California’s recent wildfires destroyed 16,000 structures worth upwards of $275 billion, far more than hurricanes Katrina ($200 billion) or Helene ($225 billion). In many ways, this catastrophe forefronts important questions about where we live, how we manage risks when disaster strikes in fire prone regions, and the role regulations can play to usher in better outcomes for homeowners.

Today, we manage and mitigate wildfire risk through a combination of state plans like California’s Fair Plan, FEMA, and insurers’ choices to cover homes based on property risk levels, the premium prices allowed, and the ability to spread the risk across a large portfolio of homeowner policies. But in the single riskiest state, California’s overzealous regulators kept premiums artificially low and based on historical rather than scientifically matched risk. This forced those who lived in relatively safe areas to subsidize those who lived in riskier ones. Those subsidies encourage people to build in wildfire-prone wildland-urban interfaces and to do so in reckless ways.

This was not always the way. In the nineteenth century, before overregulation of their industry, property insurers’ effectively spread risk and, more importantly, reduced it. Using price and profit as natural incentives, insurers developed ways to retard the spread of fire through building construction, design, and safety protocols and induced policyholders to accept their standards or face steeply higher premiums. It worked; American cities stopped burning to the ground.

This has been true for other industries as well. Automobiles have become much safer due in large part to the testing done by the Insurance Institute for Highway Safety (IIHS), a research facility sponsored by a consortium of automobile insurers. Guided by the IIHS, consumers have successfully pressured automakers to add safety features that drive premium costs down.

Fire insurance presents a more complicated picture because the probability of your house burning depends on a wide set of factors, many of which change over time and are not controllable by the individual homeowner. Fire alarms, extinguishers, and the like work fine when your house alights, but cannot help if wildfire threatens your entire block. All the more imperative, therefore, that regulators expunge the notion of “price-gouging” and allow insurers to charge premiums that reflect predicted risks based on factors like current fuel load and home hardening.

Innovations that tie neighborhood fire risk to insurance rates could pressure communities and HOAs to mitigate fire risks to avoid rate increases or being forced into government insurance plans of dubious value. Colorado’s mitigation certification programs, for example, use the threat of premium increases to empower homeowners to implement rational risk mitigation strategies, like creating a defensible space and building with noncombustible materials.

Recent changes to California’s insurance regulatory regime do not adequately address the core problem and the need to integrate market incentives to create long lasting change.

By subsidizing insurance with its FAIR Plan, the state encourages rebuilding in places, and that, in many ways, ensures future properties burn. Governments instead should insure their own land with private insurers so they too have incentives to mitigate fire risks on lands they steward — lands that often impose additional risks on private citizens.

California’s attempts to address the catastrophe before them again fall short of what is necessary to encourage the competition between private insurers necessary to drive premiums down. Instead, California regulators drive insurers away with counterproductive measures that require insurers to write 85 percent of their policies in high risk areas if they want more scientific rate flexibility.

When allowed to compete for business and price premiums scientifically, insurers have proven that they can reduce fire and other risks. Neighborhoods rebuilt on scientific principles will look different than before but they will be less combustible and hence, more sustainable. With the fuel load still looming, before rebuilding, Californians should insist that policymakers allow insurers to establish risk mitigation systems proven to prevent urban conflagrations.

Monique Dutkowsky is an environmental economist and adjunct faculty at Montana State University. Her work in wildfire risk mitigation has helped insurers and homeowners to protect their property from wildfires. Robert E. Wright is a lecturer in economics at Central Michigan University and an insurance industry historian.