At a joint Assembly hearing, an actuary estimated that ending insurers’ recoveries from utilities could raise statewide homeowners premiums about 10 percent, while a Stanford researcher put the potential savings on electric bills at a few dollars a month.
California lawmakers looking for ways to shrink utilities’ wildfire liability spent Thursday on the biggest single piece of it: the money insurers recover from power companies after a utility’s equipment starts a fire.
The joint hearing of the Assembly’s utilities and insurance committees took up no bill, but it offered a detailed public accounting of what limiting that practice, known as subrogation, might cost homeowners and save electric customers. The expert witnesses described savings that were modest and uncertain, and a real risk to a fragile insurance market.
“We’re in a very shaky, shaky place right now,” Nancy Watkins, a consulting actuary at Milliman, told the committees, according to The Sacramento Bee.
What is at stake
When an insurer pays a policyholder’s claim, it takes on the policyholder’s right to sue whoever caused the loss. In California, utilities can be held liable for fires started by their equipment under a doctrine called inverse condemnation, even without proof of negligence, as long as the damage stems from the equipment as designed, built or maintained, according to the committees’ background paper.
The sums are large. A RAND analysis cited in the paper found that California utilities paid about $38 billion in wildfire compensation from 2017 through 2024, and that insurer subrogation accounted for about 40 percent of it, roughly $15 billion. The administrator of the state’s Wildfire Fund has estimated that eliminating subrogation could cut total settlement costs by roughly 35 to 40 percent.
Assemblymember Cottie Petrie-Norris, the Irvine Democrat who leads the utilities committee and co-chaired the hearing with Assemblymember Lisa Calderon, the insurance committee chair, said she had not settled on an answer. She told colleagues that electric ratepayers, insurance policyholders and taxpayers “are all the same people,” and invoked a proverb: “When two elephants are fighting, it is the grass that suffers.”
Over the summer, Gov. Gavin Newsom pushed to reduce or eliminate subrogation, The Bee reported; the resulting legislative deal included neither option and was abandoned before a vote.
The premium estimate
Ms. Watkins, who said she was testifying in her personal capacity, presented figures from an August analysis Milliman prepared for the California Natural Resources Agency. Eliminating subrogation against utilities would require statewide homeowners premiums to rise about 10 to 11 percent under the analysis’s middle assumptions, with a range of 5 to 23 percent depending on the method and inputs.
That average hides the people most affected. Ms. Watkins said the wildfire portion of premiums would rise three to four times as much, falling hardest on policyholders in high-risk areas, while homeowners in low-risk areas would see little change. A cap limiting insurers to 50 cents on the dollar would have a smaller effect, from zero to 6 percent. Publicly known utility settlements have ranged from 52 to 67 cents, according to the background paper.
She cautioned that the status quo is not stable either. “If there were an increase in the cost of risk without insurer confidence in the ability to increase their premiums, that is going to seriously threaten the availability of insurance,” she said, as quoted by The Bee.
The electric bill side
Michael Wara, a senior fellow at Stanford’s Woods Institute for the Environment, said subrogation’s effect on utility customers depends on the Wildfire Fund, legal certainty and utilities’ finances. According to his slides, subrogation claims paid from the Wildfire Fund already cost customers roughly 89 cents to $1.30 a month through a fixed charge on their bills.
He walked lawmakers through a hypothetical $22 billion fire in 2027 that would exhaust the fund’s continuation account. In that case, Mr. Wara estimated, total costs for an investor-owned utility’s customers would run about $4 to $14 a month for 30 years, and about $33 a month for customers of the Los Angeles Department of Water and Power, which is not covered by the fund. He told members that a figure on one slide overstated the savings, and that eliminating subrogation would save customers about $1.65 a month at PG&E up to about $16.50 at the Los Angeles utility in that scenario.
Under questioning from Assemblymember Chris Rogers, Mr. Wara agreed that eliminating subrogation would not guarantee lower electric rates; it would more likely avoid future increases. He added that the change would shift costs from households in hot inland places like Fresno, which carry heavy electric bills, toward high-risk, high-value homes, like his own in Mill Valley.
The insurance commissioner and the industry
Insurance Commissioner Ricardo Lara did not appear, but he sent legislators a letter before the hearing. “If losses that were previously recoverable from responsible parties remain permanently with insurers, those costs are likely to appear in underwriting decisions, reinsurance costs and premiums,” he wrote, according to The Bee.
The hearing opened with Mark Grotefeld, a founding partner of the law firm Grotefeld Hoffmann, who said he was speaking for himself. He argued that insurers’ investigations help pin down fire causes and that insurers never recover all they pay. When Assemblymember Diane Papan asked for data showing that subrogation reduces fires, he said he did not have it.
In public comment, the American Property Casualty Insurance Association warned that a cap would hit carriers concentrated in California hardest, and the Personal Insurance Federation of California cited Mr. Lara’s letter. A representative of consumer attorneys argued that holding utility shareholders liable gives companies a reason to reduce risk, citing San Diego Gas & Electric after its 2007 fires.
What comes next
The background paper says the Legislature lacks basic data, including what insurers actually settle for fire by fire, much of it confidential. Ms. Watkins and Mr. Wara said that information would be needed to estimate savings.
No bill is pending. Ms. Petrie-Norris told the committees the goal was not a “food fight” between the insurance and utility industries, The Bee reported, and she closed by saying the work would continue through the rest of 2026.
Graham Ostrowski covers the governor, the Legislature, state agencies and the state budget for the Sacramento Report. More from Graham Ostrowski
