companies weren't anticipating and planning for, if we take those big items off the table, then we should be able to go to some sort of reasonable people being able to get insurance and get an insurance that they could afford as we did in the past.

The third point that comes to me is if rate payers are paying, we need to make sure that that payment is equitable. And what I mean by that is if I represent a community in Compton or Carson or Watts, that doesn't have a lot of trees, that doesn't have a lot of brush, if we're gonna ask those rate payers to help in a spreading of spreading the potential costs of risk, then we need to make sure that their catastrophes are being covered as well.

So more specifically to this wildfire mitigation, if communities that may not be high in risk of wildfire, but they may be high in risk for earthquakes or for floods, then what's gonna happen to them when their catastrophe happens? Are they helping to spread the risk on wildfire? But when it comes to their need of a major earthquake catastrophe, now all of a sudden we don't have funding for that.

And then, that leads me then to my final comment, which, ma'am, you were talking about of home hardening and high risk zones. For me the question is who pays?

And who orders the work? And let me give you an example of what I mean. I live in a community in San Pedro. Bought the worst house on the block because it face the ocean and it was my one time chance to get it. But the question is I live on a bluff.

So I don't have rights to the ocean below me. I don't have rights to the bluff that goes from the ocean up to my home. So the question is who's responsible to clear that vegetation? Is it me who I don't have any rights or use to the bluff or to go down to access down to the ocean? Am I supposed to pay for the home hardening and the mitigation to clear that area?

And then if I pay, what about my neighbors on each side? So now all of a sudden you got one home that's cleared their bluff area and the homes on each side haven't. What happens if a fire comes across, you know, homeless? There's a little homeless encampment down by the beach there. And if, you know, they are cooking something and the fire goes across the Bluff area, who's responsible?

So I think that's where the local piece gets in. It was one thing to say individuals, are we gonna have individuals responsible for home hardening? But what if it's a block issue? What if it's a community issue? And the second example that I'll give you is we have a nature preserve probably about 500 feet from my house that abuts against maybe 10 feet, is the difference of the nature preserve and naval housing.

So who's responsible for that? You've got with all this rain, the vegetation has grown, huge. And now you have homes that are literally if someone was walking in the nature preserve and dropped a cigarette and it goes up in flames and it hops five feet and we've seen this happen. And now all of a sudden all this naval housing, you know, is potentially going up in flames. Who's responsible?

So, what I just want to say to the chair and, we're fortunate here we have two chairs who are present. Natural Resources Insurance, we had OES and, you know, we have so many to me. I'm really hoping that once we get past House of Origin and all of what we're doing, that we're gonna have a true discussion on what you've started here today. What's the problem? What are some of our options?

And then us collectively agreeing, where do we go from here? Instead of these hundreds of bills that are coming through, some that are fixing the problem, some that are contributing to the problem, and are not getting us any further to solving the problem which is constituents need to be able to have insurance that they can get accessible, that's affordable, and deals with the risks that they have. So I look forward to the continued conversation. I thank you, Mr. Chair, for scheduling this and getting us to wrap our arms around.

Chair, for scheduling this and getting us to wrap our arms around.

We're gonna have to do something and so count me in on let's get going on what we're gonna do. But thank you for being here and thank you, mister chairman for bringing us together.

Thank you, Senator. Appreciate it very much. Senator Becker followed by vice chair Nilo.

First, I wanna thank it's interesting for that personal example. You know, these are personal data points, but your personal data point, they all, you know, point out questions we have to solve and sometimes issues with our current systems. So, lots to discuss here and I know you'll be in our committee tomorrow too, Michael.

But the well, just on the insurance pieces since you raised it, you know, the 254 report does make a number of recommendations around under insurance. What did you think of those recommendations?

I think under insurance, I mean, as was mentioned before, this has been an issue that, it's been a problem for a long time. And, certainly we've had attempts to fix it. You in this committee a few years ago, the legislation that passed that I just got my offer from my insurer to estimate what my reconstruction cost should be. I think that's an improvement. I guess, I think we need automatic adjustment for that.

Most people have adequate insurance when they purchase a home or they're close to it, and then it just stays the same. And we know that the cost of reconstruction are changing much quicker than that because of the cost of construction changing in California at a much faster rate than overall CPI. And I guess that's gonna worsen affordability challenges. But I've been to too many places after too many fires at this point to think that it isn't worth it.

That it would be better to have coverage A, change over time automatically for people or at least have that be the default and they could opt out of it, I guess, if they wanted to.

But moving in a much stronger direction there to try to solve for the systematic problem that you have people competing on price to sell a product that people don't understand. And if we that's just the reality. And so I think that's got to be a part of the solution. And well, maybe solving for what coverage A is and should be rather than trying to bolt on additional bells and whistles to the standard HO3 policy, would be my policy preference.

That is challenging, but I think we could take steps down that pathway to improve on the under insurance problem.

Is it perfect? There's no perfection. Nancy wants to weigh in.

I think it would be really cheap and easy to do a data call and put out data by ZIP code on what, new construction and reconstruction costs are and just make that publicly available. I think the insurance companies would use it and I know I would use it. And I don't think it would cost the state a lot of money.

Yeah. Well, thank you for that. You mentioned the possibility of, you know, your last year closes should some there should be consider some mechanism via an insurance with reduction in front of you, an insurance mechanism. Just even at a high level, are there ways to do formulas based on that consider the value of the insured property and also risk level? I mean, is that something that's capable of being Sure.

I mean, something that's scaled to the premium. We'll do that automatically. Right? I mean and I guess the other thing I would say in that context is I really believe that people like Nancy, people from the primary insurers should have a governance role if we were to take that step in how the money is spent.

This needs to be something where we are connecting the actuarial science to what happens on the ground in the real world, it's far less likely that the money will be spent efficiently.

And I think our firefighters, they recognize the problem they're in. They have an incredibly difficult problem dealing with fire suppression on the most dangerous days. They would love, they know which communities and where in their communities are the dangerous places as well. And as I've gotten into this work, I've just observed. It was a surprise to me.

The tight interaction between the primaries, the reinsurers, and the fire services, they're aligned. What's not aligned always are the politics of home hardening, the politics of doing community mitigation. That can be tough. I don't wanna sugarcoat. We've just seen that be very tough in the zone zero process with the board of forestry.

But I think there are things where the communities agree, if we could provide resources and say, hey, you need to match and homeowners need to probably need to kick in something as well if they can afford it. We're gonna target that money where we think the losses are most likely to occur. Pacific Palisades, Orinda, where where the Ross Valley in Marin County is another place where primaries fear to tread at this point.

And if we could target those and not all of this is high income coastal communities. That's sort of biased, but there are many parts of the Sierra as well where targeted expenditures could make a real difference.

Yeah. Good. And we'll talk a little more about that tomorrow with the report clearly calls out sort of the under investment and this is up to approximately 2,000,000 existing residential structures in very high fire hazard security zones that require some level of hardening and defensible spaces. That's quite dramatic.

A step I mean, a basic step, let's screen vents. Right? Like, that is not required by law. It costs $20. You go to Home Depot, get some mesh, put it over your attic fence with a stapler, and that would have a materially supporting role to whatever we do in backyards with Zone 0.

a dramatic

Yeah.

Well, listen, Vonnegut and Kim, so let's dive into some of those mechanisms tomorrow. But the I mean, just in summary, you said homeowners not enough utility spending too much sort of in your view, and we covered that a little bit in the energy committee earlier.

But but regardless, when you look at, I guess, some of the when you look at the 3.1, 3.2, 3.11, 3.12, 3.3, you know, those sort of any of those ideas, do any of those, you know, jump out at you and I guess in all cases, utilities providing that first backstop for that one in 10 risk or whatever, at least in their ID in the

Look, Senator Becker, I think these are very hard questions to answer. Like, if there's too much complexity to say, this is the right way or that's the right way.

Look, Senator Becker, I think these are very hard questions to answer. Like like, if there's too much complexity to say, this is the right way or that's the right way.

Doctor, I don't wanna interrupt you, but I wanna be mindful of our response time. We could probably go all night and I but we have a couple, three more substantial panels.

let me just close with one quick comment. It's important. I think we need to get away from one time, one year funding for mitigation and develop a sustained program because that will make it much more cost effective and much more effective in the long run. Thank you.

Thank you, Senator.

Thank you.

Thank you, doctor. Senator Neillo, vice chair Neillo.

Thank you

Very patient man.

Yes. I am, if nothing, patient. Both of you spoke to the issue of hardening and you didn't specifically talk about zoning codes. But this whole issue begs the question of zoning codes. And we're probably gonna have to look at it quite differently than we have in the past.

And you've pointed out one thing that struck me on that point and that is the closer houses together, the bigger risk you have of spreading fire from house to house. Current wisdom of community development is high density, efficient use of land. Therefore, that dictates closer houses close together. And it begs the question of significantly different requirements for new building relative to the space between houses. And also you mentioned just a moment ago the screens, little things like that vegetation near the house.

These are all things quite different than what we have been building here to for. And that's gonna be a real challenge to local governments and coming to grips with that. And then we have existing houses and an awful lot of them that have huge risks relative to the spread of of wild fire within neighborhoods as we saw in Palisades and and Altadena and Santa Rosa and and Paradise and on and on and on. So this isn't really a question. It's a comment.

I don't know how we're going to come to grips with that because the changes seems to me in order to meet these particular needs have to be really drastic.

I think the challenge is manageable. So first of all, agree with essentially everything you said. And I would just emphasize one point, which is that the existing older homes, older neighborhoods are the place to focus. New construction is actually much safer because it's all built in high hazard areas to very stringent code, and even neighborhood design, there's an understanding of how to build a community to make it resistant to ignition, and builders in California are taking action in that respect.

Branch Mission Viejo is kind of the poster child for this, but there are other communities that are being developed along, IBHS community standards for wildfire safety.

But it's these older communities like Altadena, like Pacific Palisades, like where I live in Tannapaias Valley that were built in the fifties and sixties and where we've been watering our backyards since the fifties or sixties, allowing the vegetation to grow in, right, in a place that was much less vegetated, that present real challenge. And it's not gonna happen overnight. That's why we need sustained investment, And we need to be promoting leaders in the community.

This ideally would be a bottom up effort because it works better in practice if you have community leaders like Nancy's husband, actually, who's the Firewise community lead where she lives. And I think we can make real progress.

Will there be more urban conflagrations in California? Unfortunately, probably yes. But we can have fewer of them. We can improve on outcomes. We can lose fewer homes when they occur.

Give firefighters a chance to take a stand against these fires if we do take some of these actions. And you're gonna hear more about the science from other folks on this hearing, but there are steps we know now that we can take. But it is a problem because unless you have to pull a building permit, you don't generally get asked to do things to your house, let alone your backyard. So yeah.

Thank you, mister vice chair. Thanks to both of you again for your testimony today. It's been very helpful. Alright. The next segment is on modeling for fire risk.

I'd like to welcome Frank Frieball, Director, Wild Line Urban Interface Fire Institute at Cal Poly San Luis Obispo, Doctor Michael Gollner, associate professor of mechanical engineering at UC Berkeley. Thank you for your patience and your participation. Welcome. Mister Freebalt, please feel free to go and proceed along the same timelines. Thank you again.

Very good. Thank you very much, Chair Padilla and members of the committee for allowing us to testify today. My name is Frank Friebolt. I am the director of the Wildland Urban Interface Fire Institute at Cal Poly. I've served in the fire services since 1979 at, federal, state, and local levels and more recently have come into the academic space to try to connect up the best of academic inquiry with practitioner expertise in this space.

As you've heard from the other speakers today, this is a complex problem that will require integrated solutions and we're hoping to bring that connective tissue. When we talk about risk reduction, a couple of terms. Risk transfer, where we take either through insurance or through what the claims would cover, the liabilities. That's one way to transfer risk. You can do that so financially or legally.

My comments today will be focused on actual risk reduction. Not to transfer risks but actually driving it down. The wildfire exposure problem to our California communities simply put is it's outpacing our existing insurance frameworks. And this is going to require resilience focus, approach that integrates a focus on mitigations in three ways. We need not just mitigations but evidence based mitigations.

The science has to back up what it is we're going to spend time and treasure on. We need integrated land use and urban policies because this occurs as a system and we have to manage that integration as a system. And lastly, we need improved risk analytics, especially related to understanding structure to structure fire spread And how that changes in the presence of mitigations. I think there are three helpful framing concepts. We're looking at the complexity here.

So the first is that we're not responding here to a wildfire problem. We're responding here to a structure ignition problem. That's a phrase that's been around for a long time, from doctor Jack Cohen. And I wanna walk through with that means is that these conditions under which we have conflagrations are actually fairly narrow. It requires a special type of fire, special type of conditions, fuel conditions, weather conditions.

And so fire will start but especially if it starts near communities. So there's less time to react, either in suppression or evacuation. And that first push into the community is going to be with embers. We tend to lose the majority of the initial structures by, through ember exposure. When it turns into a conflagration essentially is when there are more structures ignited than can be suppressed by that initial response.

And the composition as you've heard earlier today, the proximity of structures, their building type of materials, if they meet the physical requirements for combustion, that conflagration process will continue until you run out of fuels, structures, or the wind stops blowing. I can tell you from being in this field for a while, once you get just a few structures going in those types of conditions, if you don't stop that quickly, you don't win that action.

And you have to switch from suppression to evacuation. The second framework, that I think can be helpful, is this idea that we have an unfunded accrued, will we risk liability? And like other systems where you slowly accrue, liabilities that you didn't recognize, I think maybe the CalPERS before we did, PEPRA, We had incremental changes over time and then realized it was huge.

And here the incremental changes are changes in fuel types, either through accumulation but too much or type conversion into fine flashy fuels. It's continued development in fire dependent landscapes. These are landscapes that do have a natural interval. Not only can we not stop all the ignitions, we shouldn't stop all the fires. We create other problems when we do that.

And the last piece is that changes in weather are creating both the fuel and the weather conditions to have more frequent high intensity fires. Really quickly just to walk through it. The sequence that this happens is that we have to have background conditions that would support extreme fire behavior. It tends to be following periods of drought. Then you have to have the right kind of wind conditions.

And if you get an ignition in those conditions and it's out in the middle of nowhere, it's a big wildfire. But it's not an urban conflagration. For that to happen, it has to enter the community initially through embers and then also on the ground. And if we hit that tipping point, that's where we make this transition from wildfire to urban conflagration. You don't have the conflagrations without the wildfires.

They only occur that way because of all the ember cast. So you can't deal with this problem as a one or the other. This is a both and. It is not an either or. I'm gonna repeat that one because it's important.

This is not an either or situation. This is a both and. We have to do those. The third concept is this idea of pace of engagement. As you heard Michael Warr say, we know that things that are bottom up and built on relationships, those create enduring change.

My concern, having worked in local communities, is that that process, by way of example, it moves at a certain rate. Let's say it's 25 miles an hour. The consequences, especially the financial consequences of this growing risk are approaching at about 250 miles an hour. And so the side of me that knows that taking the time to build the right relationships to getting during changes necessary.

I also feel like it's disingenuous for me to not share with those communities what's coming and to not stutter about it.

And when we think about the pace, one of the things we'll see, it's already happening, is that we'll go from concerns financially about pre incident costs, risk transfer, mitigation. And where our focus is right now is on the cost of recovery. We can't sustain the recovery costs that we're seeing. But now we're starting to see that it will begin costing us money, real money, to do nothing.

Insurers, lenders, realtors, reinsurers, some lead indicators of bonds, general obligation bonds, all starting to price in projections of risk.

So it's not just about the cost of recovery anymore, which is huge. It's also going to be about the carrying costs of that unmitigated risk going forward. And as the people involved in that that have to pick up the bill are more aware of it, it will cost more to do nothing. So I think those PACE concepts are also going to drive the discussion. So I think there are three real implications, kind of high level implications here to the discussion.

Excuse me. For us to intentionally bend down the risk of wildfire and the associated losses, this can only be done through this, as I said, this integration of how we manage urban land policy and how we handle land management policy, especially proximal to those communities. Those have to be intertwined. Also there has to be full integration of the utility portion of this.

So if we can start thinking of this as a system, landscape level treatment, utility mitigation, community and medication at the interface, and then also how we look at building the communities.

Those things have to be taken together. The magnitude of the problem is such that we cannot do everything everywhere all at once. So whether by design or logistical realities, we're going to be prioritizing where we put our effort. You've heard from several of the panel members today that if we can focus on where the worst risk is first, it makes a lot of sense. It's true for any this is a kind of a standard marginal benefit return opportunity.

Where if we can identify where this intersection of high wildfire risk and high susceptibility to conflagration level events in a community. If we focus on those intersections, we'll see that that kind of analytic and data informed targeting of mitigations will have an outsized return compared to random I shouldn't say quite this way, but sort of random acts of mitigation. Mitigation spread equally by way of the idea of let's spread it equally as opposed to matching it to where the highest risks are.

And that's going to require that we call out risk for what it is, but change the idea that, oh, it's a bad thing if your area is identified at high risk and turn it into this is a good thing because we're going to bring resources to help this because we all benefit from driving down that risk. And then finally, one of the temptations after these incidents, and having been at this since '79, I've seen this a few times.

Post incident there's always this rush to find what went wrong, what could we fix, what failed. And you hear some of the typical things we heard this time. We didn't have enough suppression resources. We didn't have enough water. The roadways weren't adequate for evacuation.

Those were all real problems. They were in the 1961 Bel Air fire. If you watch design for disaster, it's only twenty six minutes long. And you watch the PBS weathered, series that just came out of the LA fires. With two exceptions, you could have run them the same.

We've known what to do for a while, but it hasn't risen to the level of necessary action and we're there now. But the fastest way to multiply the effectiveness of your fire suppression resources, your water resources, and your roadways is to not get that tipping point to conflagration. If we will invest targeted in the mitigations that will keep us from crossing that line, that's the fastest most efficient way to force multiply the resources we've already invested in.

So targeted integrated mitigation, link that up with the way we do our urban planning and our land use planning. It's the fastest way to success.

Thank you very much for your testimony. Any questions for mister Frivol? Alright. We will move then to doctor Colner. Welcome.

Please present. Thank you for your patience.

Chairman Padilla, vice chair Niello, and the distinguished members of the committee. Thank you for the opportunity to appear today and to address the ways that we might prevent future wildfire disasters in our community. My name is Michael Gollner. I am an associate professor and direct the Berkeley Fire Research Lab at the University of California, Berkeley, where I study the physics of wildfires, in particular spreading into our communities.

I wanna note any opinions expressed here today in my testimony are my own and do not express the views of the University of California.

California is experiencing a wildfire crisis, which is increasingly threatening our homes and communities. The recent Palisades and Eden fires in Los Angeles County were stark reminders that this crisis has not abated. We are no longer focused on just protecting our natural lands, but that these fires can destroy entire communities that take decades to fully recover. Today, I'd like to share what research has shown are proven effective measures to safeguard our communities.

When fires move into the wild and urban interface or WUI, fuel shift from natural vegetation to our homes and yards.

Effectively becoming urban conflagrations. To stop them, we must remove these ignition opportunities within communities, preventing both the direct fire spread and the flying embers from igniting new fires. These measures fall generally into two categories. First, defensible space. Removing flammable landscaping and materials away from structures to reduce exposure to those structures.

Second, home hardening. Fire resistant eaves, vents, windows, and roofs that effectively create a protective shell, preventing embers or flames from penetrating and igniting our homes. In our recent work, we use CAL FIRE's damage inspection dataset and showed that if current home hardening and defensible space measures were applied completely across existing communities, we could reduce structure losses by almost 50%. I'll also note, in the appendix there, we also looked at Zone 0 and found an almost 17% increase in survivability just from that alone.

Our greatest challenge is how to implement these mitigations across our communities.

Unlike other natural hazards, wildfire mitigation for an individual home can be dwarfed by just one upwind structure on fire. Transforming this from an individual to a community wide challenge. Our recent structure separation burns funded by Cal Fire at the IBHS laboratory in South Carolina has shown that when homes are spaced less than 20 feet apart, even the best hardening can be overwhelmed.

However, if we mitigate a large fraction of homes over a vulnerable area, fires will lack the fuel needed to spread and slower stop allowing the fire service to gain the upper hand. The recent SB 254 report outlines numerous pathways and frameworks to help accelerate community fire resilience. Without naming them specifically, I'd just like to highlight several key points that

California will continue to see these catastrophic losses grow year over year. Also, the efforts that form partnerships between government, homeowners, insurance and other industries are critical. This is a shared problem requiring shared solutions, where combination of targeted regulations, grant funding, supporting community action, all together can help accelerate change. I'd also like to highlight the word targeting. Targeting actions that will make the greatest change focused on the areas most in need of support is critical.

Efforts could first focus for instance, on simple high impact fixes. Michael Warra took some of my thunder away by saying screening vents. You can do this for tens of dollars on a structure and prevent many ember ignitions. More comprehensive efforts may be needed in dense communities in hilly or hard to evacuate areas. We might look at high risk pilot programs where we know we'll have an impact and we already have resources and buy in that can be a good example to others.

It's important that we do this targeting right and that means investing in data simulation and testing pipelines to inform this targeting strategy so that we can for instance, give insurers the confidence to extend discounts to consumers and be sure that as grant makers, we're giving and prioritizing the most impactful mitigations where they are needed. Doing this and keeping the data open and keeping it sharing, I think is very important and something that academia and others keep pushing.

There's an unmet need as well for medium scale testing in California. As I mentioned, IBHS has become the defacto and fabulous laboratory. But we fly to South Carolina.

My students are there right now. They're gonna be burning tomorrow to structures. We need to continuously identify the most cost effective retrofits, validate them under extreme wind driven fire conditions, and do so specifically to our unique California conditions. Finally, having local expertise such as the California Fire Safe Council County coordinator program, UC ANR fire advisors, and many other such local programs serve a critical role in sharing and translating information down and connecting communities with resources.

I think we really need to expand and get more experts that are capable of giving specific mitigation recommendations to communities.

Folks reach out constantly to our lab and I wish we had the resources to help everyone. And so aiding that I think would really help a lot of communities in need. In closing, California stands at a critical juncture. The science is clear. We know what works.

We know where to focus, and we know the window to act is narrowing. What's needed is some of the political will and coordinated investment to implement them at the scale required to make a real sizable impact. And so I just I urge the committee to make sure we prioritize community wildfire mitigation as a central pillar of our insurance and fire resilience strategy. And I'm really grateful to the opportunity to contribute to this discussion and happy to take any questions that you have.

Doctor. Bonner, thank you for your patience and your testimony as right on target referencing some of the comments I made earlier with one of the first panels that I think the data is overwhelming and pretty clear find a way at scale, to effectively facilitate in part perhaps maybe underwriter incentivize and partner with a multitude of responsible parties, local governments, regional governments, land use planning, you know, utilities.

In order to achieve what I keep referring to as an integrated target areas that, you know, you kept referencing targeting, targeting, targeting. And I think what's important to remember is that at scale in California, we've had a lot of varying efforts over the recent time period, going back a decade or more, that have addressed key elements of what the problem is. But many of them are incomplete.

Right? I mean, we have a forest resilience action plan that has a primary focus and an incidental, analysis and focus. Right? But when I talk about integration, I'm talking about how do we system wide, statewide create the narrow inventory of high demand, high impact mitigation in those critical areas.

Because as you point out in your testimony, once you have a wildfire scenario transition into a a suburban or urban environment, the very dynamics and nature of what you have to suppress and deal with completely changes and changes very, very rapidly.

Right? And when you get to conflagration, you're already in deep, deep trouble. And so I think what I hear you saying and what seems to align with a lot of the thinking and what I continuously focused on is where do we integrate the data that we know into an action plan that is actually strategic and integrated with all the responsible partners that is accompanied by a clear structure for and timeline for specific action and specific identifiable potential sources of support.

I don't know that we're there yet. I think we're kind of a long way from there, but that's where we need to get.

And I certainly hear your emphasis on that, and we're not always and and I'll own this as a politician in Sacramento. I'm not sure that we're always as successful or strategic as we need to be, but we're trying to be. But just on scale alone, this is a massive challenge. And I think we need to acknowledge that upfront, that it's pretty massive. But it is achievable.

Questions or comments from anyone else for Doctor. Gollner. Good? Alright. Thank you both for your patience, your testimony.

The next segment is dealing with scaling solutions to not be redundant. Mister Dan Dom Myers, president and CEO of CBIA, the California Building Industry Association. Welcome, sir.

Thank you, mister chairman. Vice chairman Niello, happens to be my senators. It would be nice to be today, Senator. Senators Becker and Richardson, my name is Dan Dunmoyer. I'm President and CEO of the California Building Industry Association, and thank you for the opportunity to be with you today.

I do wanna share a few thoughts, but just to give you my background perspective, Amy Bach and I were working together on the Oakland Hills fires in 1991. Before that, I was a consultant to this committee in the other house on finance insurance with a gentleman named Patrick Johnson and Ross Patrick Johnston and Ross Johnson. I had the privilege of serving as overseeing all disasters in the state of California for governor Schwarzenegger's office's entire cabinet. As was mentioned, I did work for Zurich and Farmers Insurance.

I'm a recovering insurance lobbyist.

But today, I'm here to talk about housing and how we bend the curve and how we collectively as home builders and as community builders, how we address the fire issue. I'm very intrigued by Senator Becker's leadership on Senate Bill 254. I'm only on page 87, but I do hope to finish that and wanna be part of the solution because we've found it very difficult to build homes without utilities and without insurance.

And so matter of fact, my greatest focus on this on behalf of our association is the fact that when you go to buy a home in California, it's principal interest tax and insurance. And the higher the insurance cost, the fewer homes we sell.

We also build all the rental units in California, 90% of them. We also build the affordable housing units. Those are capped at 4%. Affordable housing units can increase rents more than 4% but insurance has gone up 400%. Same for apartments, we have this thing called rent control.

The insurance has gone up hundreds of percent. So this whole issue of housing and insurance and how we deal with this issue is not only essential to the insurance issue and stopping major fires, but it's also addressing our shelter issue, our housing issue in California. So we're very focused at CBIA because without solutions to these issues, our ability to address the housing policy crisis as we call it is really also put in jeopardy as well.

So let's let's think positively here and I will give you some suggestions and I believe he has some materials here but I'll walk you through this and see if we can in fact, I wanna go backwards here. Sorry.

So effectively, a couple core principles and these are touched on by the experts behind me. But today, I wanna let you know there's good news. And the good news is is we are building communities now to address this fire risk. I say we, it's the home building industry, but in particular, you heard the name IBHS, the Insurance Institute for Business and Home Safety. So a few years ago, we couldn't get insurance for condominiums.

And this is down in that great community you heard about Rancho Mission Viejo, which is the best master plan community in America, not because you're my member, but you can talk to IBHS. You talk to Dave Winokur. You can talk to Nancy Watkins, they've all toured the facility. Our commissioner Lauter has been there as well. And this is a great example of how you do it right.

And I mentioned that when you look at these issues, you the core principles are are listed here. Decreasing the probability of initial ignitions from direct flame, protecting the neighborhood from member attack, which you heard about so effectively from my colleagues, allowing the neighborhood to act as a fuel break, which Nancy talked about and slowing the fire spread. So this is kind of the key component.

And I want you to know that we were thinking we already build homes in California to the highest fire standard, which we do. But we learned that just because we tell the insurance industry we're a good risk doesn't mean they believe us.

So that's the partnership with IBHS. And that's when we said, well, if that is the best science in America and the insurance industry support of them, then let's take the best science and take it to the next level. And so, there is now this first community in America that's being built as a neighborhood, not an individual home, but as a neighborhood to this high fire standard. So this is Dixon Trail.

It's down in the city of Escondido, And this is an example of the first community to try to see if we can build a whole neighborhood to deal with this fire sensitivity.

So as you look at this, this is what it looked like before we started building. It's surrounded what is considered a high fire severity zone. As you can see, the canyons are not set up well for fire. They're actually a great area for ember cast to occur. And so the question is, can you really build in these communities and build so a community doesn't burn down?

So specifically, what we're looking at, you heard again our experts, this is how we are trying to build our homes to address this. There are kind of four key components here. One is already touched on class A roofing. So pretty the good news is that's how we build with everywhere in California. But it used to be that we would build with class B roofs that burned down.

The other building features effectively are this zone around the five foot. We like to call it the safety zone, not zone zero because that sounds like it's a negative. But the safety zone around and depending on board of forestry or IBHS, it's five feet for IBHS. It's the eave length for board of forestry. We look at the issue too then of the windows.

Dual pane windows are pretty common in California, but they need to be tempered. And then, of course, that $20 fix that was offered to you, which is the eaves. That combined is California's been already at that standard except for the five foot zone now since around 2012. Came out in '28, but we started building this in 2012. So you'll see this dynamic where if we build to this standard, we can greatly mitigate the likelihood of a community going up in flames.

The other thing I just wanna touch on here is the fact that unlike wind and other disasters such as hail, fire safety for homes requires a community effort. If we're all neighbors and a couple of us decide to take what is being said today seriously and we go out there as Nancy did and cut down a rose bushes or like Amy Bach does and we get the data that we have these apps. We go and make sure our home is fire safe.

If the whole neighborhood doesn't do it, unlike hail and wind, we all go up in smoke. So if you're in Florida and you have a really good roof and the neighbor, it doesn't really matter.

They lose a roof and you you keep your home. Same thing, you know, in that context of hail. If I have the right roof and I spend the extra money, my roof doesn't collapse, my neighbors does or vice versa. But with fire, I can have my home perfectly manicured, all the eaves taken care of. But if the other neighbors don't play the game of fire safety and and work hard in this area, the whole community suffers.

So KB Homes, California based company, came forward in partnership with IBHS and put together this entire neighborhood in Escondido, all 64 homes that were built to these high fire standards recognized by IBHS. And I'm pleased to say this is a first, there's no two. They have one up here just outside of Sacramento. And so they have proven that this is not only a theoretical concept, but a positive concept for building neighborhoods.

And the best news about this, whenever we look at codes in California, we are the code geeks at at CBIA.

And our team is more involved in analyzing codes than any other association in America because we change our codes here every 18 months. The average is every decade. And so we look carefully at not just, you know, how do you reduce energy, you know, energy usage and increase energy efficiency and we have solar roofs in California. But the great news about fire safety is that it can be done at a relatively cost effective measure.

The only big issue that we haven't been doing that I'll touch on is in this zone zero or the safety zone is our fences.

And this is why, you know, basically, our fences today are wood, generally speaking, except for high high end communities. So they serve as a fuse. Remember those Looney Tunes cartoons that long fuse when something goes to a bomb?

Well, the sad part is if your back fence is up against some sort of a rural area that has brush and the brush touches your back fence, it follows the fence line and eventually comes to your home and goes up the eve and starts the entire home on fire. And that happens home after home after home.

That example that Frank talked about, once three or four homes go, the whole neighborhood goes. Once three or four fences go, unless the five feet that touches the home, unless it's made out of steel or cinder block, then the home goes up in flame. That's the one thing we are adjusting to. It sounds simple, but a steel or wrought iron fence or cinder block fence can be very expensive. We're finding that steel fencing isn't that expensive, and that's a $3,000 increase.

So the good news is on fire safety in California, we can build at a cost effective measure in a cost cost effective approach and make our homes fire safe. Now let us talk quickly about the community and I'll wrap up. So how do you build a fire safe entire community? And that comes back to this issue what we call master planning. So this is where, you know, Senator Niello touched on this, but this is where we kinda have some challenges.

The best, safest communities have a 30 foot distance between homes. Well, we're trying to build everything on top of each other. We wanna build in. We wanna build up. We don't wanna build out.

But that's the best fire safety mechanism, that way you don't jump from home to home and you can actually stop the fires from happening. So we are working with IBHS on condominiums and apartments and affordable housing. How do we protect those? And a lot of it has to do with the same standards.

But as you look at what we are seeing, as you look at how to plan entire communities, a master plan community plans to the highest level of IBHS standards and the entire mechanisms as you look at it, how the wind patterns come in, where is the best place to configure the community.

We now put citrus around communities. We put golf courses around communities. We put hillsides that are watered by gray water. So it's a 105 degrees in Southern California. In July, the hills are green.

It's that potable water that comes out of your shower and your toilet. It's actually purified. You can almost drink it, but you don't. But you put it on your hillsides, and you have Green Hills in Southern California in the summer. If you plan the community accordingly, it doesn't burn.

And that's not just me trying to sell you a house. That's me telling you that since 2017, since we've had these major conflagrations, we have not lost one master plan community built since 2010 to fire. So this is a way for us to be excited as a state and a community and know that there are solutions. Last thing I just wanted to say is we are very interested and very supportive of commissioner Lares' sustainable insurance strategy.

It is our desire for this admitted market to come back in force, And it's our desire when they look at these communities that we are building to say this is it's in a high fire risk area, but it's built to standards that mitigate from fire.

The last thing I'll say and again, I end up building more homes, but this is Dave Winokur. This isn't me being the salesperson for more homes in California. Nancy Watkins touched on this too. Building that moat around the old homes, those new communities with better roofing, better fences, better ease. If we were to build just on the urban edge of the old urban or suburban areas, a small amount of new housing, you could radically reduce the conflagration risk of California.

You could solve our housing problem. You could reduce the risk of fire. You could reduce the cost of insurance and thus lower it not only for the new homes but also the older homes. So we ask you to consider that. I know the next word that comes out of your mouth is, yeah, that's called sprawl, Dan.

And we just put it in simple terms. California has only built, this is a carb statistic. California Air Resources Board has only built a sticker brick, a freeway or hospital or school on 6.8% of California.

If we only added one more percent of build out on our housing in California, we could conserve 93% of our land either through federal lands, state lands, or through our farming industry and still meet our housing needs, protect our communities from fire, and address this issue of how we build not only new homes to the high standards, but protect our own home old homes to the standards needed to protect overall risk for conflagration. So with that, mister chairman, I'm glad to respond to any questions.

We desire to be part of the solution and appreciate being included in today's conversation.

Appreciate your patience and your testimony very much. Questions for mister Dunoyer? Members? John? Senator Richardson.

Just to comment.

Thank you very much for your presentation today to show that it can work.

That's encouraging. That it can work. That's encouraging. My question would be though is what do we do for the existing homes that aren't in an upcoming plan development? What are the thoughts of that?

The cost associated with it obviously for people to take out, you know, their current fence and put in a rod iron or a cinder block, they are actually quite expensive. What suggestions do you have that we would address that for the existing homes that are out there?

That is the question. Because we have about 14,300,000 structures, and we only build a 100,000 new structures a year. So you're right. It's that existing housing stock, Senator. A couple thoughts.

We have seen fire wise communities. So communities that come together, even older communities that take the time to clear brush and debris around the backside of those communities. Look at where their trees are. Look at how their houses are maintained. It's positive peer pressure.

You work with your local fire chiefs. So you would bring Frank in in his former life and you and ask the experts of the local fire departments, what does it take to make this community more fire resilient? That just building or being mindful of the brush and the chaparral and the other areas surrounding the community and protecting those and cleaning those up annually will help tremendously. As you do go to rebuild, over time you have to put on a new roof.

It might take thirty years, but we need to make sure it's a class a roof. And then look at the eave component.

It was suggested it is $20 at Home Depot. And most people over time because the high cost of of utilities are putting in dual pane windows. So just educating people that, no, you're right. I mean, if you were to do that outright on day one, it's $60,000 probably.

But if you can do it collectively as a community to avoid the growth of brush, chaparral, look at trees, look what's hanging over your ease, clean out your gutters, and prepare your homes and pull away, you know, move to rock versus bark around your house.

All those steps can over time help reduce the risk of fire at a relatively low cost if it's done community wide. So it has to be all of us as neighbors rising up together saying, let's take the steps to protect our neighborhood. Those steps actually don't cost that much. It is the structural changes, the roofing, the siding over time.

But the moving away the ember cast potential for configuration can actually be done just by sweat labor from yourself as a homeowner and everybody doing it together in positive peer pressure to get it done.

Thank you, sir. Any other questions? Thank you very much for your patience.

Thank you, Senator. Thank you, commissioner.

Appreciate it very much. Alright. And we are joined by the California State Insurance Commissioner, Commissioner Ricardo Lara. Welcome, sir, who will provide a Department of Insurance perspective and perhaps some closing thoughts?

Welcome, commissioner.

Good afternoon, Chair Padilla and Vice Chair Nilo. Before I begin, I just wanna just note that what a great agenda. We've actually had the honor to work with every single panelist throughout the years that you've had today. So all great great speakers and and experts in their fields, and it's been an honor for us and our team to work with every single one of them throughout the years as we tackle this unprecedented insurance crisis.

Thank you for the opportunity to testify on the major trends shaping wildfire insurance in California and our perspective as the insurance regulator on the SB 254 natural catastrophe resilience study.

Since 2019 we have been working as you know on wildfire insurance, establishing mitigation discounts, collecting better data and reforming our regulatory framework under the sustainable insurance strategy. The study confirms what we've have been building toward, a modern mitigation driven insurance framework that expands availability and protects communities. The wildfire risk facing our state are severe and growing, a trend projected as far back as California's first assessment in 2026 in 2006.

When disaster strikes, recovery requires coordinated action from insurers, state, and local governments, community organizations, philanthropies, and the Federal Government. All these entities share in the responsibility of recovery.

Insurance cannot rebuild an entire city or community alone. These events demand that we become better prepared, better aligned, and better coordinated because reducing the future losses is the backbone of any long term solution, especially as it pertains to insurance. At the Department of Insurance, our focus is and must remain on mitigation, mitigation, and mitigation. Every dollar invested in mitigation prevents $6 in disaster cost and spares family the anguish of losing their homes and businesses.

When we reduce wildfire risk, we reduce losses, we reduce liability, and most importantly, we reduce the number of Californians who experience the trauma of catastrophic fire.

And I know today we focus on fire, but hopefully, we get this right quickly because my fear is by the time we get this right, we're gonna be dealing with extreme drought, extreme heat, earthquake, sea level rise, and a whole host of other things. So we're seeing that already several regulators, especially around Latin America and The Caribbean, are already working on mitigation grant programs to address multi perils as we're seeing countries already experiencing multi perils around the planet.

So some of these countries are already far ahead of us. So before turning to SB 54 if SB 54 study, I want to update the committee on some key market indicators we are tracking under the sustainable insurance strategy. Two years ago as you know California was in a period of insurance retreat.

Seven of the top 12 insurers have restricted underwriting or stopped writing new business. The fair plan was growing rapidly and had been for years. One year ago, the sustainable insurance strategy went into full effect using our existing authority, but the market was really being tested by the unprecedented losses from the LA firestorm. But today, we are seeing the early building blocks of an insurance marketplace turnaround far from the retreat from retreat to expansion.

So since September 2025, 10 companies now have submitted filings under the new SIS regulations with commitments to write and maintain more policies including in wildfire distress areas.

This includes the number two, number three, number four, number five, and the ninth largest insurer in the state, as well as several regional carriers. And yesterday, Farmers, the second largest homeowners insurer group in the state became the largest major insurer to receive approval by my department under the SIS framework, yet another strong signal that the market is stabilizing and expanding. Therefore, as of today, my department has approved five homeowners SIS filings signifying more than one third of the homeowners market for California.

This is just the start. The momentum is building and as more rate filings are submitted, we will be letting you know.

This level of participation across the top, middle, and specialty segments is really unprecedented following a major catastrophe. Again for the fair plan, for nearly a decade the fair plan has grown without interruption. The signal we have been waiting for, the signals that tell us whether the market is turning is a slowdown or reversal of the fair plan growth. And for the first time, we are seeing initial signals of that shift.

A recent study by the Non Profit Insurance for Good provides an independent review of that recent data published by the fair plan.

The Fair Plan growth has slowed measurably over the last two quarters. The slowdown coincides directly with the insurers filing and receiving approvals under the sustainable insurance strategy. And yesterday's farmers approval strengthens that trend. This is not accidental. This is not coincidence.

This is the sustainable insurance strategy working as intended. And the SB 54 study validates this approach by emphasizing the same pillars, risk based regulation, align mitigation and modernized data systems. The SB 5-four natural catastrophe resiliency study provides some critical important independent validation of the work already underway at the Department of Insurance. Some of that you heard throughout the day today. Several of the studies, options aligned directly with the core pillars of the SIS.

In fact, the study confirms that the reforms have been implement we have implemented and the direction we are moving are the right approach to stabilize the market and protect communities. CDI's contribution to the study emphasizes three essentially three guiding principles. One, aligning mitigation actions across government, expand not reduce comprehensive coverage options, and improve clarity on risk resilience and insurance coverage.

The study reinforces these principles and provides additional pathways that validate our regulatory approach, strengthen the SIS, reduce future loss, and have direct positive impacts on insurance availability. California is not starting from scratch.

We are ahead of the curve and the study confirms it. Here are the key steps we are taking. Number one, create an achievable, effective, and aligned mitigation standards. California already has a strong home hardening standards developed in 2021 through partnership including with Cal OES, Cal Fire, CPUC, and the governor's office of land use and climate innovation. These standards form the backbone of CDI safer from wildfires regulation and align with IBHS wildfire prepared home standard.

What we lack and what the SB 254 study calls for is a community level mitigation standard. This would incentivize neighbors to work together and create community wide resilience. Two, build an integrated wildfire risk data system. A modern wildfire data system requires multiple tools. A public wildfire catastrophe model already underway.

I sponsored SB 429 last year that was authored by Senator Cortese directing the department to establish a university led center of wildfire of wildfire catastrophe modeling. This mirrors Florida's successful public hurricane model and will provide transparent science based tools to evaluate mitigation, and we are in the process of engaging with universities to identify the combination of expertise, and we'll have next steps ready for you this summer. B, wildfire data comments. This is not yet achieved.

SB 254 calls for a public repository of mitigation data to guide state investments and inform insurance models.

We agree this is greatly needed. This is a major opportunity for legislative action this year. Three, we need a strengthened recognition of home and community mitigation and insurance. CDI safer from wildfires regulation has been in place since 2022 with insurers mandated to prove discounts to provide discounts to homeowners and business owner business owners for mitigating their properties from wildfire. My sponsor AB 1 that we author with Assurant and Conley last year requires updates by 2030.

We will continue to align these regulations with IBHS standards and incorporating new data to maximize their effectiveness. Discounts currently range from four to 40% for homeowners and businesses, and we expect these numbers to grow as more data is collected. Safer from wildfires just started in 2023, and the data will mature in time. Four, expand funding for home hardening. Two programs already exist.

The statewide California Safe Homes Act created by, again, our sponsored bill AB 888 that was authored just last year by a semi woman Calderon focuses on the most challenging IBHS components. Cal OES, CAL FIRE's California wildfire mitigation grant program that is currently focusing on mitigation in six communities, but we need far greater help as you heard this afternoon. Other states shows really what's possible. Alabama funded 10,000 grants, 10,000 grants at 50,000 homes. Now meet 50,000 homes now meet fortified standards.

New Mexico just invested last year $10,000,000 in targeting areas of wildfire risk where insurance is unavailable. California still doesn't have permanent sustainable funding for our program. Other states tie their mitigation grant programs to insurance premium taxes or specific fees on insurance policies. A small percentage of that annual premium tax, which has grown substantially or a fee could provide that stability for AB 888 program to help fund the necessary wildfire mitigation programs to homes and, property statewide.

We are currently still working with the government, with legislative leadership and governor's office to identify some ongoing permanent funding for this program.

We need to establish statewide certification for wildfire mitigation. The state fire marshal has created a model defensible space law, but we lack statewide certification standards. Gives homeowners confidence this will give, homeowners confidence that their work meets insurance recognized standards, gives insurers confidence that the work is verified, reduces consumer confusion, and gives them more peace of mind. Assemer Bennett has introduced legislation, AB 1934, to create an implementation plan for this certification system.

In closing, we are again monitoring the real shift in insurance market, a shift that's driven by the CIS and now reinforced by independent fair plan data.

And we're seeing a growing evidence that mitigation grants, aligned standards can create a culture of resilience that stabilizes losses and improves insurability. Recent research from CDI and the National Association of the of Insurance Commissioners shows that rebuilding Los Angeles homes to ABHS standards from the recent losses would reduce annual wildfire losses by 31% to 35% at an additional cost at about $9,000 per home. A relatively small investment compared to the safety and insurability benefits.

This is where state, local, and philanthropic dollars can really make a difference and should be targeted. We have examples from other states of successful private public private approaches.

What we don't have is what we don't have anywhere in the country is successful state run wildfire property insurance programs that closes insurance gaps or manages cost effectively. The cost and liabilities would be astronomical. And as we have seen in a severe fire can occur at any time or any budget scenario. Creating a new state run program likely would only introduce further uncertainty, confuse consumers and disrupt the positive momentum we're seeing.

The SB 254 study commit confirms that we have a what we have long known.

When we align mitigation, modernize regulation and hold insurers accountable, we can bend the curve thereby reducing losses, improving insureability, and protecting California. The SIS is working, the fair plan data confirms it, and the SB 54 study validates it. Thank you.

And thank you very much, commissioner, for your patience and flexibility and for your testimony and work. And you have you ran for successfully, and I can't be too sympathetic. You asked for a tough job. But I don't know that anyone could have anticipated the the cards you were dealt during your term.

And I I really wanna congratulate you on your tenacity and on some of the recent indicators that you point out in your testimony, certainly with regard to the SIS, certainly with regard to approved filings, to seeing some of the right early indicators that and this is a long process, has been commented upon here all afternoon, for which we're not gonna get hard data quickly.

This is not the, you know, the type of problem that we're gonna see those trends start to shift in the right direction. But I know one of the things you have really, really encouraged, sometimes very loudly, is for people to get their petitions and filings in. We're seeing that volume increase. We're seeing indicators, I think, move in some of the right direction. And so I'm very, very glad to see that and appreciate the department's work and appreciate your work.

Wondering if there are members that have questions or comments for the commissioner. Senator Richardson.

Thank you, Mr. Chairman. And thank you, Insurance Commissioner for being here. It's good to see you again and, I like this scenario a lot better where we're hearing from your expertise and all the

things that you've learned and places we need to go. So it's good to see you. Couple questions. One, could you please provide to the committee a copy of your comments? I found them to be very helpful.

Especially being a new member of the committee. I think you gave a very good background of the years of what's occurred. So that would be my first question. My second question would be that you would consider looking at SB 1270, which I'm the author of. That bill has to do with wildfire mitigation.

Absolutely.

Prior, mitigation was pretty much, the funding was towards Northern California and San Diego. And of course, we found in last year that it fires can happen in LA as well. So I hope that you and your team would look at that bill and consider coming on board and being supportive.

As a fellow Angelino, I would gladly look at that.

Sounds good to me. One more question and then a comment actually two questions. You mentioned that if I heard you correctly that you don't think a new state program is necessarily what is the answer or beneficial. My question is do you think something like the CEA program, earthquake program, If we had something that included all disasters, for example, earthquakes, floods, fires.

If we had a program that dealt with catastrophes, that, rate payers, insurers, state, local, everybody paid into to help deal with the major catastrophes, then we could get back to the insurance companies paying what they traditionally paid for, which was the one off issue.

A person had a fire at their home or someone broke into their home or whatever. So we could maybe get to the point of insurance, availability being accessible and affordable. What's your thoughts on a more broader program that would deal with these bigger issues that cost so much and are making it prohibitive for what seems to be insurance companies being able to provide accessible and affordable insurance.

Absolutely. I think what we've been doing in the insurance space is working, but I think we need to expand it in terms as you're saying into a more of a multi peril because I think that's where globally everybody's heading to try to address kind of a multi peril front. Also what we're still lacking is an equity piece to all of this because we know that cities have been designed no by any fault.

This is how all the cities have been designed where working class folks and and poor folks have been pushed to the more environmentally precarious places and they're more subject to flooding, fires. And so there's gotta be an equity piece to all of this, which is what the CEA ties, you know, the the current brace and bolt program tries to also impact.

And I think we need to start looking at that. So as we talk about what a community mitigation framework would look like, we need to have some sort of that component. And I think we also have to start thinking about more comprehensively of what does a Harding community look like. Right? Does that also include cheaper energy utility bills.

Right? So when and what does that look like? Is that a harden grid? Is that a harden utility infrastructure? So are we gonna does that also include like affordable insurance?

And does that include affordable utility bills? And what does that incorporate in an entire community? Because now we're elevating it to the community level. And so I think we've been doing everything kind of piecemeal and being very reactive. And so I think in any conversation around what a mitigation community framework is gonna look like, we can't do this piecemeal anymore.

I think we need to get a with the departments, the legislature, and the folks that all touch all these different areas have to come together and be really innovative of what that means for the consumer. And and what is a consumer gonna get? Because right the immediate reaction and it was the first reaction that I got when I came in. Let us raise rates. Let the market stabilize itself.

Absolutely not. What does the consumer get? It can't just be off the backs of the consumer. Right? So this is why we demanded discounts.

We demanded that if the consumer is gonna, you know, put their hard earned money that that's reflected in the rates. And so how does that also work in the comprehensive and the cohesive look at what a hardened community looks like? For those that are on the coast, again sea level rise, coastal flooding, inland flooding. If you look at South LA, that's prime for the next massive flood. Right?

Extreme heat. Right? That disproportionately affects the San Fernando Valley. So we need to start being much more comprehensive with how we look at just natural disasters, climate change, and also how does extreme heat affect infrastructure, health insurance rates, hospital, you know, visits. And so I think we need to start we need to start getting back to being Californians to start being much more innovative and be at the forefront of this as as opposed to just being reactive.

I think we've been at fire after fire after fire. We've been so used to just reacting to all this. Then we gotta get back to being on on offense. And so I think the conversations around how do we build a more a mitigation framework gets us to that next level. And so I think we're you all have an opportunity to get us there.

Well, I appreciate your answer and it speaks to what I was trying to convey earlier in my comments with the previous panel. You probably said it a little better given your experience in this field but us getting to this comprehensive overall perspective is really where we have to go.

And I appreciate you mentioning the equity piece in particular because if rate payers in my district, for example, in Compton and Watson, Carson are gonna be asked to spread a cost, you know, using a spreading model to pay for wildfire mitigation where wildfires may not be the issue. Maybe it's flooding, maybe it's earthquakes. Then if they're gonna pay into that, they need to get something on the back end which then covers earthquakes, floods, and slow and so on.

So everyone, is getting their needs met and not just one particular problem. So I appreciate that. Last comment, I commend you for increasing the amount of insurance companies coming back. We need it desperately. It's one thing to say you need insurance but it's another if it's not accessible and it's not affordable.

One comment I have heard from the industry though is that making a rate increase, by the time they make a rate increase request, you know, it may take seven, eight months and by that time they need to submit another one. So I know the first burden was, you know, sometimes we can only do so much at one time. So I get it.

But as you come to the conclusion of your term, I'm hoping that you'll help us to get at trimming down that, rate response so that they will, provide more plans and have them accessible and affordable to us because that's the only, the big remaining thing that I've heard is the turnaround time in terms of the rate increase request.

You're absolutely right and to the chair if I may. In the document that I provided, Senator Richardson, there's two key points. I'll refer you to one of the points in terms of the rate filing that shows you the mono days that we've actually cut the rate filing times. But there's also in there's three regulations that are remaining that we're working on. One of those would put again in regulated regulation statute, a new statute that says that we have to cut those timelines again.

So that when I leave, we don't go back to this bad behavior because that's critical. That sets market trends that make sure that we're providing market certainty and that again insurers are being forthcoming with the rate that they need. So that we're being honest about what you need and consumers know upfront so that they're not constantly coming back for a rate increase all the time. And that there and and families are able to budget that and not constantly being hit after you know, year after year.

And so I refer you to that but we are definitely at something that I'm very keen to to manage before I leave.

Thank you.

Thank you, Senator. Senator Stern.

Thank you. I'll indulge since I don't get to sit on this committee so I don't get to see you very often. It's it's great to see you and brave work you've been doing and congratulations on the the big farmers announcement. I think that's, you know, I can't just talk. It's not just you can't just issue a press release and make it so.

Money's coming back. Right? Policies are gonna be written. So that's that's the that's the tricky part of it. We can pass all the bills we want, but unless the the market actually rebounds, then, you know, it's all just talk.

So I'm encouraged by that movement. I I guess two things I wanna get from you while we had the benefit of this sort of crossover hearing context. On the hardening front, I brought up to the last panel, previous panel with the Milliman, actuary. I was expressing frustration. I felt got a little good validation from her just saying that we've been so big on sort of wildfire prevention from a forestry management lens and not so much on a preventing property loss lens.

Right. And so you were talking about numbers of homes. You're I got a lot of FOMO when you're talking about what? New Mexico and Alabama. Alabama.

I'm like Uh-huh. 50,000 in Alabama. Who right. We don't even count homes. I I don't even wanna tell you actually the number of homes we've Harabedian under our JPA with Cal OES and Cal Fire.

We're gonna talk about it tomorrow, but let's just say it's under a 100. Right? And it's been up it's been up and running for four years. We've tried to Harden home at a time, big bulky projects, take a while to pull off and they can be maybe transformed into one person but they're not actually changing the marketplace. So just from your perspective, the previous, testimony had sort of been about this just other tools besides just money The analogy is there's no smoking signs.

Right? Like, where what what are the sort of regulatory interventions? So zone zero, for example, we know that's a pending regulation before border forestry.

Has to get done.

So I feel the same way. And I know it's hard politics in places like mine where people say, are you gonna take away my bougainvillea? Are you gonna make me rip out my fence? And we say, well, we're gonna get you insurance and you you might have to rip out. I mean, it depends where exactly where you are but like you gotta do something.

And I I do worry we've been slipping on that timeline. So I and I know the new the new proposed reg is a is a little softer too. I just want to important important to get that done in your view to to to help the broader market if if you may.

I mean, this is this goes to I'm not gonna put words in Senator Richard. I'm gonna talk about my perspective and I think this goes further than that, Senator Stern. I think you have again very wealthy communities determining the outcome for the entire state. We need to get these done. These are critical for the survival of environmentally sensitive communities and we need them.

I've sent numerous letters supporting the strictest forms of Zone 0. Yeah. And I understand people wanna don't wanna part with certain landscapes, but we're all in this together. And we need to we're gonna get through this together. But again, you know, that that's the politics that we live in.

So but I don't wanna I don't wanna abscons the responsibility of the fact that we don't have to reinvent the wheel. The Southern states have been leading us, leading and really leading in this space. When you have Alabama who have already fortified 50,000 homes and hurricanes already passed through the fortified homes. And the biggest claim was a tree falling over the home. Not only did their University of Alabama study conclude that everybody kept their insurance, It was affordable.

And nobody lost their insurance and nobody was not renewed. In Louisiana, their legislative audit proved that again, everybody kept their insurance. They kept their discounts, nobody was not renewed. South Carolina, North Carolina, Oklahoma is just starting their program with more money. And we're still trying to identify a source of funding for our program where we're having mega and giga fires now.

This is these are unprecedented fires for us. And so we need to we need to get ahead of the game. I brought the the insurance commissioner from Alabama to introduce when we introduced this bill. And and it's the multiplier effect. It isn't that these pro that these program that the Alabama program single handedly got $50,000 home 50,000 homes harden.

It's that once the neighbor sees, oh, you're replacing your roof, then the other neighbor does it. Then the and then, you know, it's like the multiplier effect. That's how they got to 50,000 homes. And and, of course, we're getting calls now from legislators thinking that there's money wanting to figure out how they're gonna access money wherever we don't have money yet. We just have the the seed money to start the program.

But these programs are now being created because they work. And we have the audit. We have study after study that says people need the help. They need the money to to start the pro to start this mitigation. So they do need money.

Yeah. Well,

I would just I would encourage you to keep stay active in this legislative process. I think you should look at SB 0. December. Chair Becker and I both put some effort into really trying to make that potentially a good frame. We think the state fire marshal's actually been doing some really innovative new work looking at sort of a a property loss avoidance model versus one that's strictly on acreage.

They're gonna need help getting that done. There's an inventory of funds that we're really hoping that we can get, you know, experts like you to weigh in on and say, you know, if we have a billion dollars, how best to spend that? And it may not be, you know, to do the the the biggest potential projects. Maybe a lot about mesh. It may be a lot about, you know, making sure there's place to put your scrap thinnings from Right.

You know, doing some clearance like It's a little long. Yeah. Yeah. Little things. So we'll be looking to you for that and and I do think there isn't I mean, the biggest one is we have no metric for the state for our community hardening targets.

So we have a forced acreage management goal in statute, but under a bill from a few years back, there isn't the same sort of metrics. So maybe that's something you could think about, come back to us on is is there is there a target number we should is it a number of communities? Is it a number of homes?

How to set something out for ourselves so we have so we're aiming for for for something versus sort of just kind of wandering around because you can get pretty lost in this fire mitigation game.

We can definitely do that in in merit to our wildfire distressed areas that we set through our through our depopulation strategy for the fair plan. The other thing that Yeah. You brought up that

you brought to mind was immediately after these these catastrophic fires is there's all this goodwill from philanthropies and they wanna give all this money yet we don't have a strategy of where to put this money. And so this is a good opportunity for us to have a plan as a state of where we immediately inject this this money into. And that's again another good part of creating this strategic community mitigation framework that we know you wanna give money, this is exactly where we need it. Right?

And have that that is science based, facts facts based that we know works so that we take your money and that we know it's being used to help renters that has an equity component to it that we know is gonna work.

Right? And and and again, that that has a strategy, a type strategy and that then you can after the incident can do a report that we know that these are the numbers. This is what we helped. That there's some accounting to that, some transparency. I think those are the things that are kinda missing because there's so much chaos during the event and right after.

And then, you know, you have surveys, you have this, but you don't have you have a lot of hearsay, you don't have facts Data. Where did the money go? Who did it help? It went to nonprofits. That's great.

But did it help folks? Right?

Well, and and we were had a hearing earlier. We talked about a $40,000,000,000 utility money that's been spent on wildfire mitigation but solely about their lines and there's a lot of sort of back and forth as to whether those utilities spent that money wisely or not or how exactly have you accounted for that. But can you imagine for community hardening if we had $40,000,000,000 that scale money? We're fighting over a $110,000,000 for the entire state of California with community hardening.

So I I do think because we're gonna blur the lines now here in the legislature and say, maybe we should be thinking, you know, do we wanna just focus it into only utility driven framework where it's just about how to manage those liabilities around the grid or is it about the communities that are getting burned down?

And if you actually start with the community and build out versus from, yeah, this sort of quirk of how our law works where the money chases the biggest liability risk. We might get a level set and find some capital. So

And again, to the chair, if I know, please. I think the other thing too is we we have a tendency just through, again, my experience of a 120 wildfires since I took office is we tend to, silo the recovery efforts. We tend to see insurance here. We tend to see local government's response here, federal response. It needs to all be coordinated.

You can't expect one to fully have the responsibility to rebuild the city entirely. And I think we keep missing the mark here because if you're gonna come in and say, we're gonna allow you to rebuild as quickly as possible, waive environmental laws, build the same, and then expecting insurers to come in and say, okay, we're gonna just start writing policies again. Then we're gonna be back there thirty years again like we were in the nineties. Guess where? In Palisades and in the same areas.

Right? And so I think we can't we gotta start looking at land use policies. We gotta start looking at how we build, where we're building, the materials we're using, start engaging insurers early, builders early. We gotta start like being more comprehensive of how we we engage in the rebuilding process after a disaster. Should we have cul de sacs?

Do we have the approach like our insurers okay with all these cul de sacs that we have? So I think we we leave we let local governments off the hook. I think they need to also share in the responsibility of integrating the re being part of the rebuilding process. And also city planners, what's the role of venture capitalist?

How do we look at all this more integrative in the more being integral, which again goes to the Senator Richardson's part of being more comprehensive in this framework that we need to build.

Thank you.

Great. Well, thank you for being here. That was interesting discussion. I'm sure we'll pick it up tomorrow. But you wanna thank you.

Yeah. The report has a lot on insurance in in here. So I have a few topics until the here eventually cuts me off. We're we're well into our sixth hour of hearings on on this, report here today. So we might be getting a little punchy.

But the but I do wanna think, you know, it it does call out, says that symbol you know, your symbol innovation strategy was effective in resolving market dynamic that could have devolved without this prompt intervention to a statewide insurance availability crisis that could've could quickly spill over into a disruptive residential real estate and mortgage market. So, congratulations and thanks to you, for this work.

There are it it does go in a few areas that I'd I'd love to kinda dive into as long as I have time. But, you know, around fair plan reform, around under insurance, around, requiring insurance insurers to develop disaster recovery plans, and, you know, kind of reaching the the coverage, you know, the symbolization strategy that talks about for the 90% really help, but for the 10%.

So just to dive into those, you know, some of those quickly, I mean, and I'm sure we'll have more time hopefully, but the the fair plan reform ideas in here to to do look through some of those.

Any any comments? You know, just wanna make sure the fair plan is not in competition with the admitted market. There's a number of ideas here around clear clearing house reforms, allowing for senior administers access to fair plan policy data, expedited process, that for for fair plan rates could be used to market within sixty days. Did any of these things jump out to to you at

Senator Becker, so I I can tell you with that. I I don't remember each single one of those Yeah. But I can tell you a lot of those reforms are within our current bill that's being authored by Senator Calderon to just overhaul the entire fair plan when it comes to transparency, data transparency, more importantly, modernization of the fair plan, making it more accountable to the department and to the legislature.

So we're able to monitor and and to make sure that it's more accountable to consumers, that there's basic customer service procedures that if you pick up the a consumer picks up the phone, there's somebody on the other end. And that we're able to better monitor and track it.

So all those things, those key components are in there and make sure it's again more transparent and more accountable. I don't have that I don't have that list memorized but

We're definitely again looking at a a complete overhaul of the fair plan. And making sure of course that it does not compete. That's the last thing we want. But we wanna make sure too that if you're being sent to the fair plan, ultimately, the goal is when you're the fair plan is fully depopulate populated.

Yeah.

But if you are the riskiest of the riskiest homes in the fair plan, that you have the option which the the court will ultimately decide, the the California Supreme Court, to give you an option for a comprehensive policy coverage.

Because I feel that it is already such an expensive policy and it's so limited in your coverage that if you have no other choice but to end up there after all the reforms that we've made that you shouldn't be paying such a high policy for such limited coverage because you are the highest of the highest risk. That is my point because trust me and I know you know this, nobody wants to be on the fair plan. Right?

But if you have no other option when all this is said and done

Different Nancy Brown.

Yeah. Why would it not? You know, that you at least have the option. We're not mandating it. But the California Supreme Court will decide that.

And but that at least it's it's being overhauled. It's long overdue, and it needs massive modernization.

Great. We'll go look forward and we haven't seen seen that bill yet. So we'll look forward to to seeing that. There's a part of the bill that talks about codifying the sustainable innovation strategy. Do you think it's necessary?

And it also talks about strengthening the coverage mandate, feeling that right now allows ensure to reach the participation levels by increases market share at high risk by 5% every two years. So like that might, you know, that is that the folks that have very low market share interest areas, you know, could take them extremely long time to reach 85%. So on those two pieces around codifying as well as strengthening the coverage mandate.

As you remember, this is a very contentious point to to me personally because as you recall, I came to the legislature first. There was no will to do this through the legislative process. So I went through the regulatory process and took my pound of flesh to do it because they needed to be done. And so I find it very convenient that now that it's working, everybody wants to put it in statute which is great. But I guess that's how the cookie crumbles.

So but it is protected in regulate in regulation and it is law. Any changes to that would have to be it would have to go through the regulatory process to be changed. And so if any changes to that would occur, it would have to go through a public process. I would leave that for the next insurance commissioner to consider. But I just love it how now that's a recommendation.

Yes. Okay. We'll see. I appreciate that. Look forward to having the future.

The under insured, just two other, you know points because we're in a long time here. On the under insurance

It really there's a lot of

Yes.

That's a very interesting point.

very specific proposals around.

That's a very interesting point. We're looking at those proposals because I do agree something has to be done around under insurance and a non insurance and people who are don't have insurance. So Missouri has has signed a very Missouri department has found a very interesting way to triangulate existing data to figure out who's under insured or non insured.

We're currently working with them to figure out if we with the existing data that we have and some of the recommendations figure out if we can do that same triangulation. But we're also waiting now, the NAIC, the National Association of Insurance Commissioners, for the first time ever has approved a national data call on affordability and availability of insurance.

We all voted as states to do that. It's gonna be ZIP code level data. We're waiting to collect that data to see if we get even better we're gonna get better data results because we have to figure this out. Again, this is a point of that's important, especially right after a catastrophe is to figure out who needs the services quickly. Right?

Especially that philanthropic money, this local money, state money to make sure that we're going we're we're targeting the folks who are under insured or who are non insured. To make sure that they have shelter, that they have services. And so it's it's a really priority for us in the department. So we're carefully studying the recommendations. We do agree.

We have to do something for the under insured and the non insured. I could right now tell you who has a policy. I can't tell you who's under insured or who's not insured because I I don't have access to that data. So it is a big working group that we have nationally to try to figure out how we triangulate census data, the data that we have to try to there's way smarter people trying to figure out how we do this.

And it seems like the Missouri department has kinda cracked that code, so we're all working with her.

Yeah. Good. Well, good to learn from others, you know, is it you know, we heard a discussion. We had some discussion of that in a previous panel and, you know, I don't know if that was anecdotal or not by be Mike, what we were saying is