Following the devastating wildfires that raged across California in 2017 and 2018, the state’s legislature and governor took steps to fund mitigation efforts and provide post-disaster relief to affected homeowners. Guy Carpenter’s Protecting our Planet and the Public Purse report takes a look at how public-private partnerships such as the California Wildfire Fund can aid these efforts and address natural catastrophe risks.
Outdated or compromised utility equipment has been found to be the ignition source for some of the state’s most destructive wildfires in the last couple of years. As liability claims against large utilities firms have started to mount, many face severe financial instability. In an effort to support the utilities and provide adequate funding for remediation efforts, the state government established the California Wildfire Fund. This fund provides claims-paying protection for the three largest investor-owned utilities in the state. The fund will be capitalized mutually by utilities and ratepayers to a total capacity of USD 21 billion over time.
By pooling these resources together into a fund, it allows the state to buy down utility-related wildfire risk and protect against additional debt. There are two requirements to trigger the fund: 1) one of the contributing utility firms must be deemed responsible by the California Department of Fire and Forestry Protection for causing a wildfire and 2) claims must exceed USD 1 billion in a calendar year.
In remarkable speed, the first reinsurance placement was completed in September 2019, providing reinsurance cover for initial fund amounts through May 31, 2020. Aligned with broader state investments in wildfire mitigation and land management, each eligible utility corporation is required by the law to invest USD 5 billion in mitigation activities across safety and infrastructure upgrades over the next three years. These investments must be aligned to their mitigation plans, which need to be submitted to the state annually.
Collectively this public-private partnership has helped support the financial capability of the largest utility providers in California, de-risk the exposure of taxpayers and mandate major investments in mitigation to address wildfire risk.