Hazra, D., & Gallagher, P. (2022). Role of insurance in wildfire risk mitigation. Economic Modelling, 108, 105768. https://doi.org/10.1016/j.econmod.2022.105768
“This study investigates whether insurance policies effectively discourage homeownership in fire-prone zones. Using zip-code level data from Los Angles between 2011 and 2018, we employ linear regression and machine-learning to examine the extent to which wildfire-risk impacts FAIR plan or market insurance. Results indicate that insurance policies do not effectively disincentivize homeowners away from high-risk zones
This is because the marginal impact of wildfire-risk on both insurance premiums, is relatively lower compared to other factors, especially for private insurance.
Moderate-to-high risk areas continue to remain underinsured. Evidence of underinsurance was found in racially diverse neighborhoods. Recommendations include designing policies such that difference in risk-premium reflects difference in wildfire-risk to discourage homeownership in high-risk zones.”