[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]




 
                     STATE OF EMERGENCY: EXAMINING

                     THE IMPACT OF GROWING WILDFIRE

                      RISK ON THE INSURANCE MARKET

=======================================================================

                             HYBRID HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON HOUSING,
                         COMMUNITY DEVELOPMENT,
                             AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 22, 2022

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-101
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                            
                           
                           
                           
                           
                        ______
 
              U.S. GOVERNMENT PUBLISHING OFFICE 
49-481 PDF           WASHINGTON : 2022 
                            
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois                ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts       JOHN ROSE, Tennessee
RITCHIE TORRES, New York             BRYAN STEIL, Wisconsin
STEPHEN F. LYNCH, Massachusetts      LANCE GOODEN, Texas
ALMA ADAMS, North Carolina           WILLIAM TIMMONS, South Carolina
RASHIDA TLAIB, Michigan              VAN TAYLOR, Texas
MADELEINE DEAN, Pennsylvania         PETE SESSIONS, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   RALPH NORMAN, South Carolina
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                  Subcommittee on Housing, Community 
                       Development, and Insurance

                  EMANUEL CLEAVER, Missouri, Chairman

NYDIA M. VELAZQUEZ, New York         FRENCH HILL, Arkansas, Ranking 
BRAD SHERMAN, California                 Member
JOYCE BEATTY, Ohio                   BILL POSEY, Florida
AL GREEN, Texas                      BILL HUIZENGA, Michigan
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
CAROLYN B. MALONEY, New York         TREY HOLLINGSWORTH, Indiana
JUAN VARGAS, California              JOHN ROSE, Tennessee
AL LAWSON, Florida                   BRYAN STEIL, Wisconsin, Vice 
CINDY AXNE, Iowa, Vice Chair             Ranking Member
RITCHIE TORRES, New York             LANCE GOODEN, Texas
                                     VAN TAYLOR, Texas
                                     
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 22, 2022...........................................     1
Appendix:
    September 22, 2022...........................................    23

                               WITNESSES
                      Thursday, September 22, 2022

Auer, Matthew R., Dean, School of Public and International 
  Affairs, University of Georgia.................................     4
Bach, Amy R., Co-Founder and Executive Director, United 
  Policyholders..................................................     5
Frazier, Rex, President, Personal Insurance Federation of 
  California.....................................................    10
Lara, Ricardo, California Insurance Commissioner.................     7
Wright, Roy E., President & CEO, the Insurance Institute for 
  Business & Home Safety (IBHS)..................................     9

                                APPENDIX

Prepared statements:
    Auer, Matthew R..............................................    24
    Bach, Amy R..................................................    41
    Frazier, Rex,................................................    44
    Lara, Ricardo................................................    47
    Wright, Roy E................................................    55

              Additional Material Submitted for the Record

Cleaver, Hon. Emanuel:
    Written statement of the American Property Casualty Insurance 
      Association (APCIA)........................................    63
Hill, Hon. French:
    ``California's Ban on Climate-Informed Models for Wildfire 
      Insurance Premiums'', by Rex Frazier.......................    82
    Written statement of the SmarterSafer coalition..............    96
Steil, Hon. Bryan:
    Letter from Allstate, dated September 27, 2022...............   100


                     STATE OF EMERGENCY: EXAMINING

                     THE IMPACT OF GROWING WILDFIRE

                      RISK ON THE INSURANCE MARKET

                              ----------                              


                      Thursday, September 22, 2022

             U.S. House of Representatives,
                           Subcommittee on Housing,
                             Community Development,
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9:07 a.m., in 
room 2128, Rayburn House Office Building, Hon. Emanuel Cleaver 
[chairman of the subcommittee] presiding.
    Members present: Representatives Cleaver, Green; Hill, 
Posey, Huizenga, and Rose.
    Ex officio present: Representative Waters.
    Chairman Cleaver. The Subcommittee on Housing, Community 
Development, and Insurance will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. We may have to do that 
because votes are expected shortly.
    Also, without objection, members of the full Financial 
Services Committee who are not members of this subcommittee are 
authorized to participate in today's hearing.
    Today's hearing is entitled, ``State of Emergency: 
Examining the Impact of Growing Wildfire Risk on the Insurance 
Market.''
    I now recognize myself for 4 minutes for an opening 
statement.
    The National Interagency Fire Center indicates that five 
large new fires were reported: one in Kansas, next door to my 
State of Missouri; one in Montana; one in Oklahoma; one in 
Texas; and one in Washington. Currently, 97 active large fires 
and complexes across the country have already burned more than 
900,000 acres in 8 States. In response, more than 11,000 
wildland firefighter and supportive personnel are assigned to 
respond to these wildfire incidents across the country.
    Americans today are fighting to save their family's homes, 
businesses, and communities from fire. And make no mistake, the 
threat of wildfire is growing. Between 1980 and 2022, 20 
wildfire billion-dollar disaster events affected the United 
States. Sixteen of these incidents occurred in 2000. Most 
recently, the 2021 Dixie Fire consumed over 960,000 acres, 
making it the second-largest wildfire on record in California, 
while also destroying more than 1,000 structures. In Colorado, 
the December 2021 Marshall Fire in Boulder County was the most 
destructive on record in the State's history.
    We find ourselves in what some are calling an era of the 
megafire, extraordinary fires in terms of size, in terms of 
intensity, and in terms of cost to taxpayers and private 
industry. These megafires set aflame everyone and everything in 
their path, but they still disproportionately destroy low-
income neighborhoods, and they put in jeopardy low-income 
families and communities who have the least resources to 
prepare and respond to them.
    We as a nation have and always will have to manage wildfire 
risk. Unfortunately, due to climate change, scientists predict 
more megafires in our future. The central question for this 
hearing is, how do we coexist with wildfire risk? How do we as 
a country adapt and become more resilient to the growing 
wildfire threat? And wherever possible, how do we reduce or 
avoid risk altogether?
    And the insurance industry is a piece of this equation. For 
decades, the insurance sector has continued to underwrite 
industries and practices that exacerbate climate change and 
increase exposure levels for their own investment. That is a 
problem. But the insurance industry is also a part of the 
solution. Insurers have a plethora of data that can help public 
and private stakeholders better understand the climate-related 
risk and can be used in climate-specific stress testing.
    In my nearly 20 years in Congress, I have seen these issues 
with flood insurance and other climate-related perils. My fear 
is that the wildfire crisis becomes a systemic issue, one where 
the temporary solutions put forward by State regulators 
collapse under increased risk. Insurance is primarily a State 
issue, and States across this nation are grappling with the 
growing wildfire risk.
    During this hearing, we want to know how regulators in the 
insurance sector are managing this risk in the short term, and 
if the long-term solutions proposed are viable solutions. And 
we want to know what the insurers are doing to make sure that 
American families and communities can recover once disaster 
strikes. So, I look forward to this hearing and the 
recommendations.
    I now recognize the ranking member of the subcommittee, Mr. 
Hill, for 5 minutes for an opening statement.
    Mr. Hill. Thank you, Mr. Chairman. I appreciate the chance 
to be with you today, as always, and I am very interested in 
this topic. It may be the first time the Financial Services 
Committee has ever held a hearing on the threat of wildfires 
and the role of insurance since this committee formally became 
the Committee on Financial Services in the 106th Congress.
    Wildfires are, of course, a real challenge and a severe 
problem, particularly in some regions of the country, and it's 
certainly worth the time for us to explore and discuss what we 
are doing right and what we are doing wrong in various aspects 
of public policy in order for our citizens to better prepare 
for coping with and dealing with this devastating risk.
    Statistics show that over the last 20 years, an average of 
about 7 million acres per year across the country have been 
burned by wildfires. Over the decades, that varies with 
rainfall, obviously. For example, in Arkansas, after the past 9 
years of being extremely wet, we are having our first dry year. 
And, in fact, if you look at that rainfall, for those concerned 
about and aware of climate change, rainfall is actually 
increasing all over the country. We have record rainfall now 
compared to the period of 1958-1998 in my home State.
    An estimated 4.5 million properties are at high or extreme 
risk from wildfires, and nearly half of those, over 2 million, 
are in the State of California, which has 3 times as many as 
the second-most risky State, Texas.
    The Chair said that States bear the brunt, and State policy 
bears the responsibility for insurance, and California in many 
ways, in my view, represents the absolute worst of the problem. 
The local market for insurance, which we will get into later, 
is not impressive. And wildfires are by no means just 
concentrated out West.
    As my colleague from our Arkansas delegation, Bruce 
Westerman, who is the ranking member on the House Committee on 
Natural Resources and the only licensed forester in Congress, 
has said, we have quite literally loved our trees to death 
through mismanagement, which has led to insect infestation, 
overstocked stands, and dead and decaying trees. And this is a 
particular crisis in the Rocky Mountains and the coastal West.
    The solution is not unsurprising: the adoption of sound 
forest management policies. Plus, in addition to that, better 
land management, public land management, better local land use 
decisions, and responsible development would all predictably 
reduce risk.
    But prevention is only half of the battle, and that is why 
we are here today. We also need to make sure that we are making 
smart financial decisions so that individuals and businesses 
across the country can access and have the affordable insurance 
they need to protect their property. Insurance is just a tool 
and one that works only when the fundamental principles of risk 
pricing and competitive enterprise are followed.
    In the most basic terms, you want lower rates? How about 
creating an environment of lower risk. And as we have witnessed 
in energy and water policy, forest management practices, and 
now in insurance, California is no place to emulate, and, in 
fact, is a cautionary tale of what not to do.
    Instead of allowing premiums to correspond to risk, 
California has layered on price controls, on top of mandatory 
coverage, on top of automatic renewals. All of that means that 
it is losing money and it doesn't add up. And who is hurt? 
People who are insured.
    For a State that claims to be a bold leader on climate 
change, its regulations literally prevent insurers and 
policyholders from taking the future risks of rising 
temperatures into account. And, in fact, too many homeowners 
are left in the lurch, needing coverage that isn't available in 
amounts or at prices they want. And outside insurers know 
better than to invest in California, a market built on unfair 
rules. That is a painful and costly exercise and one that we 
will explore today.
    But, Mr. Chairman, better insurance markets occur when you 
send smart pricing signals to poorly-considered municipal and 
county zoning land use and development practices, which is no 
doubt a big part of why insured losses in California are larger 
than they should be.
    I thank my friend, and I yield back.
    Chairman Cleaver. The gentleman yields back.
    Witnesses who are here today, we welcome you; and those of 
you who are with us virtually, we appreciate you giving us your 
time today.
    Our witnesses are: Matthew Auer, the dean of the School of 
Public and International Affairs at the SCC, School of Georgia; 
Amy Bach, the executive director of United Policyholders; 
Ricardo Lara, the California Insurance Commissioner; Roy 
Wright, the president and CEO of the Insurance Institute for 
Business & Home Safety; and Rex Frazier, the president of the 
Personal Insurance Federation of California.
    Witnesses are reminded that their oral testimony will be 
limited to 5 minutes. You should be able to see a timer that 
will indicate how much time you have left. I would ask that you 
be mindful of the timer so that we can be respectful of both 
the witnesses' and the committee members' time.
    And without objection, your written statements will be made 
a part of the record.
    We are probably going to have some little technical issues 
because many of you are not going to be able to see the timer. 
So I will, unfortunately, have to tap on the desk so that you 
will be given a caution that the time is almost out.
    Mr. Auer, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

STATEMENT OF MATTHEW R. AUER, DEAN OF THE SCHOOL OF PUBLIC AND 
          INTERNATIONAL AFFAIRS, UNIVERSITY OF GEORGIA

    Mr. Auer. Good morning, Chairman Cleaver, Ranking Member 
Hill, and members of the subcommittee. I am Matthew Auer, dean 
of the School of Public and International Affairs at the 
University of Georgia's School of Public and International 
Affairs.
    I began a career in forestry and environmental policy in 
the 1990s. Back then, policy experts predicted that climate 
change would challenge how insurance companies typically model 
and price risk when they underwrite insurance policies. Ample, 
reliable data tell us now that climate change, including 
increased heat, extended drought, and lower humidity in Western 
States is a major driver of wildfires. As predicted, these 
environmental changes are playing havoc with insurance markets, 
and this affects everyday policyholders, including lower-income 
homeowners.
    Graduate student Benjamin Hexamer and I wanted to gain a 
clearer sense of which homeowners are at particular risk in the 
most wildfire-prone States. We found that 60 percent of 
counties with moderate to high wildfire risk in the most 
wildfire-prone States also have a poverty rate exceeding the 
national poverty rate. Hence, the majority of homes in the most 
at-risk counties in Western States and in Florida are in areas 
with comparatively higher poverty rates.
    Increasingly, insurance companies, as well as State and 
local authorities, require homeowners to adopt fire safety 
measures. For some homeowners, this is a condition for a new 
policy rule for renewal of coverage. This can pose hardships 
for lower-income homeowners. If an insurance company were to 
require a policyholder to implement wildfire safety measures 
including, for example, removal of branches or of whole trees 
overhanging a roof, those costs can add up. Consider that a 
premium for $250,000 worth of dwelling coverage in New Mexico 
is around $1,900, which represents over 6 percent of median 
household income in a county like Mora, County, New Mexico. 
Mora was one of the counties hit by this year's Hermits Peak 
and Calf Canyon fire, the largest wildfire ever recorded in New 
Mexico.
    Federal assistance will continue to loom large for the most 
at-risk communities. Consider that the State of California is 
currently distributing FEMA funds in a pilot project called the 
California Wildfire Mitigation Program. Communities selected 
for assistance have higher concentrations of people over the 
age of 65, residents with disabilities, people living in 
poverty, and populations with limited English proficiency or a 
lack of access to a car.
    This is a cost-share program. FEMA pays up to 75 percent of 
the cost for eligible mitigation projects. The State has made a 
25-percent match at the local level. In some parts of the 
country, the match is not always possible. And communities, 
including Tribal communities, frequently lack adequate staffing 
to implement the grant. These problems could be alleviated by 
more consultation between FEMA and States about which 
communities to serve and the provision of adequate funds to 
ensure staff hiring and training.
    FEMA-supported programs like the California Wildfire 
Mitigation Program, and Safer from Wildfires, an initiative 
spearheaded by California's Insurance Commissioner Ricardo 
Lara, are designed not only to directly help homeowners make 
their homes safer, but also to inspire insurance companies to 
reenter the market. These programs could shift the insurance 
industry's thinking, transforming risk into opportunity. 
Nevertheless, even as insurance and reinsurance companies 
become more proficient at estimating risk, the advantages will 
be less profound for lower-income homeowners and renters, 
particularly if better risk forecasting means higher premiums 
and lower coverage limits.
    When it comes to protecting the most-vulnerable communities 
in harm's way, present and future funds authorized by Congress 
are essential. Indeed, Congress has made programs like the 
California Wildfire Mitigation Program possible. All of the 
relevant trends indicate that today's pilot programs to harden 
homes and create defensible space, supported by Federal 
agencies, will need to evolve into longer-term sustained 
programs that help underserved communities with fire safety 
measures in local States.
    I wish to thank the committee for their attention to this 
important matter, and for inviting me to today's hearing.
    [The prepared statement of Mr. Auer can be found on page 24 
of the appendix.]
    Chairman Cleaver. Thank you very much.
    Ms. Bach, you are now recognized for 5 minutes to give us 
an oral presentation of your testimony.

 STATEMENT OF AMY R. BACH, CO-FOUNDER AND EXECUTIVE DIRECTOR, 
                      UNITED POLICYHOLDERS

    Ms. Bach. Good morning, Chairman Cleaver, Ranking Member 
Hill, and subcommittee members. Thank you so much for the 
opportunity to address the subcommittee on a matter of national 
importance.
    I represent an organization, a 501(c)(3) based in 
California that informs and helps consumers throughout the 
country. For over 30 years, we have been working to make the 
insurance system work for the consumers who pay premiums and 
deserve fair treatment and the financial safety nets for which 
they have paid. We have extensive experience with wildfires and 
insurance markets in California, New Mexico, Texas, Washington, 
Oregon, Colorado, and Arizona.
    And you have the right people in the room here. My 
organization has been working very closely with four of the 
witnesses here. Rex Frazier has been speaking on behalf of the 
insurance industry's perspective on these issues for many 
years. And then, of course, Ricardo Lara is a very strong 
leader and a very, very good partner, as is Roy Wright and his 
organization with the research and the work they are doing. So, 
we have all locked arms to really tackle the situation that is 
before us today.
    In recent years, my organization has had to shift our focus 
in wildfire-prone areas from educating consumers about not just 
shopping for the cheapest policy, but actually buying the 
coverage that is going to really be there for them. We had to 
shift from that to helping people find any option. And in many 
counties throughout California, and increasingly in Colorado 
and also Oregon and Washington, consumers are now having no 
choices, no options for insuring their homes and small 
businesses other than limited and expensive protection through 
the California FAIR Plan or residual markets in those other 
States.
    And just as insurers have dramatically reduced the number 
of homes they are willing to voluntarily cover in California, 
private market options in these other States appear to be 
shrinking. But with our hardworking partners, the Commissioners 
of both California and Colorado, we are doing everything we can 
to fix the situation. As Professor Auer noted, this is a long-
range game here, not for the short term.
    Through a Wildfire Risk Reduction and Asset Protection 
workstream, we have for the last 2 years been having monthly 
meetings with people from all over the country and the States 
who are working in this space to promote home hardening, 
defensible space, and community-based programs to help people 
limb trees, change out their roofs, take away fire hazards 
around their homes, et cetera. And we are making a lot of 
progress.
    This year, we saw very significant progress with--the 
Insurance Institute for Business & Home Safety (IBHS) is 
putting out their standard of Safer from Wildfires, an 
initiative putting out their standards. And now, we are all on 
the same page to address what Rex had flagged years ago, which 
is a skepticism on the insurance industry's part that you can 
actually move the needle. But we can move the needle. We can 
reduce wildfire risk, and we are doing it. There is a lot of 
really good work going on.
    My written testimony goes into the details of how this all 
came about, and it does relate to a combination of unfortunate 
circumstances. It is not just one thing, which is why we need 
not just one solution, right? It did start somewhat with the 
tree mortality crisis. But again, when you look at how 
insurance companies make decisions, and you look at what has 
happened in Florida, it is really--I understand concerns about 
regulation, but it is really not that.
    If you ask people in California if they think there are 
price controls in place, they will say, ``What are you talking 
about? I am getting hit with $9,000-a-year premium notices.'' 
So, it is really more. It is deeper.
    Insurance companies are highly-sophisticated professional 
gamblers. They will take risks in return for money, but only to 
a degree. Obviously, climate change has caused a lot of 
concern, and that concern is being exacerbated by all of the 
tools that insurers are now using, including risk scoring tools 
and analytics.
    And just in conclusion, what do we want to see here? More 
funding and technical assistance for home hardening and 
defensible space. We need insurers to reward and incentivize 
risk reduction through renewal rewards and discounts to those 
who have reduced risk. We need strengthened, well-run insurers 
of last resort. We need assistance to residual market property 
insurance programs similar to what the Florida Hurricane 
Catastrophe Fund is doing in Florida to try to restabilize that 
market.
    I thank you so much for your time and attention. And I will 
conclude now.
    [The prepared statement of Ms. Bach can be found on page 41 
of the appendix.]
    Chairman Cleaver. We thank you very much for your 
testimony, Ms. Bach.
    Commissioner Lara, you are now recognized for 5 minutes to 
give an oral presentation of your testimony.

  STATEMENT OF RICARDO LARA, CALIFORNIA INSURANCE COMMISSIONER

    Mr. Lara. Thank you.
    Good morning, Subcommittee Chairman Cleaver, Ranking Member 
Hill, and esteemed members of the subcommittee, and thank you 
for having me virtually speak to you all today. I also want to 
personally thank Full Committee Chairwoman Waters for her 
invitation for me to be part of this hearing and for the 
overall attention given to this important issue of insurance 
availability/reliability due to continued, climate-intensified 
wildfires.
    As the elected insurance commissioner of the nation's 
largest insurance market, I have taken significant steps to 
safeguard the availability of insurance for consumers and to 
maintain a competitive insurance market, granted by the 
California voters in passing Proposition 103 back in 1988. 
Proposition 103 allows for insurance companies to request rates 
that are adequate to pay future claims, again, while giving me, 
as the insurance commissioner, the authority to protect 
consumers from excessive or unfairly-discriminatory rates.
    In December of 2019, I implemented a moratorium law that I 
proudly authored while I served in the California State Senate, 
which protects wildfire survivors by preventing insurance 
companies from nonrenewing policies for those living adjacent 
to a declared wildfire emergency for a total of 1 year, 
recognizing that it is absolutely critical to give consumers 
some breathing room after a wildfire disaster. Even if they 
don't lose their home, they might have lost a neighbor, a 
friend, or a loved one. And my action also gives insurance 
companies a chance to assess so that they are not so quick to 
drop their longtime customers. To date, since 2019, I have 
protected more than 4 million residential policies from 
nonrenewal by their insurance company.
    For years, California and other like-minded States have 
warned repeatedly to prepare for the impact that climate change 
is having on risk and our ability to prepare for it. At the 
National Association of Insurance Commissioners (NAIC), I co-
Chair its Climate and Resiliency Task Force with my fellow 
insurance regulator from Florida. Wildfires, wildfire smoke, 
flooding, and heat waves do not respect State borders, so we 
have to work together as State-based regulators of insurance 
through the NAIC.
    I am also proud to be creating an historic sustainable 
insurance roadmap with the United Nations' Principles for 
Sustainable Insurance initiative, which will outline key 
actions that regulators and insurance companies need to take to 
protect consumers, and to create a more sustainable insurance 
market in a time of intensified climate risks. Otherwise, 
insurance companies that threaten to withdraw from wildfire 
risk regions of California or any State defy the central 
purpose for insurance: to incentivize home hardening behaviors 
that will reduce the risk at the end.
    That is why I created the first-in-the-nation insurance 
pricing regulation after 3 years of stakeholder engagement, and 
in partnership with California's emergency preparedness 
agencies, which would require all insurance companies to 
recognize and reward wildfire mitigation efforts made by 
homeowners and businesses, such as upgraded roofs and windows, 
defensible space, and living in Firewise communities.
    Transparency is another important benefit of my regulation, 
requiring insurance companies to provide consumers with their 
property's risk score and to give them a right to appeal that 
score. I have also advocated for increased State budget funding 
to help residents and businesses pay for mitigation efforts 
necessary for them to retain their insurance coverage.
    I believe funding for pre-disaster mitigation for local 
communities is critical, and I commend Congress for passing the 
Inflation Reduction Act earlier this year, which includes 
critical funding for hazardous fuel reduction and community 
resilience and risk mitigation projects. Every dollar of 
premitigation saves $5 to $7 in avoided future insurance loss, 
helping make insurance more available and affordable.
    And I know you are all familiar with the residential, 
``insurer of last resort'' market, known as the FAIR Plan in 
California, which will cover you if no insurance company will. 
Because of an increase of nonrenewals in the Wildland Urban 
Interface, I have worked to modernize the FAIR Plan by ordering 
it to provide consumers with increased homeowner and commercial 
policy coverage limits, as well as offer more comprehensive 
property coverage options, again, to protect what is, for most 
of us, is our largest financial safeguard: our homes.
    I am committed to continue to look at how we give insurance 
companies tools to better manage risk so that we can maintain 
competition. However, there must be a firm commitment from the 
voluntary insurance market to provide and maintain insurance, 
especially to our most vulnerable. As you know, many rural 
residents in our States are retirees and on fixed incomes, 
working people, and those pushed out of the urban core.
    Again, Mother Nature is the best advocate we have on 
climate change as well as the wildfires. I look forward to 
having this discussion with you. Thank you again for the 
opportunity to testify, and I would love to answer your 
questions when it is appropriate.
    [The prepared statement of Mr. Lara can be found on page 47 
of the appendix.]
    Chairman Cleaver. Thank you very much, Mr. Lara.
    Mr. Wright, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

  STATEMENT OF ROY E. WRIGHT, PRESIDENT & CEO, THE INSURANCE 
          INSTITUTE FOR BUSINESS & HOME SAFETY (IBHS)

    Mr. Wright. Good morning, Chairman Cleaver, Ranking Member 
Hill, and members of the subcommittee. I do appreciate the 
opportunity to join you today.
    Wildfires have always been part of the American landscape. 
Yet, the intensity and frequency of wildfires barging into the 
lives of our families--well, there is more of that coming. I 
work at the Insurance Institute for Business & Home Safety 
(IBHS), which squarely focuses on the collision of wildfire in 
the built environment when wildfire attacks and consumes our 
homes and communities.
    The compelling videos of flames on the nightly news are 
usually the first wildfire images that come to mind. Yet, most 
buildings ignite because they are attacked by flying embers, 
some of which might be as small as the spark you see when you 
are roasting a marshmallow. Many are the size of your thumb, 
and it is common to see ones the size of the palm of your hand. 
Yet, those embers don't just spray forward a few feet. We 
regularly see embers lofting for a half mile or more, landing, 
smoldering, and igniting fires.
    Wildfire disasters play out differently than floods or wind 
disasters. Unique to wildfire, the buildings that are hit by 
embers and ignite become part of the fuel. Instead of 
dissipating the way you think of flood waters, once a home 
ignites, that home becomes an amplifier of the disaster. The 
inflamed home becomes more fuel that further intensifies the 
damage across the community.
    Work on forest management and ignition sources is critical, 
but we cannot eradicate wildfires from across our landscape. We 
need to narrow their path of destruction within our 
communities.
    IBHS has pulled the scientific pieces together for home 
wildfire resilience. The Wildfire Prepared Home needs to 
address three fundamentals: first, the roof; then, building 
features like vents; and defensible space. And once all of 
those are finished--and collectively, it is all three of those 
pieces--then you turn to additional measures like fencing, 
noncombustible siding and closed eaves, deck materials, 
windows, and sheds. The most transformational piece amid all of 
this defensible space.
    We discuss defensible space in bands: the first 5 feet; 5 
to 30 feet; and 30 to 100 feet. In a suburban context, the 0 to 
5, and 5 to 30-foot, are the game changers. Consumers need to 
embrace a new view of home landscaping: nothing flammable 
within 5 feet of your structures. No bushes or trees, no 
plastic bins or cans, no wooden gates. We can make this 
aesthetically attractive, yet all homeowners who are within the 
reach of those flying embers need to reimagine the 5 feet 
closest to their home. Nothing in that space can burn. Nothing 
in that space can be hospitable to the wildfire embers that can 
land, smolder, and ignite.
    While we can start at the parcel level of an individual 
home, wildfire risk requires us to take action at the community 
scale too. Only when entire neighborhoods take these resilient 
actions through collective action and stronger codes we will be 
able to truly bend down the risk of wildfire conflagration, 
those really catastrophic days when entire neighborhoods fall 
like dominoes.
    At the point of new construction, these wildfire mitigation 
techniques require as little at $3,000. But retrofitting a home 
can be harder. The cost of rescaping closest to your home 
varies. Some have little work to do and others have significant 
changes to make. And the emotional attachment to the look of 
your home, well, we can all imagine that.
    It is not just IBHS. Others, like the California Department 
of Insurance, consumer groups, the insurance industry, and the 
fire services are using the same wildfire science in their 
work. Speaking with a common voice will affect far more change.
    None of this is free. We can't in one breath say the 
climate is changing and making wildfires worse, and in the next 
breath say, I want the cost of building and insurance to be 
cheaper. The changing climate has a cost. For those who can 
afford to take those actions themselves, we need to nudge them 
to do so. Others on the panel will speak to the insurance 
pricing of the risk. However, the cost of mitigating for 
wildfire cannot be viewed solely through the lens of insurance 
premiums. Like energy efficiency tax credits, we need to see 
financial nudges to homeowners and drive them to fund their own 
retrofits.
    And when homeowners cannot afford to take the retrofit 
action themselves, Federal and State grants need to be targeted 
to help them close the gap. First among those actions: help 
homeowners change the landscaping closest to their homes to 
ensure there is not a hospitable area for embers to take hold 
and ignite.
    Thank you, Mr. Chairman. I look forward to your questions.
    [The prepared statement of Mr. Wright can be found on page 
55 of the appendix.]
    Chairman Cleaver. Thank you very much, Mr. Wright.
    Mr. Frazier, you are now recognized for 5 minutes to give 
an oral presentation of your testimony.

    STATEMENT OF REX FRAZIER, PRESIDENT, PERSONAL INSURANCE 
                    FEDERATION OF CALIFORNIA

    Mr. Frazier. Good morning, Chairman Cleaver, Ranking Member 
Hill, and members of the subcommittee. My name is Rex Frazier. 
I am the president of the Personal Insurance Federation of 
California, an association of insurers that provides over 60 
percent of the homeowners insurance coverage in California. 
Thank you for the opportunity to testify today.
    Much has changed since 2017, when California experienced 
over 250 wildfires. That year, there were devastating fires, 
including the Tubbs Fire, which killed 22 people, destroyed 5 
percent of the City of Santa Rosa's housing stock, and resulted 
in over $11 billion in insured losses. For 2017 and 2018, 
insurers made claims payments totaling more than the previous 
22 years of underwriting profit.
    We now have a better understanding of how climate change 
operates in California. Peak fire season is no longer a 
predictable part of autumn. Delayed onset of seasonal rains, 
possibly as late as December, is resulting in longer periods of 
dry conditions that overlap with the annual Santa Ana, 
Sundowner, and Diablo wind patterns, which can turn small fires 
into major disasters. Instead of having a month of this dry, 
windy overlap, we can now face 2 or more months.
    The insolvency of the Merced Property Casualty Company 
following the Paradise Fire in 2018, has especially driven home 
the seriousness of the situation.
    On the positive side, and with only one exception, all 
major home insurers active in the California marketplace prior 
to 2017 remain in the market today. They have worked with 
Commissioner Lara and the staff at the Department of Insurance 
on the difficult balancing act of ensuring financial stability 
while seeking insurance availability and affordability.
    Our member companies believe wildfire risk in California is 
insurable if rates are adequate to match the growing risk. Even 
when the regular market experiences problems, insurers provide 
a residual market for all homeowners seeking coverage, called 
the California FAIR Plan, which involves no government funding.
    But much work remains. The first step is to develop 
standards for insurers to recognize the benefits of home 
hardening and defensible space. Of critical importance is the 
research of the Insurance Institute for Business & Home Safety 
(IBHS). Its Wildfire Prepared Home designation program holds 
great promise for helping insurers provide better price signals 
regarding mitigation. This work is timely because the 
California Department of Insurance recently issued regulations 
for how insurers must communicate with customers about 
available mitigation discounts. Insurers will be submitting new 
filings with the Department soon.
    The next step is to advance the science of community-level 
mitigation. While home hardening and defensible space is 
important, many wildfires will only be stopped by efforts 
beyond the individual parcel. So much of wildfire risk relates 
to bigger considerations, such as the amount of surrounding 
brush or trees, whether a community is located near slopes, 
canyons, or wind tunnels, and the amount of access for 
firefighters to confront a fire. IBHS is researching these 
dynamics currently, and insurers look forward to studying and 
incorporating the results.
    While mitigation is important, there is another issue that, 
if it is not solved, will limit the California homeowners 
insurance market. California insurance regulations must be 
amended to allow insurers to incorporate forward-looking 
climate science into their rate filings.
    In California, when an insurer submits a rate filing, it 
must justify its requested statewide premium for future 
wildfire losses based upon its average annual wildfire losses 
over the last 20 years. The request cannot consider the 
location of the insured properties, their proximity to 
vegetation, or even if the homes to be insured are hardened. It 
is a calculation with no sensitivity to changing conditions or 
evolving knowledge.
    An insurer is not permitted to seek a higher premium level 
even if it would like to go into a higher fire-risk area. Under 
the regulations, that insurer must first sustain high losses 
and then request permission for a higher statewide premium 
level. This is not a reasonable expectation. It encourages 
insurers to withdraw from the highest-risk areas. If an insurer 
has data to support how a particular area is being impacted by 
fuel loads or climate change, then it should be able to submit 
a filing to the Department which explains the risk and 
quantifies the premiums that will be needed to pay the expected 
losses in the area.
    There is no other State that requires insurers to look back 
2 decades to justify its requested premium levels intended to 
fund future wildfire losses. Without updating the rating 
system, it is difficult to see how California--
    [Audio malfunction.]
    Chairman Cleaver. We obviously have a technical problem.
    Mr. Frazier?
    Mr. Frazier. Yes, sir.
    Chairman Cleaver. I don't want to cheat you out of your 
last 5 seconds. You have 5 seconds.
    Mr. Frazier. I just said thank you, sir.
    Chairman Cleaver. Okay. Thank you.
    [The prepared statement of Mr. Frazier can be found on page 
44 of the appendix.]
    Chairman Cleaver. I thank all of our witnesses for being 
with us today. We appreciate your testimony.
    The Members who are here today--I want to make sure that 
everybody understands we may have votes called, so I need 
everyone to be very crisp in your questioning so that we don't 
waste any time at all. I want to recognize myself now for 5 
minutes for questions, and do what I ask all of the Members to 
do.
    Mr. Wright you kind of hit on some issues that are a very 
deep concern of mine. I have a son who lives in California, and 
I go out there and get angry when I see where people build 
their homes.
    What actions have insurers taken to respond to the threat 
of increased economic losses from wildfire disasters, including 
how insurers are incorporating mitigation and resilience into 
the business operation?
    Mr. Wright. Thank you, Mr. Chairman. I will let others 
speak to the specifics of how they get to pricing, but I can 
say with absolute confidence that the mitigation actions that 
we call for, this collective set of make sure you have a good 
roof--and the good news is 99.2 percent of Californians already 
have that--address the vents and then the defensible space. 
When the risk has changed, insurers will meet people there.
    Insurance is supposed to price risk, and to the degree that 
you can shape that, I think they would meet there.
    Chairman Cleaver. Thank you.
    Let's kind of stay on this for a moment, if you will. What 
actions have insurers taken in terms of the increase in 
economic losses from wildfire disasters right now?
    Mr. Wright. Again, Chairman Cleaver, I think that others, 
like Mr. Frazier, can get into the specifics of how it is 
ultimately priced. But I do think that we are seeing people 
lose their homes, and the cost of rebuilding has continued to 
go up. And I think that is really the piece that people feel 
after the event.
    Chairman Cleaver. Okay. Dr. Auer, and Ms. Bach, are there 
certain parts of the country facing major disruptions to their 
insurance markets due to wildfire impacts? And what is the 
outlook for other parts of the country in our future?
    Ms. Bach. If I may, sir, thank you, just briefly. In the 
State of Colorado, for example, there is a pilot program that 
has been underway in Boulder County where there are a number of 
insurers participating in that program. And if the homeowner 
has their home hardened with help from the program, the 
participating insurers will agree to not drop them. They will 
agree to keep them as a customer.
    So, we know that can work, but we also know that, in 
Colorado, where you see--it is just like what you saw in 
Florida, where if you see a pattern of a number of years where 
there is a bad hurricane, that is going to really affect the 
market, right? We saw it in Florida. We see it in California. 
We are seeing it in Colorado. We see a series of wildfires, and 
insurers get the jitters. Understandably, they react. The 
regulator tries to calm the situation, and the rest of us are 
doing everything we can to help.
    You really can't unbuild the homes that have been allowed 
to be built in these areas, so you just have to work with the 
built environment as it is. And, again, I think the real 
challenge is getting insurers to get on the train with the rest 
of us and say, yes, we are not powerless here. There is a lot 
we can do and we have to help people do it. And we have to 
incentivize them.
    And that is where we really need the insurers to do what 
they have been doing in wildfire-prone areas, where they reward 
people for roof tiedowns, and they reward people for elevating 
their homes, with preferred pricing.
    Chairman Cleaver. Yes. But is education one of the issues? 
When I was growing up, you would turn on the TV and Smokey Bear 
comes up and talks to you. And I haven't seen Smokey in recent 
years. I don't know if he died or what.
    But the issue is, for me, what can we do in terms of 
education--85 percent of these fires are a result of human 
activity, not lightning, so there is something that we are not 
doing, that we must begin to do. Anyone?
    Mr. Auer. Thank you for that good question. The efforts, I 
think, that Commissioner Lara has initiated with Safer from 
Wildfires, not only technical issues of home hardening and 
defensible space at the individual homeowner level, but in 
addition and consistent, I think, with some of the testimony 
that we have heard here, there usually is a community or 
neighborhood-level dimension to these initiatives. And that 
would be true, for example, of the U.S. Forest Service's 
Community Wildfire Defense Grant program. Some of the FEMA 
grants that I mentioned before with their Hazard Mitigation 
Assistance programs generally have a direct educational 
component. Moreover, all over the country there are these 
community wildfire level plans that have been put in place over 
the past 10 or 15 years which also focus on education.
    Chairman Cleaver. Thank you very much.
    I now recognize the ranking member of the subcommittee, the 
distinguished gentleman from Arkansas, Mr. Hill, for 5 minutes.
    Mr. Hill. Thank you, Chairman Cleaver. And again, thank you 
to the panel for bringing your expertise, albeit virtually. We 
miss seeing you in person.
    Mr. Wright, has your organization testified before the 
State legislature in Sacramento or gone to zoning or local 
planning districts in California and argued against people 
building houses in places they should not?
    Mr. Wright. We have appeared at the State legislature and 
at the local level. And while we have not gotten into the 
specifics of where you choose to site the house, we have 
aggressively advocated, however, that wherever you need to 
build, you must build in a way that can narrow the path of 
wildfires.
    Mr. Hill. And do you think that local planning and building 
specs in California reflect your recommendations?
    Mr. Wright. For brand new construction in the highest area 
of concern, the answer is yes. California leads the way on the 
building code. We, though, would say they too narrowly apply 
it, and more homes need to be built to that higher standard to 
be able to withstand it. One additional piece is that 
defensible space has to be maintained year after year after 
year, so that is not a new construction.
    Mr. Hill. Thank you for that.
    Commissioner Lara, with a $300-billion surplus in 
California, what is California doing to help low-income 
residents on this mitigation piece? Not the insurance piece you 
are responsible for, but just that county support of 
mitigation. And do you believe that zoning in California is not 
done appropriately, from a public safety point of view?
    Mr. Lara. Thank you, Mr. Hill, for that question. We have 
seen the legislature and the governor put a record amount of 
money into fighting these wildfires, everything from working on 
creating incentive programs to helping people rebuild as 
quickly as possible. Additionally, providing incentives and 
funding so that people have the opportunity to mitigate against 
these wildfires, which is critical.
    I would just say, we should have done this before, but, 
fortunately, we have the money now to do this.
    Mr. Hill. Okay. Thank you, Commissioner. I appreciate that.
    Because one of my concerns is that the FEMA flood program 
encourages people to build where they should not build. Let's 
face it. And I believe that land use planning in California 
does the same and, therefore, it puts you as the commissioner 
in direct conflict, because you are trying to protect 
consumers. We get that. But you are not really facilitating 
insurers being paid for risk. And it is those risk prices that 
then inform mayors and counties that they shouldn't approve 
that development or that they should develop mitigation in this 
particular high-risk area.
    Mr. Frazier, in your testimony, you are saying insurers are 
not permitted to seek a higher premium level even if they would 
like to go into higher-risk areas. Under regulations, that 
insurer must first sustain high losses, then request permission 
for a higher statewide premium level. That doesn't seem like a 
reasonable expectation. It encourages insurers to withdraw from 
high-risk areas. Is that what you are seeing happen in 
California, Mr. Frazier?
    Mr. Frazier. Yes, sir. In the highest-risk areas. 
[inaudible] For 2017, the FAIR plan, which is the residual 
market, had a resting point of about 125,000 people per homes 
regularly. That number has gone up to about 270,000. Clearly, 
the shock in the system from the megafires of 2017 and 2018 has 
had an impact. And companies certainly looked at their rules 
for risk selection and compared it to the prices to figure out 
if they matched. And there has been some holdback, but, 
obviously, the vast majority of policies have been and are 
renewed.
    But, certainly, a system that doesn't allow statewide 
premiums to be looked at--
    [Audio malfunction.]
    Mr. Hill. Thank you. I will move on quickly there, Mr. 
Chairman, and submit that question in writing.
    Mr. Wright, you have great experience as the former Deputy 
Associate Administrator for the National Flood Insurance 
Program, so you know exactly what I am talking about on the 
challenges of reforming our Flood Program, on its 17th 
extension under the continuing resolution.
    Would you submit in writing for me what your views are of 
having a National Wildfire Insurance Program? Is that good for 
taxpayers and good for insured people?
    Mr. Wright. I will submit a fuller answer in writing. It is 
a bad idea.
    Mr. Hill. Thanks. I yield back.
    Chairman Cleaver. The ranking member yields back.
    I just have to say I agree with the ranking member on 
allowing people to move where they should not live.
    I now recognize the distinguished gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. And I thank the 
witnesses for appearing.
    I am interested in the area that the chairman has 
introduced, and that is mitigation. With reference to 
mitigation, do we have policies that require mitigation before 
issuance? This is a means by which homeowners can have an 
opportunity to improve their property if they make adjustments 
and also get insurance. Do we have policies that address it in 
this fashion? Anyone, please?
    Ms. Bach. The regulations that are hopefully about to go 
into effect in California that Commissioner Lara brought forth 
do provide that the homeowner gets to know what their risk 
score is, what number the insurer has put on their home, and 
then has the opportunity to know why they got that score, which 
I think is really important.
    Because people have just been getting the price signal. 
They have been getting these much higher prices and they have 
been getting dropped, but they don't know what--in many cases, 
when my organization surveys homeowners, when we ask, did your 
insurer tell you what you could do to keep your policy, they 
will say, no, they didn't. Again, I think we are making some 
progress in that direction as a result of the regulations that 
are pending now in California.
    Mr. Green. Thank you.
    Anyone else?
    Mr. Auer. Representative Green, it is also the case that, 
frequently at the local or county level, you see some 
regulatory--that is to say, the authorities have the ability to 
go house to house as relevant to say--for example, on, let's 
say, El Cerrito, California, to move up a street and tell each 
one of those homeowners, you need to work on your ignition zone 
and defensible space or else you could be fined. So, wholly 
apart from what the insurance carrier might be saying, there is 
also pressure at the local law level.
    Mr. Lara. Quickly, if I may, again, the regulation will 
also do something that it hasn't done before, which is look at 
communitywide mitigation. And working with the insurance trade 
groups and consumer groups is also providing communication 
about the community-wide risk reduction. Because if we bring 
down the risk for the entire community, we keep insurers 
writing in those communities, and consumers are able to have 
more insurance products that they can--the insurance companies 
can compete for and drive that cost down.
    Mr. Frazier. Yes, if I may, we appreciated very much the 
chance to work with the commissioner on these regulations. I 
think they will bring a lot more transparency so that people 
understand what they are being asked to do as part of this 
overall solution.
    Mr. Green. Mr. Chairman, I am going to yield back, because 
I know that time is of the essence for you.
    Chairman Cleaver. The gentleman yields back.
    At this time, the gentleman from Florida, Mr. Posey, is 
recognized for 5 minutes.
    Mr. Posey. Thank you very much, Chairman Cleaver.
    Mr. Frazier, at a September 8th hearing of the Senate 
Banking Committee, the National Association of Insurance 
Commissioners' witness referred several times to the kinds of 
risks that are just too large and uncertain for private sector 
and State regulators to tackle. Are we anywhere near that now 
on fire insurance?
    Mr. Frazier?
    Mr. Frazier. I'm sorry, sir, I didn't hear your question.
    Mr. Posey. At a September 8th hearing of the Senate Banking 
Committee, the National Association of Insurance Commissioners' 
witness referred several times to the kinds of risks that are 
just too large and uncertain for private sector and State 
regulators to tackle. Are we anywhere near that now on fire 
insurance?
    Mr. Frazier. We do not believe so, sir. At this point, the 
private insurance market still functions in a robust fashion in 
California. We stand ready to work with policymakers and 
stakeholders to continue serving these communities. Obviously, 
we are in a time of transition because of how climate change 
has become manifest. But at this point, this is still a 
situation that the private market can serve.
    Mr. Posey. Okay. Thank you.
    Can you please describe how State insurance commissioners 
are ensuring or will ensure that insurance carriers who give 
incentives to policyholders to mitigate wildfire risk can 
reduce premiums?
    Mr. Frazier, that is you again.
    Mr. Frazier. Sorry. I am having some delay issues, sir.
    Mr. Posey. Will somebody else start to weigh in on that?
    Mr. Lara. Yes. Representative Posey, this is Commissioner 
Lara. That is exactly what the regulation is intended to do. We 
brought all the State agencies together so that we can all be 
operating with the same fire science with the insurance 
industry and consumer groups to give those incentives, so that 
consumers know exactly what they need do to protect themselves 
or property and their families, and then price the insurance 
accordingly so that people are paying for the risk of where 
they are living.
    Mr. Posey. Thank you, Commissioner.
    I know we are talking about wildfires today, but on a 
parallel and similar matter, let me ask you a question about 
the impacts of deferring approval of premium rate increases 
during a period of rampant inflation. It is my understanding 
that you haven't approved an auto rate increase since April of 
2020. And according to the U.S. Bureau of Labor Statistics, a 
40-year-high record inflation means that costs have increased 
16 percent for nearly everybody over the past 2 years.
    If your department won't accept any rate increase filings 
but costs have increased 16 percent, wouldn't that undermine 
the capital adequacy solvency and the ability to continue to 
force insurers out of the State, harming insurers?
    We didn't like paying for gas in Florida when it was just 2 
bucks a gallon, and then it went up to 4 bucks just a couple of 
years ago. And I know it is even worse in California because of 
the policies out there. But we are glad we can get it, because 
$4-a-gallon gasoline is better than no gasoline. I would like 
your opinion of that.
    Mr. Lara. You are talking about private passenger auto rate 
filings?
    Mr. Posey. Yes, sir.
    Mr. Lara. Oh, okay. We are currently reviewing the various 
passenger private auto filings, and we are putting it through 
our regulatory process to make sure that those rates are 
adequately fair, and that they are not discriminatory, and they 
are currently moving through our process.
    What we are also looking at is making sure the insurance 
companies, that during the pandemic made so much profit, are 
returning some of that, because we knew that Californians were 
driving less, therefore the risk profile changed so that they 
were paying premiums that no longer reflected that risk. But we 
are moving as quickly as possible to make sure that we are 
reviewing these rate filings and we will be taking action in 
the future.
    Mr. Posey. I am glad to hear they are driving less out 
there during the pandemic, because on my trip out there, 
everywhere I went, the traffic was bumper to bumper.
    Mr. Frazier, is there still room for mitigation incentives 
to substantially reduce the premiums in wildfire areas?
    Mr. Frazier. We believe so, sir, both at the parcel level 
and at the community level. Obviously, at the community level, 
it is a lot harder because fuel treatments can be controversial 
in communities and opposition can develop. So, while everyone 
wants safer communities, there is also the difficult, on-the-
ground conditions of implementation.
    Mr. Posey. I get it. What role are State forest management 
plans playing in the current trends in fire insurance premiums?
    Mr. Frazier. We certainly look forward to the updating of 
our CAL FIRE maps. The State puts out hazard maps, and we are 
due for a refresh. It has been over a decade. There is a lot of 
concern about the impact these maps will have, but we do need 
the updating of these maps, and then from there, figuring out 
how we move to--
    Mr. Posey. Thank you.
    Mr. Chairman, I see my time is about to expire, so I will 
yield back.
    Chairman Cleaver. The gentleman yields back.
    The gentleman from Tennessee, Mr. Rose, is now recognized 
for 5 minutes.
    Votes have been called, we have one vote. But in respect of 
your time, we are going to try to continue with the hearing. 
And we will have Members come in after they vote. And I will 
try to make sure somebody comes takes over as Chair when I go 
to vote.
    Mr. Rose, you are now recognized for 5 minutes.
    Mr. Rose. Thank you, Chairman Cleaver, and Ranking Member 
Hill, for holding this hearing on wildfire insurance.
    As many of you know, wildfires present a growing risk to 
life and property, mostly in Western States. We know, however, 
that Tennessee is no stranger to wildfires itself. In 2016, as 
I think most know, a deadly wildfire swept through the Smoky 
Mountains, burning over 16,000 acres and destroying 2,500 
homes, which caused an estimated $2 billion in damages. Many of 
you know the area around Gatlinburg and the Smoky Mountains. I 
appreciate the opportunity to continue to examine ways in which 
we can both respond to and mitigate risk associated with 
wildfires.
    Mr. Frazier, my first question is for you. Overly-rigged 
local environmental and land-use standards in places like 
California prevent homeowners from being able to take specific 
steps needed to make their homes more resistant to fire. Mr. 
Frazier, can you talk about the impact that environmental 
standards have on new construction and how this is having the 
ultimate effect of making homes less resistant to wildfire?
    Mr. Frazier. Yes. It does seem like the pressing question 
in land use is that it is difficult to build in the urban core 
and so you have to continue to build--
    [Audio malfunction.]
    Chairman Cleaver. We apologize. We are having--
    Mr. Rose. We lost you for a second there, Mr. Frazier.
    Mr. Frazier. Hopefully, I am back.
    I was just saying, it is much more difficult to build in 
the urban core in California, and so you have to build further 
out, and placing more and more homes in closer proximity to 
fuel is certainly making the situation more difficult. But that 
is why we do the work with IBHS and others, and these new 
regulations that the commissioner developed, I think, will help 
the situation.
    Mr. Rose. Sure. And I am curious, Mr. Frazier, if you could 
speak a little more on the question of the broad policies that 
California has in place with respect to forest management and 
whether there is any recognition that more aggressive long-term 
traditional forest management practices that need to be 
restored in order to deal with the threat of wildfires going 
forward.
    Mr. Frazier. Yes. There is no doubt that there has been a 
shift just from providing funding for immediate response to 
fires to starting to look at pre-fire loss mitigation, and that 
includes fuels treatment. Obviously, in California, it is a 
difficult environment because you have the traditional 
conflicts between foresters and environmentalists. But 
certainly, things are improving.
    The governor has been quite committed to working with the 
legislature to make sure there is considerable new funding for 
fuels treatment in a way that just simply wasn't being 
discussed 5 or 10 years ago.
    Mr. Rose. Sure. Switching gears a little, since we have 
Commissioner Lara, I would like to touch on some issues that 
are broader than wildfire insurance, because California is such 
a large market for insurance products, and the policy decisions 
you are making can have ripple effects across the entire 
industry.
    Commissioner Lara, California's Proposition 103 requires 
prior approval of California's Department of Insurance before 
property and casualty companies can implement insurance rates. 
Isn't it true you have, over the last 2\1/2\ years, withheld 
approval of rate increases for all pending auto rate filings 
because of your view that insurers provided inadequate COVID 
premium refunds to customers?
    Mr. Lara. Thank you, Representative Rose. As I said 
earlier, those rate filings are currently within the 
Department. They are being reviewed under Proposition 103 to 
ensure that they are fair, they are adequate, and that they are 
not discriminatory.
    And, yes, I am proud of the fact that in California, we 
mandated rebates back to California drivers who were driving 
less during the pandemic, and $2.4 billion has been returned to 
California motorists, because again, the risk profile changed 
during that pandemic. And therefore, consumers were paying for 
a policy that no longer reflected that risk because we asked 
them to stay home.
    We are moving now, understanding that the pandemic is 
moving towards the end, and we are now in the process of 
reviewing those rate filings for the private passenger auto.
    Mr. Rose. Why have insurance companies like GEICO, 
Progressive, and Allstate begun to leave California's insurance 
market?
    Mr. Lara. Representative Rose, they have not left the 
market. They left the brick-and-mortar. They are still doing 
business through their online businesses, and I fear that this 
is going to be a move as more companies move towards online 
services as they modernize their business practices. But they 
have not left the California insurance market.
    Mr. Rose. Okay. I see my time has expired. I yield back.
    Chairman Cleaver. The gentleman yields back.
    The Chair now recognizes the notable Chair of the Full 
Committee, Chairwoman Waters.
    Chairwoman Waters. Thank you very much, Mr. Cleaver.
    Commissioner Lara, when buying a home, the only current 
Federal requirement surrounding natural hazard risk is FEMA's 
flood zone determination requirement. However, our home State 
of California has gone above and beyond in improving risk 
disclosures to mandate the inclusion of wildfire risk and other 
natural hazards.
    Given the current state of the wildfire insurance market, 
along with the increasing frequency and intensity of wildfires, 
would you recommend that similar disclosure mechanisms be 
enacted across the country for those purchasing a new home? If 
so, do you think it should be done on a State-by-State basis so 
that State insurance commissioners are able to customize their 
disclosure forms to best encompass the specific risk that home 
buyers in that State need to be aware of?
    Mr. Lara. Thank you, Chairwoman Waters. I believe that in 
order for us to really protect and ensure that consumers know 
exactly the risks they are getting into, disclosure is 
critical. People need to understand the risk, and that 
disclosure becomes critical.
    It is true that as insurance commissioners, we have to 
adapt to the individual needs and topographies and requirements 
within the individual States, so I would say it is important 
for us to ensure that we respect the jurisdiction of individual 
States. But at the end of the day, we know that consumers need 
to have this information before they purchase a home and 
understand the type of insurance they are going to need.
    As you know, one of the biggest issues we are facing 
nationally is the issue of consumers being underinsured, 
especially during these wildfires, floods, or climactic events, 
in which people feel that they are properly insured, but after 
realizing that they are not, they cannot rebuild to the 
standard that they were expecting to. Transparency is critical 
so that they understand, not only their coverage limits, but 
understand the risk that they are undertaking.
    Chairwoman Waters. Thank you very much.
    Ms. Bach, climate-related disasters such as wildfires have 
posed an increasing threat to the United States mortgage market 
as more people are living in disaster-prone areas. For 
instance, more than 46 million homes with an estimated value of 
$1.3 trillion are now at risk from the impacts of wildfire.
    Given the systemic risk that wildfires and other natural 
disasters pose to the mortgage market, what role can Federal 
agencies, such as the Federal Housing Administration, USDA, and 
the Federal Housing Finance Agency, play in setting standards 
for homeowners insurance coverage?
    Ms. Bach. Thank you so much, Chairwoman Waters. It is an 
honor to be with you. And I just saw your star in St. Louis, 
and I was so proud.
    First of all, California has passed a disclosure 
requirement now that REALTORS have to use if a home that is 
being purchased is in a high-risk wildfire area, so that is 
already in place.
    And as far as the lending sector, the Fannie Mae guidelines 
that Congress has set do require that homes which are subject 
to a federally-backed mortgage have replacement value insurance 
on that home. So, you have that in place, but I think that it 
has to be enforced that, insurers are, of course, doing all 
kinds of nipping and tucking of coverage to try to balance 
their books in the face of climate change. Maintaining the 
basic standard that is already in the law is important for 
homes to have replacement value coverage.
    That being said, Fannie Mae is very much engaging in our 
efforts to promote and facilitate risk reduction in the 
wildfire context. So, we are on the right trail, but more 
consumer education, of course, at a very granular level, what 
can you do at your home to reduce your risk is developing fast.
    There are a lot of tech companies now--Zest Technologies, 
DaiTechCorp, Betterview--that are developing tools mostly for 
insurers. What we need is tools for property owners so they can 
quickly put their address in and see what their risks are.
    Chairwoman Waters. Thank you very much, Mr. Chairman. I 
just want to tell you, in California, where we also need 
earthquake insurance, we are going to be insurance-poor. It is 
going to cost more than our mortgages. I don't know what to say 
about that, but it is going to be very costly.
    Thank you. I yield back.
    Chairman Cleaver. We thank the chairwoman for making it 
here in time to raise issues with our illustrious witnesses.
    I would like to thank you very much for coming to the 
hearing today or being a part of the hearing. We apologize for 
any technical difficulties that--I almost said that may have 
happened, but that did, in fact, happen. We apologize for that.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    The hearing is now adjourned.
    [Whereupon, at 10:18 a.m., the hearing was adjourned.]
    
                            A P P E N D I X

                           September 22, 2022



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