As Disasters Worsen, California Looks at Curbing Construction in Risky Areas

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At the start of wildfire season, California’s insurance regulator has backed sweeping changes to discourage home building in fire-prone areas, including looking at cutting off new construction in those regions from what is often their only source of insurance — the state’s high-risk pool.

The proposals, many of which would require approval by the State Legislature, could remake the real estate market in parts of California and are the latest sign of how climate change is beginning to wreak havoc with parts of the American economy.

On Friday, the insurance commissioner, Ricardo Lara, endorsed proposals that include halting state funding for infrastructure in certain areas prone to fire, leaving vacant lots undeveloped and the expansion of more stringent building codes.

“These ideas are going to be challenging,” Mr. Lara said at the beginning of a meeting of the Climate Insurance Working Group, which he established and which recommended the changes. “We are really going into uncharted territory.”

The building industry quickly pushed back against the recommendations. Dan Dunmoyer, president of the California Building Industry Association, said it wasn’t necessary to limit development because building standards are already strong enough to protect homes in high-risk areas.

“If you build to the minimum code requirements, you are building a fire-safe home,” Mr. Dunmoyer said. He added that if the state wanted to keep insurance available in those areas, it should allow insurers to raise their rates.

The new proposals mark the latest chapter in California’s struggle to cope with years of record-breaking wildfires starting in 2017. Those fires led to insurance claims from homeowners that were unmatched in number and size, which in turn caused huge losses for insurers, wiping out decades’ worth of profits.

In response, insurers have begun pulling out of fire-prone areas, threatening people’s ability to buy and sell homes, which depends on access to affordable insurance. That’s because banks generally require insurance as a condition of issuing a mortgage.

And if local officials insist on building in places exposed to wildfires, the recommendations call for preventing those homes from getting insurance through the state’s FAIR Plan. That state-mandated plan is California’s insurer of last resort; it offers coverage to homeowners who have been denied traditional coverage. Without access to the FAIR Plan, homeowners would run the risk of having no insurance at all.

“When insurance availability is guaranteed to all new developments, then homes may be built in areas where no private insurer may be willing to write insurance,” the report says.

The Personal Insurance Federation of California, which represents the industry and was represented on the working group, said it supported the recommendations.

State Senator Bill Dodd, a Democrat whose district includes Napa, Sonoma and other areas hit hard by recent wildfires, said he was open to many of the recommendations, including stopping access to the FAIR Plan for new homes in high-risk areas, halting infrastructure spending and expanding building codes. “We’ve got to rethink how we are developing” in those places, he said.

He said he thought those ideas could find backing from other lawmakers in Sacramento, too. “A lot of my colleagues are having the same problems with their constituents not being able to get insurance,” Mr. Dodd said. “They’re open to listening.”

In an interview, Mr. Lara said the state was hurting homeowners by allowing construction to continue in those places.

“Owning a home that loses value because it’s uninsurable is really not affordable — it is a false promise that we’re making to future homeowners,” Mr. Lara said. “We need to have an honest conversation before we build into more of these sensitive areas: Do we truly recognize the risk? Or will these communities just exacerbate the problems that we’re already living under?”



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