California is known for its fire season. Just a few days after Pacific Gas and Electric cut power to almost 500,000 thousand customers in Northern California during extreme breezes, the Saddle Ridge fire in Los Angeles County cascaded all throughout the area overnight, destroying some 8,000 acres for everything.

Today, fortuitous events like this are totally out of control and the future damages that come with it cannot be forecasted. Californian citizens should prepare themselves ahead of time. One option is to take wildfire insurance which is, in fact, out of reach for many of them. For example, in the year 2018, massive fires left an estimated 350,000 Californian citizens that could no longer get property and casualty insurance that also covered fire.

As the years went by, premiums have risen significantly as much as 300% to 500% in many cases. Those who live in high-risk areas are denied by their insurers to renew the coverage.

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So what happens if this continues?

A Statewide Risk

California faces wildfire dangers on an epic scale

In 2017 wildfires there was at least $18 billion worth of damages, including $13.2 billion in insured losses, $3 billion solely related to economic losses and $1.8 billion in fire suppression costs. In 2018, an estimated 8,527 wildfires burned 1,893,913 acres which were the largest area recorded in a fire season.

Many factors are creating the conditions for these disastrous flares. People are already aware that climate change has increased the severity and unpredictability of weather factors such as rainfall, humidity, and temperature. Reduced logging and forest clearing have left more amount of fuel on the ground in forests. Development is also moving into high-risk areas. These are some of the drivers that increased both wildfire risk and economic threats from wildfire.

Challenges for Insurers

Insurance for the citizens of California is a normal issue that is very crucial these days. But what do these trends mean for many insurance companies?

First, risks of severity and uncertainty rapidly increase. Insurers stated that even the special models they use to evaluate wildlife risk are no longer effective. Due to these happenings, there could be dangers like what the economist call as adverse selection. This happens when costs are spread across low- and high-risk customer premiums so that low-risk customers end up funding high-risk customers.

In the past four years, insurers have thrown down more than 340,000 policyholders in fire-prone areas. Owners who find it hard to look for private wildfire insurance must rely on California's FAIR plan, a state-backed pool of insurers who offer basic coverage for a high price as a last resort.

This information concentrates on renewable energy finance and policy in the U.S.A. and overseas. One major challenge in developing new ventures like these energy projects is putting a price on risk. That's also the process of how insurers consider whether to offer coverage and how much to charge. This assessment of risk and finance is to draw more attention to wildfire risk and the ways that insurance policies can be adjusted to address today's challenges in California.