Should Los Angeles rebuild its fire-prone neighbourhoods?

With projections of the financial impact reaching as much as $275 billion, the fires in Los Angeles are “becoming one of the costliest disasters on American terrain,” according to Parintha R. Sastry and Ishita Sen in The New York Times. The situation is not solely due to unfortunate events. This region is inherently susceptible to fires, and climate change is worsening the issue. So, why do individuals persist in building homes in this risky area?

One major factor is that they have been insulated from the actual economic repercussions of their choices. For many years, California has implemented price controls to keep home insurance premiums unnaturally low. These regulations have limited companies from using catastrophe modeling to forecast future risks; they were only permitted to determine premiums based on past data. Faced with a growing number of insurers exiting the state, California lawmakers recently loosened some of these restrictions, yet insurance costs still fail to accurately represent the risk level.