By Dave Jones, SACRAMENTO BEE
https://www.sacbee.com/opinion/op-ed/article317044908.html
California’s insurance market has endured some of the most challenging years in its history. An eleventh hour legislative proposal by Gov. Gavin Newsom and the state’s three for-profit utilities (PG&E, San Diego Gas & Electric and Southern California Edison) to take the insurance companies’ rights to recover damages from utility-caused fires will make it worse.
The utility liability proposal under discussion in the last days of the state legislative session would shift billions of dollars of wildfire costs away from investor-owned utilities and onto insurance policyholders, businesses, taxpayers and wildfire survivors. Utilities seek to limit their liability and the damages they pay for igniting wildfires in the wake of the devastating 2025 Eaton Fire, which investigators found was ignited by Southern California Edison equipment.
Consumer groups, local governments, insurers and wildfire survivors have warned that the proposal would transfer costs that utilities would otherwise bear for fires caused by their equipment.
As a former California insurance commissioner, I know firsthand how insurance markets work. When costs are shifted away from the parties responsible for causing losses, those costs do not disappear — they are simply transferred elsewhere. In this case, they will land on the shoulders of California homeowners, renters, small businesses and employers already paying more for insurance than ever before.
That is not sound public policy. It is a massive handout.
California’s investor-owned utilities are not struggling startups. These companies earned billions of dollars in profits, distributed billions more to shareholders and paid their executives tens of millions of dollars. Yet they are asking lawmakers to weaken long-standing accountability standards that require utilities to bear the consequences when their equipment causes catastrophic destruction.
The fundamental principle is simple: Responsible parties should pay for the harm they cause.
When utilities know they will be held financially accountable for starting wildfires, they have powerful incentives to invest in safety, harden infrastructure, improve vegetation management, modernize the grid and reduce wildfire risk. Consumer groups and public entities opposing the proposal have argued that weakening liability standards would reduce those incentives and send exactly the wrong signal at a time when California must be doing everything possible to prevent the next catastrophic wildfire.
The insurance market implications are equally troubling. For decades, California’s insurance system has depended on the ability of insurers to recover losses from responsible parties whose actions cause damage. When utilities start fires, insurers pay claims to their policyholders and then seek reimbursement from the at-fault utility. That process helps protect policyholders from bearing the full financial burden of utility-caused wildfires.
If those recovery rights are weakened, the costs will remain within the insurance system. Higher costs ultimately create pressure for higher premiums, reduced underwriting and cause greater market instability.
At a time when Californians are already struggling with insurance affordability and availability, lawmakers should not be considering a utility handout that makes insurance more expensive and less available.
The proposal under discussion would protect utility profits and investors from the full financial consequences of wildfire losses while shifting those costs onto everyone else. Wildfire survivors would face reduced opportunities to recover damages. Homeowners and businesses would face rising insurance rates.
Meanwhile, shareholders would be insulated from risks associated with utility-caused disasters. That is the definition of privatizing profits while socializing losses.
Markets function best when risks are clearly allocated and responsible parties are held accountable. They function poorly when political interventions redistribute costs from powerful interests to consumers. This last-minute proposal to change state law weakens accountability for one of the largest sources of catastrophic losses in the state at the expense of consumers.
Legislators should reject proposals that undermine accountability, increase insurance costs and jeopardize the fragile improvements now emerging in the insurance market. The path to a stronger insurance market is not shielding utilities from responsibility.
The path forward is reducing wildfire risk, strengthening infrastructure, enforcing safety standards and ensuring that companies whose actions cause catastrophic harm bear the costs for the damage they cause — both the utilities who start wildfires and the oil and gas industry whose emissions contribute to more severe wildfires.
State senators and assemblymembers should stand with policyholders, wildfire survivors and local governments, and reject this utility handout.
Dave Jones is a former California insurance commissioner.
