California wildfires are now an almost year-round dangerThe Camp Fire, the deadliest California wildfire to date, will have associated costs spiraling into the billions. Photo credit: Justin Sullivan/Getty Images

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By Dana Drugmand

As major wildfires once again rage across California, fueled by extended drought and a warming climate, the immediate danger to life and property are almost certain to be followed by financial crises facing homeowners, insurers and even the state’s utilities as the costs skyrocket.

Two massive wildfires currently burning— the Camp Fire in the northern part of the state and the Woolsey Fire further south near Los Angeles—have already claimed 50 lives, destroyed thousands of homes and could likely cost billions of dollars in damages.

Early estimates peg the costs of the two fires at upwards of $10 billion, which would surpass the $9.4 billion in insured losses from the wine country fires in October 2017. The Camp Fire now ranks as the most destructive and most deadly with 7,600 homes destroyed and 48 fatalities as of Wednesday morning. Five of the top 10 most destructive wildfires in California have occurred since last October.

An early estimate by Moody’s on Monday calculated $6 billion in insured losses so far. Damages could climb to at least $19 billion, according to Bloomberg, with one disaster modeling expert predicting up to $25 billion in losses.

California residents and officials are already starting to grapple with how they will pay for the costs.

President Trump has authorized federal funding and assistance through FEMA, which can help some wildfire victims in the short term. Most homeowners, however, will be relying on insurance protection. The California Department of Insurance has urged residents to look into their homeowner or renter’s insurance for financial assistance with fire-related relocation or evacuation. The FAIR Plan offers a safety net option for homeowners who cannot afford or are unable to obtain private insurance. According to California Insurance Commissioner Dave Jones, approximately 38,000 residents are turning to FAIR coverage as a last resort.

But as insurance providers look to minimize losses—some are dropping coverage for properties in high-risk areas—there is concern that an insurance crisis is not far off. Insurers lost almost $16 billion last year from California wildfires, and this year’s blazes could exceed that.

While Jones said the crisis point has not yet been reached, he warned that the “trend is in the negative direction.” As climate change makes fires more likely and more destructive and insured property losses continue to mount, insurers are raising premiums and in some cases declining to renew policies. Jones pointed to a study that found a 15.3 percent increase of non-renewals in insurance for high risk areas between 2015 and 2016. Jones said he expects that percentage to increase.

“The problem is only going to grow over time,” he said.

Liability Concern Grows for Utilities

A breaking point could also soon be coming for California’s utility companies. Several of the state’s electric utilities are facing multi-billion dollar liability costs as utility equipment has been found to be the source sparking the fires. Pacific Gas & Electric potentially faces $17.3 billion in damages from last year’s Northern California wildfires alone, according to one estimate.

PG&E and Edison International reported Monday that their equipment may have helped ignite the fires now burning across the state. The companies’ stocks consequently took a steep hit and an investigation is underway into their role in causing the fires.    

Utility analysts say that California utilities face a real financial crisis as billion-dollar wildfires turn into a yearly occurrence. Even though California passed a law this year that allows utilities to recover their wildfire-related liability costs by charging consumers more, the law does not cover damage costs from this year’s fires. The legislation applies to the 2017 fire costs and includes a mechanism for cost recovery starting in 2019. Lawmakers could still revise the law to cover this year’s fires.

Still, that doesn’t completely eliminate the liability risk for the electric utilities, especially as climate change continues to exacerbate fire risk.

“These fires pose the biggest risk California utilities have ever faced — even bigger than Enron,” Bloomberg Intelligence utility analyst Jaimin Patel said. “With fires like this for a few more years, bankruptcy becomes a real possibility.”

PG&E informed the SEC on Tuesday that it has maxed out its revolving credit, already borrowing $3 billon. The utility said it plans to use the cash for “highly liquid short-term investments” and for “general corporate purposes.” PG&E also noted in its SEC filing that it could face “significant liability in excess of insurance coverage” if it is found to be responsible for starting the Camp Fire.