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CEA study to legislature maps three policy pathways after January 2025 wildfire losses
Summary
Tom Welsh of the California Earthquake Authority told the Wildfire Safety Advisory Board the SB 254 study offers three policy pathways — community-level mitigation, redistribution of catastrophe burdens, and large-scale catastrophe funding or liability reforms — and models show targeted investments buy more risk reduction per dollar than randomized spending.
Tom Welsh, chief executive officer of the California Earthquake Authority, told the California Wildfire Safety Advisory Board on June 3 that the SB 254 legislative study delivers a set of policy pathways and 28 options aimed at improving California's catastrophe resilience after the January 2025 fires.
Welsh framed the study in the context of the 2017-18 seasons and the immediate crisis that followed PG&E's bankruptcy in 2019 and the adoption of AB 1054. He described the original wildfire-insurance design that created a roughly $21 billion claim-paying capacity for investor-owned utilities, noting “about $10.5 billion of the capital came from the utility company shareholders, not from ratepayers,” and the remainder was funded through non-bypassable surcharges collected from ratepayers from 2020 through 2035.
The presentation emphasized the scale of change since 2019 and the shock in January 2025 when multiple fires — including the Eaton and Palisades fires — produced multi-billion-dollar insured-loss estimates. Welsh cited initial industry estimates of about $15.1 billion in insured loss from the Eaton fire, which later modeled near $16 billion, and said the magnitude of those losses prompted the legislature to ask for a broader study under SB 254 (Public Utilities Code language referenced in the study).
The study organizes responses on a spectrum. At the modest end, Pathway 1 focuses on reducing community-level risk through targeted mitigation and better local-state coordination. Welsh said the committee's outreach found local control and community-driven mitigation were essential, and that ‘‘a state 'bigfoot' approach is not going to work' for every community.'
Pathway 1 also recommends incentives and technical support for community and home hardening and cautions against assuming mitigation investments will fully pay for themselves through insurance-premium reductions. On utility accountability, the study proposes options such as a risk-tolerance standard (to identify when further mitigation is no longer cost-effective), maintaining safety-certification processes administered by the Office of Energy Infrastructure Safety, and making safety an element of executive compensation.
Pathway 2 looks at how to equitably socialize catastrophe burdens across stakeholders. Welsh highlighted work on property-insurance market improvements (including FAIR Plan reforms), supervision of insurers as "financial first responders" in recovery, and an acknowledgement that underinsurance is a chronic problem that raises rebuilding costs for homeowners after major events.
Pathway 3 examines more transformational mechanisms to create a more durable catastrophe-insurance construct for utility-linked wildfires. Those options include larger state-run protection-gap enterprises, use of reinsurance markets, and illustrative liability reforms (the report provided straw-man scenarios for modeling, not specific statutory language). Welsh stressed that those models are sensitive to assumptions about liability outflows and the study explicitly treated liability-adjustment ideas as illustrative.
Welsh said the modeling in the report showed that targeted, risk-sensitive investments produce greater risk reduction per dollar than more randomized mitigation spending, and he urged the legislature to use the study to begin policy deliberations. He closed by noting the report was delivered on April 7, that informational hearings have begun, and that the legislature now holds the decisions about trade-offs.
Why it matters: SB 254 asked for options that accelerate recovery, equitably socialize catastrophe losses, and reduce the size of future damage. The study does not recommend a single path but lays out trade-offs for policymakers who must balance community resilience, ratepayer impacts, access to insurance, and utility stability.
What happens next: The CEA has presented the study to legislative committees; the report offers policy pathways for lawmakers to consider in the current and coming legislative sessions. The board and staff discussed the study in detail and asked questions about inverse condemnation, municipal exposure, and the market consequences of different legislative choices.
