What Can We Do About Wildfires? With Convective Capital’s Bill Clerico

Speaker 2 All of us, I think, have been pretty horrified by what's happening in LA right now with the big fire. Many of us are worried for friends who've lost homes there and their possessions.

Speaker 2 And there have been a string of major fires in California and elsewhere. And so today, what we want to discuss on No Priors is, you know, what causes some of these fires?

Speaker 2 What are technologies to intervene? How should we think about these things

Speaker 2 more generally? And we're recording this on Thursday, January 9th in the middle of the day.

Speaker 2 So obviously this is a situation that's unfolding hour by hour and may change by the time this comes out next week. But we're very excited to have Bill Clerico joining us today on No Priors.

Speaker 2 Bill previously started a company called WePay, which he sold to JP Morgan, and he eventually left to start a fire-focused venture fund.

Speaker 2 And he's been investing in different technologies and interventions. and approaches to deal with wildfires and other things.
And so we're very excited to have you today.

Speaker 2 And I think both So and I have known you for many years, and you've been a prominent member of sort of the tech community. So

Speaker 2 welcome to no powers today thanks thanks for having me maybe we should preface it or sort of take away the objection handling because i feel like there's two things that people tend to blame these sorts of disasters on one is they say it's just climate change there's nothing we can do and it's impossible to intervene and then the other approach is to say well irrespective of climate which could impact you know, frequency of storms or winds or, you know, dryness for fires, we can still intervene in all sorts of ways.

Speaker 2 And so first, I'd just love to hear your views on sort of which of those dimensions you land on and how we should think about the conversation in general going forward.

Speaker 1 Maybe this is a cop-out answer, but I think it's very much both. You know, certainly

Speaker 1 longer, hotter, drier fire seasons are in part caused by climate change.

Speaker 1 That certainly exacerbates conditions for wildfire. But

Speaker 1 the reason that wildfires really reached a crescendo in the last 10 years, in my opinion, is not because of climate change. It's because of things like forest management.

Speaker 1 It's because of the way we've constructed our electrical grid, sort of more acute self-inflicted wounds. And I think those are the things that are much more immediately addressable.

Speaker 1 So climate change is what it is.

Speaker 1 The climate's warming.

Speaker 1 Certainly we want to blunt the effects of that over time. But I think we need to think about wildfire in that context.
And in that context, there's a lot of things that we can do to impact it.

Speaker 2 Yeah. One of the things that fascinates me is if you're a strong believer in climate change, then you should actually prepare even more, right?

Speaker 2 If you're assuming that there'll be more events like this, then you should be building building out the infrastructure even more aggressively.

Speaker 2 And it seems like the opposite has been happening, at least in the state of California and some nearby states where similarly we've seen sort of these giant fire outbreaks.

Speaker 2 And so I was hoping maybe what we could start with is just an understanding of like, what are some of these contributing factors besides climate and how should we think about them?

Speaker 2 And how have things changed over the last few decades in terms of what people have done for them?

Speaker 1 Happy to go there. Maybe what I'll just say real quickly, though, first is that I think in even the climate investing realm, there's some big changes happening.

Speaker 1 You know, I think like if you look at climate capital that's deployed, 98% of it goes into what's called mitigation, so reducing CO2, 2% of it goes into resilience and adaptation.

Speaker 1 And I think what we are seeing is the pendulum that is swinging rapidly, where now I think climate and climate investing is very much starting to be inclusive of resilience and adaptation.

Speaker 1 I think that's a good thing. And I think it sort of acknowledges the reality because, sure, we should.
emit less carbon. That would be great.

Speaker 1 But we need to deal with everything that's been emitted in the changing climate. And so I think that that's a very positive thing.
To your question on what else is causing wildfire?

Speaker 1 I look at it as, you know, sort of a couple factors.

Speaker 1 The first, and in my opinion, the most important one is just that fuel density or forest density has increased three times since really in the last hundred years.

Speaker 1 Basically starting in the 1930s, the U.S. Forest Service implemented this policy of what they called maximum suppression.
And they rolled out this like very famous 10 a.m.

Speaker 1 policy, which meant that you hear about a wildfire and it's got to be out by 10 a.m. the next morning.

Speaker 1 You know, that was, I think, very well intended and it was intended to protect timber and, you know, protect towns and cities and prevent things from getting too big.

Speaker 1 And for a long time, it worked fairly well. You know, you put out the fire quickly,

Speaker 1 you're good to go.

Speaker 1 But what happened was these forests, which had regularly burned prior to that, you know, with sort of high frequency but low severity fire, just got denser and denser and denser and denser.

Speaker 1 And so today they're probably at least three times denser than they were around, you know, the turn of the century. Many places they're far denser than that.

Speaker 1 And then you lay on top of that the fact that they're dry and that the weather is hotter and all that as well. And so we've made very little progress in undoing that.

Speaker 1 And if anything, they continue to get denser because we have still have this policy of maximum suppression. And so if we want to undo that density, we need to take that really seriously.

Speaker 1 There's really two ways to do that. The first is prescribed fire, which is basically using fire itself under a very prescribed set of conditions to burn these fuels and get get them off the landscape.

Speaker 1 So, essentially, it's lighting fires in the spring instead of in the summer and managing them.

Speaker 1 And then the second is timber and sort of what they call mechanical thinning, but basically cutting trees down.

Speaker 1 And both of those things I think are incredibly important, but have been made incredibly difficult by the way we sort of govern ourselves.

Speaker 1 And they're sort of both actually quite unpopular. I don't think it's quite as simple as saying, oh, it's a single politician that has done it.
No one wants a prescribed burn next to their house.

Speaker 1 No one wants a

Speaker 1 you know,

Speaker 1 a smoky weekend to ruin their weekend in Tahoe. And so

Speaker 1 there's some really good cultural changes to do that.

Speaker 2 I thought there was other things related to what you're saying as well, in terms of, for example, if there's a higher density of just sort of like fallen trees and wood that's been sort of accumulating that you're not allowed to haul off of your own land.

Speaker 2 And, you know, so I thought there was other sort of policy and regulations that impact aspects of both forest density, fuel availability for fires, conditions to start fires, things like that as well, in addition to everything that you're saying.

Speaker 1 Yeah, I mean, for sure. As an example, so I own 170 acres of timber.

Speaker 1 It's Douglas fir and redwood timber. Sarah's been there.

Speaker 1 And we did, I wanted to do treatment on that land. It hadn't been treated in a long time.
And we wanted to log parts of it with a conservation strategy.

Speaker 1 It took three years and an enormous amount of money, including all kinds of crazy loopholes. Like we had to, I had to hire a contract biologist to come to this property.

Speaker 1 It was out in the middle of nowhere six times over the course of two years to call for like the northern spotted owl.

Speaker 1 And so, like, you know, I think we have this like very well-intended environmental regulation and policy, but over the decades, it's just become this like morass of regulations, which makes it really hard to do that.

Speaker 1 And no one has really stepped back and said, okay, what's more important to us, the northern spotted owl habitat, or you know, incinerating our forests and our towns and cities and like, can we make a rational trade-off?

Speaker 2 Because we probably can't have them both, or we probably could to be honest but but the way the regulations are are set you can't and so you know there's just some really obvious stuff like that that just introduces red tape and when you introduce red tape it just adds expense it slows down it doesn't happen doesn't get done yeah it's funny i i looked up some of the numbers on this and apparently um for higher risk foresting prescribed burns it takes an average of 4.7 years to get through environmental reviews for simple projects and seven and a half years or so for longer yeah for more complex projects and so basically you're waiting you know four to seven years just to get through a review.

Speaker 1 It's absolutely crazy.

Speaker 2 To be able to even print something out. And there's some lawsuits around this, right?

Speaker 2 The Sierra Club, for example, I think sued the Forest Service to prevent in 2007 to prevent that from doing some sort of categorical exclusion for controlled burns for fuel reduction.

Speaker 2 So there's very active both litigation and policy that I think has increased over time versus decreased, making this a much worse situation as well.

Speaker 1 I think under a change in administration, you know, it's pretty clear that I think there will be a more aggressive approach to getting some of these projects done.

Speaker 1 Because right now, it just doesn't work. The U.S.
Forest Service, I saw a stat, they spend 40% of their budget, which is about $250 million a year on planning, right? And so,

Speaker 1 which is essentially dealing with this kind of stuff.

Speaker 1 And that's just like totally unacceptable. I mean, it's a total misuse of taxpayer dollars.
They have to because that's the way the laws are written, but we need to sort of make those changes.

Speaker 1 There's a piece of legislation actually right now in the House called Fix Our Forest, the Fix Our Forest Act. It's a bipartisan piece of legislation.

Speaker 1 It brings together Bruce Wasserman, who's the chair of the House Natural Resources Committee, he's a Republican from Arkansas, and folks from California, and they're trying to fix and do permitting reform around forests and timber management.

Speaker 1 So I think there's a recognition that this needs to get addressed, but the current condition is laughable. It's a joke.

Speaker 3 I guess the regulatory problem here or the policy problem sits at the local and state level versus the federal level, Because you describe legislation, Forest Service, there is a very open question right now as to how much of this is a California-specific issue.

Speaker 1 There's a lot to unpack there. Maybe I'll start with just some stats.
Florida, probably didn't realize that there's wildfire in Florida, but there is.

Speaker 1 Florida does 2 to 3 million acres a year of prescribed burning. It's pretty amazing.
I mean, they are one of the most advanced states when it comes to doing prescribed fire.

Speaker 1 California set a goal this year or last year to do 100,000 acres. That was the goal.
I'm pretty sure we fell short of that goal.

Speaker 1 And we want to build our way up to, I think it's a million acres over the over the course of the next decade. So, so there very much is a California problem.

Speaker 1 Now, is that because purely because of our politicians? I think that's part of it, but I do think that part of it is also cultural. Like, you know, Florida, they've been doing this for decades.

Speaker 1 Culturally, the state embraces it. They accept it.
It's popular at the local levels. There's a workforce that's comfortable with it.
The public safety agencies are comfortable with it.

Speaker 1 In California, we've really gotten very far away from it and there's a deep fear of it.

Speaker 1 If you're a local burn boss or fire chief and you want to do a prescribed fire, you know, it is the right thing to do, but it's kind of risky.

Speaker 1 If it escapes, if it burns someone's property, if you start the next

Speaker 1 Palisades fire, you're going to lose your job. This sort of risk that's where the risk outweighs the benefit in many cases.

Speaker 1 And we don't have the kind of cultural history here and the momentum here to just sort of accept that. And so I do think that California is pretty far behind and needs to catch up.

Speaker 1 I do think our forests are also different. The risk here is far different than in the Southeast.
So there's good reason in part for that.

Speaker 1 But I do think part of it is also political will and having the right leaders that take this seriously.

Speaker 2 How do you think about this issue in a context that's more urban or something that crosses over between urban and non-urban environments?

Speaker 2 So Palisade's fire is a great example where there's a lot of sort of hillsides that were densely populated with trees next to a city center.

Speaker 2 And similarly there, would you think about thinning things out and other sort of approaches or aspects of that?

Speaker 1 I think there's another sort of interesting California issue, which is just the issue of housing. In California, it's very difficult to build housing in the city.

Speaker 1 So people build, a lot of times it gets built out in what's called the wild and urban interface, sort of the woods.

Speaker 1 And if you look at growth of housing units in the, in the Wui and the wild and urban interface, it's increased by like 46% since 1980.

Speaker 1 So we've built a tremendous amount of housing stock in these like very high-risk areas. It's not just a California issue.
That's across the West, you know, Idaho, Montana,

Speaker 1 you know, Yellowstone fanboys, all that kind of stuff. And so there's been a tremendous growth of housing in these areas.

Speaker 1 And I think that's a big part of why wildfires today are much more serious than they were 20 years ago.

Speaker 1 If you burn a million acres 20 years ago out in the woods, you may affect some housing, but it wasn't affecting major cities and neighborhoods.

Speaker 1 And now as these neighborhoods have been basically built out into the wildland interface, these fires have much more significant impact.

Speaker 1 And we haven't really evolved the way we build these communities to recognize that. Again, it's just very unpopular to have pro-fire building codes.

Speaker 1 And so, like, one of the sad anecdotes is, you know, the city of Paradise was essentially destroyed by the campfire in 2018.

Speaker 1 City essentially leveled. When the city went to rebuild, there was an opportunity to pass

Speaker 1 more significant building codes at the local level. And that was voted down because it was seen as sort of too expensive and too restrictive for people to build.

Speaker 1 So Paradise largely got rebuilt with existing building codes. Just rationally doesn't make any sense.
But again, it's sort of about these like political wills

Speaker 1 to get stuff done. So I think that solving the WUI problem,

Speaker 1 it requires us as a society to think differently about these risks, right? Like

Speaker 1 you wouldn't build a house on the ocean on the sand without the right type of foundation and floodgates and, you know, or a raised house.

Speaker 1 Yet we go and build build houses in these tinder boxes and not recognizing what needs to happen there. So, again, I think that's just a place that needs to catch up.

Speaker 2 I think one thing that happened after some of the fires in the 60s was people actually installed Splinko systems on their roofs, right?

Speaker 2 Externally, so that they could basically pump water on the roofs during fires.

Speaker 2 And, you know, one of the things that was really striking, if you look at videos that have been coming out of Palisades, for example, is that the projects that Caruso had in Palisades Village were completely intact.

Speaker 2 Yeah. And I think it's because as a fire was happening, he just went and he sprayed it all with fire retardant.

Speaker 2 Why didn't that happen at a larger scale?

Speaker 1 When you have a large wildfire incident, you know, initially, in the initial phase, the fire department does what's called initial attack.

Speaker 1 So you're going after the wildfire and you're trying to stop it. If you're not successful there, you know, you enter sort of a much more prolonged sort of campaign incident.

Speaker 1 And typically in these high wind conditions, like the ones we're seeing in Southern California, the fire department usually switches gears to structure defense.

Speaker 1 So you actually can't suppress these large flame fronts. You know, you can use aircraft, but even that,

Speaker 1 the physics of it are just kind of too great. So they typically switch to protecting structures.
And so they kind of fan out and they're protecting structures.

Speaker 1 A couple things happened here, which made it really difficult. One, everyone decided to come out of the palisades at the exact same time, all got on the road, and then abandoned their cars.

Speaker 1 And so you couldn't actually get engines and trucks into these neighborhoods to actually do structured events. But that was their intent.
They were going to go spray down a bunch of houses,

Speaker 1 but they just couldn't get enough units up there sort of quickly enough.

Speaker 2 One of the claims associated with that was that the fire department was undermanned and under-resourced. So there was a $17.5 million budget terry cut for the fire department by the incoming mayor.

Speaker 2 And then there was some claim around a lack of training, lack of personnel, and other issues as well. And in addition to a lack of water.

Speaker 2 And so it sounds like it was sort of this multi-pronged issue beyond just access in. What do Think about those different factors.

Speaker 1 Yeah, I mean, certainly water was an issue.

Speaker 1 You know, there's been a lot of like kerfluffle on Twitter where people are claiming that because of the water bill that didn't wasn't acted on, that that somehow was related to this.

Speaker 1 I don't think that is actually true at all. Like really, the water issues were related to there's three 1 million gallon tanks.
As houses burn down, the plumbing opens.

Speaker 1 If you've got like a 5 eighth or half inch plumbing connection into a house that's going to run at 20 or 30 gallons a minute, you have 500 of those going.

Speaker 1 you've got really significant water flow and pressure drop. And so those water systems are just not really built for sort of these urban firestorm

Speaker 1 environments. So, you know, there's plenty of water in the state of California, at least sometimes, and there was here.
But,

Speaker 1 you know, I think the water issue was much more about the scale of the incident. Access was an issue.
In terms of staffing, that's not my area of expertise.

Speaker 1 You know, in the scale of the LA Fire Department budget, I don't think $17 million is really all that much.

Speaker 1 In California, we have some of the best resourced fire agencies in the world. Cal Fire's budget is, I think, about triple what the U.S.
Forest Service budget is.

Speaker 1 In my opinion, we are relatively well resourced, at least compared to most of the other areas.

Speaker 1 I think that, you know, there's these incidents, you know, need to be sort of, in my opinion, addressed before they start.

Speaker 1 Once they do, they're very hard to stop. If you had 20% more engines, I don't think it would have made a difference.

Speaker 2 Sure. And then I guess related to the water side of it, it sounds like reasonably simple infrastructure to build out, right? In other words, you could build more reservoirs.

Speaker 2 You could do a variety of things that should really impact supply in times of need, as well as how you distribute water in such an event or flame retardants or other things seems like very doable from an infrastructure perspective.

Speaker 2 Why do you think the state of California or the cities haven't really acted on that?

Speaker 1 In this case, you know, the water in those tanks was a sufficient volume. It was just about the system being depressurized.

Speaker 1 So, you know, maybe one of the big learnings from this is that the systems need to be built more modularly, right?

Speaker 1 To be able to shut off neighborhoods in order order to be able to preserve the water supply.

Speaker 1 So, you know, again, like, I think there'll be a bunch of investigation done and hopefully some learnings emerge on this.

Speaker 1 I push back a little bit on the blanket, like, you know, if we just had more reservoirs, like, I think there's actually a very acute issue. It's, it's not, you know, we should talk about reservoirs.

Speaker 1 I think the state of California does mismanage its water broadly. I just don't think it has a lot to do with the palisades running out of water.
I do think we...

Speaker 1 do a terrible job managing our water overall, but I think some of the connections that are being drawn, in my opinion, are a bit tenuous.

Speaker 2 If you were to change the infrastructure of a city to be able to do fire suppression optimally, what would be the big changes that you would make? Or what do you think you would prescribe?

Speaker 2 If you were mayor of LA for the next five years, what would you build out?

Speaker 1 I think you need to think about these neighborhoods in sort of layers. And so if your homes are on the outskirts, those homes need to be protected at.

Speaker 1 you know, a much higher rate than the homes on the inside. Because once once the fire sort of enters a community, it's really not a wildfire anymore.
It's called like an urban conflagration.

Speaker 1 And it's basically houses burning, spreading house to house. It's, you know, similar to what happened in like Chicago or San Francisco in like the early 1900s.

Speaker 1 Those fires have much different sort of dynamics. They're not really wildfires.
And those fires are very difficult to stop once they start.

Speaker 1 But if you can stop it at the perimeter and not have to, you know, if you can fight the fire out on the outskirts and not have to battle it sort of street to street, to me, that's.

Speaker 1 the big you know that that that's what we should all be trying to solve for and so on those on those towns on or those houses on the outskirts it's really aggressive defensible space um regulations and enforcement making sure that you don't have grass and landscaping up to the structures on the house modern roofing modern building materials on the house itself tempered glass could be rooftop sprinkler systems water supplies there uh for the house fire department even things like large driveways really help because you can get fire trucks in and turn around the fire department when they come into to triage in these areas, they're quickly looking at a house and they're going to size it up.

Speaker 1 They're like, can we protect this house? Is it safe for us? And, you know, if you can make that house safe for a firefighter, the chance of survival for the house goes way up.

Speaker 1 And so, you know, thinking about how do we make those homes on the perimeters of our communities really defensible, I think is going to be our best bet.

Speaker 2 And then you mentioned

Speaker 2 preventing fires from starting to begin with. And it seems like there's a few different major causes of fires.

Speaker 2 There's some of the power line-related incidents that have happened in the past couple of years. Yeah.
There's cigarette butts, there's arsons.

Speaker 2 So I'm a little bit curious how you think about, you know, what do you actually do to prevent things from starting in the first place?

Speaker 1 I think the first place to start in my mind is the utilities. So utilities cause about 11% of ignitions, but those ignitions cause 50% of the damage.
And why is that?

Speaker 1 It's because the same sort of high wind conditions that cause massive fire and negative fire conditions also cause utility equipment failures and lines to fall and stuff like that.

Speaker 1 For utilities, there's things that they can do. They can do vegetation management, basically trimming trees along power lines.

Speaker 1 You know, our fund has an investment in a company called Overstory that helps utilities prioritize where they're going to trim these trees for sort of maximum effect.

Speaker 1 There's an acronym called PSPS or ESPS, which is public safety power shutoffs or enhanced safety power shutoffs.

Speaker 1 These are basically de-energizing lines in advance of a red flag event, having more sensitive breakers on the circuit so that if there's a short, it de-energizes quickly.

Speaker 1 They're not very popular with people. People don't like to have their power shut off, particularly before a big wind event, but it can be a big improvement for safety.

Speaker 1 And And then there's undergrounding and things like that as well, but those are very expensive. You know, undergrounding can cost $3 to $4 million a mile.

Speaker 1 And so that, you know, manifests in larger electrical rates. If you can fix just utility ignitions or reduce that a lot, that's like 50% of the damage reduced right off the bat.

Speaker 1 Lightning is probably about a third.

Speaker 1 And so, and typically lightning causes large acre fires, but less kind of urban interface fires because they can start, they, you know, typically will start further out.

Speaker 1 And there's not much you can do about lightning. So, although we we have seen some startups that are trying to figure out ways to de-energize large thunderclouds, which is kind of cool.

Speaker 1 And then there's arson, which is actually a surprising cause of damage. It's at least 10% of ignitions are sort of arson or human cause.
I suspect that it's on the rise.

Speaker 1 I don't have hard data about this, but just from conversations I've had with fire chiefs,

Speaker 1 it is a massive issue.

Speaker 3 How would you explain the level of underinvestment from the utilities in mitigation here?

Speaker 3 I've seen estimates from Energy Association reports of like we're $100 billion behind in, you know, as you said, undergrounding or whatever mitigations. And like, it's not as if this is a new issue.

Speaker 1 The campfire is sort of the prototypical example in California where a hook on a transmission line that was 97 years old failed, causing the line to hit the transmission time and incinerated the city of paradise.

Speaker 1 And so like, how can we have electrical equipment that's 100 years old? It just seems like bonkers.

Speaker 1 I feel like I'm defending, you know, all the least popular people here, here, California politicians and now utilities. But the reality is that like utility rates are regulated.

Speaker 1 And so, you know, for utilities actually love to spend CapEx.

Speaker 1 Their business models, if, you know, if PGE spends $5 billion undergrounding lines or upgrading transmission lines, they get to mark that up by 15% and pass that through to ratepayers. They love it.

Speaker 1 That's how they make money. And so there's sort of this, I think, ill-informed narrative that the utilities don't want to spend the money.

Speaker 1 They actually love to spend the money and they would die to spend that money.

Speaker 1 The issue is the regulators and the ratepayer advocates that basically say, we don't want the electric bills to go up by too much. And so there's a constant pushback against those investments.

Speaker 1 And that's kind of what's gotten us to where we are now, where we have a really aging system because there's been this pushback against higher electrical rates.

Speaker 1 And so, you know, in my opinion, the cost of energy generation is sort of artificially low right now. It does not reflect the risks of wildfire.

Speaker 1 And so it probably means that electric bills need to go up, particularly in sort of high fire risk areas to fund a a lot of this CapEx. It's undergrounding, you know, it's equipment upgrades.

Speaker 1 It's, it's all that other kind of stuff. So,

Speaker 1 you know, I don't have a number for you, but it's, you know, hundreds of billions of dollars.

Speaker 2 How do California utility bills stack up relative to less regulated states?

Speaker 1 They're high.

Speaker 2 So the question is, why is that?

Speaker 2 And then you could imagine why people may have some concerns about increasing rates further in a system which is both aging out, poorly invested in, and yet has higher rates than most other places.

Speaker 1 It's a very rational concern. I guess my argument is that the risk here in California is much higher, right?

Speaker 1 Like you could have a, if you have a utility line go down in New Jersey, where I grew up, you might start a wildfire, but you're not going to, it's not going to see quite the level of catastrophe that we saw.

Speaker 1 The risk tolerance there

Speaker 1 is different. And so, and I don't think our rates necessarily reflect that.
I think there's also waste in the system.

Speaker 1 There's, you know, crazy requirements to generate a portion of energy from biomass and stuff like that that just is sort of expensive and doesn't really make sense and costs a lot of money.

Speaker 1 So I think we could reorient to being a lot more efficient, but I think there's, in my opinion, more money that needs to be spent on de-risking the electrical system.

Speaker 1 Now, I think we could take it from some of the other areas where I think we misspend.

Speaker 3 You did mystify one other combination issue between set of corporations and regulators. There's been a bunch of anger about like, it's very hard to get fire insurance in large parts of California.

Speaker 3 I think there is a perspective of like the insurers are evil for not insuring

Speaker 3 large areas. You just started an insurance company.
Like, can you explain this?

Speaker 1 Insurance rates in the admitted market are regulated, right? And so you have to basically file a rate sheet with the regulator.

Speaker 1 They say, yep, you're charging an appropriate amount, not too much, not too little. And you go sell that, you know, policy out in the market.

Speaker 1 But you were not allowed in those rate applications to include the cost of reinsurance. And you had to use historical models, not forward-looking models.

Speaker 1 And so those are like two massive issues because the cost of reinsurance in California has at least doubled, maybe tripled over the the last five or 10 years.

Speaker 1 You have a cost that just tripled and you cannot pass it through. I mean, that's like sort of a crazy thing, right?

Speaker 3 And let's assume forward-looking risk is higher than historical risk as well. Exactly.

Speaker 1 And you're using 30 years of historical data to try to price risk, which we all agree has changed significantly over those 30 years and probably will continue to change going forward.

Speaker 1 And so, you know, insurers are looking at. their view of this risk and their costs to service that risk versus the rate that they can charge.
And they're just like, this is not a business.

Speaker 1 You know, we can't do this. And there's other issues on top of that, too, which is that it's very hard to exit policies once you've written them.

Speaker 1 The California Fair Plan actually has a surcharge for insurers in the state by market share. So just by writing another policy in the state, you end up carrying more of the fair plan risk as well.

Speaker 1 And so we've created this like very adverse environment for insurers in the state.

Speaker 1 And so what's happened, you know, sort of predictably is there's been a mass exodus, right, where they've canceled or non-renewed huge amounts of policies, particularly in high fire risk areas.

Speaker 1 There's been a minor shift in the last three to six months where the insurance commissioner, because of this exodus, has changed their view, now allows the cost of reinsurance to be factored in, now allows forward looking models to be used for the first time.

Speaker 1 There's a bunch of restrictions on it still, but it sort of took market failure to kind of correct that behavior.

Speaker 1 Because by the way, that's an elected position and generally is a position that is highly influenced by consumer groups that want to just keep rates low.

Speaker 1 And so we've sort of choked rates so low that, you know, we broke the system. And so now it's kind of reorienting.

Speaker 1 And a lot of those policies have moved to the fair plan, which is this subsidized insurance plan of last resort,

Speaker 1 or to what's called the non-admitted market, which is basically the unregulated market, which is what STAND, which one of our companies participates in, right?

Speaker 1 Non-admitted policies, which are not subject to those sort of pricing regulations.

Speaker 2 So I guess as we think about dealing with this overall set of issues, there's a few different things it sounds like we can do.

Speaker 2 One is regulation and policy around thinning out densely, either forested or otherwise underbrush, fuel related areas, et cetera. Totally.

Speaker 2 It sounds like a second one may have to do with infrastructure around water and the ability for certain neighborhoods or other things to turn off to preserve water pressure.

Speaker 2 There may be other aspects to that.

Speaker 2 There's how you think about insurance and protecting people and effectively changing policy or regulation there. What do you think could be done from a technology perspective?

Speaker 2 Like, why aren't there swarms of drones like spraying parts of the city? Or, you know, what is the more technology-driven stuff that you think should be done?

Speaker 1 We're working on that. I think there'll be more to come in that arena.

Speaker 1 On drones specifically, the sort of capabilities of drones to lift sufficient payload, plus regulations around beyond visual line of sight operations have just like not been sufficient, I think, for the last, you know, for many years.

Speaker 1 I think that has very recently changed. The regulations have changed.
The drones themselves are just a lot more capable now and can carry a lot more our ability to do swarming.

Speaker 1 So in my opinion, I think over the next five to 10 years, we will see exactly what you're talking about. Drones to do rapid initial attack.

Speaker 1 So you see, you know, you get an ignition that's detected from a camera or a satellite and drones are pre-positioned, can get there very quickly before the fire has a chance to grow.

Speaker 1 Or drones to do structure protection and defense to go fan out and spray a bunch of houses and you avoid the road and access issues that we saw earlier and you avoid the water issues because they're carrying stuff with them too.

Speaker 1 So I think that will be a big tool in the toolkit over over the next decade.

Speaker 2 Are there any dumb versions of that? So I've continued to just be struck by the Palisades Village.

Speaker 2 Basically, you know, a guy shows up, he sprays it with flame retardant, and he saves this whole complex right in the middle of where everything else burned down.

Speaker 2 And so, you know, why aren't there just tanks of flame retardant that citizens can go and start using in the context of a fire or, you know, really simple, distributed, cheap infrastructure?

Speaker 1 Honestly, homeowners should invest in that themselves, in my opinion. You know, I have at my place up in Mendocino, I've got probably 20 gallons of barricade gel.

Speaker 1 And, you know, if there's ever an issue, I'm going to spray my house down. And so I think that's part of it.

Speaker 1 Some of the large insurers actually have private services that will come do structure defense.

Speaker 1 One of the issues here in LA was it just happened so quickly that there wasn't time for those folks to sort of get there. But there are solutions like that.

Speaker 1 And the departments themselves have those capabilities as well, you know, to do that.

Speaker 1 And so, so yes, and I think there's a little bit of, you know, there's no reason someone shouldn't have 20 gallons of that stuff and an applicator and a fire pump in their garage if they're living in the wild and urban interface.

Speaker 2 And then if we want to think now about recovery, so obviously the fires are still unfortunately raging while we're having this conversation. Yeah.
But we think about six months, 12 months.

Speaker 2 How do we optimally help accelerate the recovery of palisades or other parts of LA that are affected? Is it building code changes? and sort of review processes?

Speaker 2 Is it, I don't know if there's like some toxic environment left behind that needs to be cleaned up. Like, how do you think about remediation remediation in as rapid of a timeframe as possible?

Speaker 2 And what are the components of that?

Speaker 1 Yeah, that's a good question. And this is probably a little bit less in my area of expertise, but certainly after large fire incidents, there's cleanup that's needed.

Speaker 1 And a lot of, there are a number of chemicals from firefighting chemicals, from housing, you know, all this. This is kind of nasty stuff that needs significant cleanup.

Speaker 1 I do think we should seize this as an opportunity to rebuild the right way, right? Like the Palisades is a beautiful place. People are going to want to live there.

Speaker 1 We should build it, rebuild in a safe way. And there's going to be pushback.
A lot of these houses were not insured or underinsured. And so it's going to be very expensive to rebuild.

Speaker 1 Rebuilding to a higher standard is going to be,

Speaker 1 you know, difficult. But if we don't do that, we're just setting ourselves up for this to happen again.

Speaker 1 And so, you know, my vote would be that we really take the sort of building code opportunity really seriously when all this construction does happen.

Speaker 2 But it's interesting because almost all the problems that you mentioned seem to be regulatory and policy problems.

Speaker 1 Yeah.

Speaker 2 We're overburdening people with the ability to clear out Dense Forest. We're overburdening insurance companies so they can't actually insure these houses.

Speaker 2 We're overburdening basically every aspect of the system. This just sounds like more overburdening.

Speaker 1 For sure.

Speaker 2 Yeah. By the way, I'm not disagreeing with your point.
I guess it's more a question of how do you make it easier to do things versus harder?

Speaker 1 To me, the real answer, which I think is

Speaker 1 harder, but probably the real answer is actually to have the insurance companies create an actual free market for the insurance companies where they can say, I will only insure your house if you do these things, right?

Speaker 1 And actually use market forces to drive behavior.

Speaker 2 But that's putting it on the citizens. What should the city be doing to protect its people? Yeah.
How do you create a safe and good environment for the people who are paying you taxes?

Speaker 1 I think that is, you know, investing in the infrastructure and, you know, a real serious look at fuel management on the outskirts.

Speaker 1 Like there's, there's no reason there shouldn't be a really significant fuel project around these towns and communities.

Speaker 1 And in Lake Tahoe during the Kaldor fire, there was a lot of fuel management done, which actually saved South Lake Tahoe, Tahoe, a lot of people think. So, like, that can really work.

Speaker 1 It's actually really not that expensive. It just requires sort of like the political will to do it.
So, things like that, I think, are essential.

Speaker 3 Bill, how do you think that happens?

Speaker 1 Right. Because you described

Speaker 3 forest management,

Speaker 3 like density management policies and controlled burns as just very unpopular. Yeah.
Some set of people are going to change their point of view in the LA area.

Speaker 3 What do you think is the mechanism of action that that it becomes popular enough that regulators change their point of view here? Is that a propaganda campaign from a single politician?

Speaker 3 Like, what's the driving force?

Speaker 1 I want to create like Smokey the Bear 2.0, which is instead of talking about putting out wildfires and like, how does Smokey become an advocate for more fire, for healthy fire, for controlled burns?

Speaker 1 But like, I think unless we can really make that point to people, like the behavior won't change. I think politicians ultimately just do what they're, what people want them to do.

Speaker 1 And, you know, Florida's figured it out. California has not.
And it's not just a red-blue thing. You know, there's a very famous case up in Oregon where a local Republican sheriff arrested a U.S.

Speaker 1 Forest Service employee for doing a prescribed burn.

Speaker 1 It is deeply unpopular to light things on fire next to people's properties unless it's done sort of rightly and with this sort of, with this right approach. So that's why I'm like.

Speaker 1 personally pretty focused on how do we change hearts and minds around prescribed fire and teach people that it can be safe and that it's essential.

Speaker 1 And if we don't do that, like we're just going to be picking some new politician to blame the next time something burns down.

Speaker 3 Well, it seems like a pretty clear trade-off, right? Because there's, you know, safer than uncontrolled wildfire in a giant urban area, eight times the size of the Chicago fire, right?

Speaker 3 Like it's kind of, you can take your pick.

Speaker 1 Yeah, the forests are going to burn. You know, we can, we can do it on our terms or they can do it on their terms, but that's the message I think we need to sort of get through.

Speaker 1 And unfortunately, wildfire is just infrequent enough that people forget. You know, it's sort of like, we're going to put this fire out.

Speaker 1 Like, we're going to, there will be a shift in the El Niño, La Nina pattern. LA will get a bunch of rain next year.
We'll be dealing with mudslides. We'll think about other stuff.

Speaker 1 And then, you know, it'll be in six years from now, we have another one of these incidents. Right.
And so, how do we sustain that? You know, I think that's like the really hard part.

Speaker 1 Part of what I'm trying to figure out is how do we create a cultural movement around more timber, more fuel management, and make that easier and just sort of part of who we are.

Speaker 2 If you were to do one thing as a homeowner to protect your house going forward, what would you do?

Speaker 1 I'd probably just defensible space. There's sort of this concept of zone zero, which is the first five feet around your structure.
That should be clear of any flammable materials.

Speaker 1 It is not in most houses. There's landscaping and azalea bushes or whatever.

Speaker 1 But if you can remove that,

Speaker 1 that has a pretty significant impact on your home's propensity to burn. Probably the next thing would just be a good water source.

Speaker 1 So that, again, it can be attractive for a fire department to actually defend your home. But if you have if you have defensible space and a good water source,

Speaker 1 you're in the top quartile.

Speaker 2 And then I guess if you were to do one thing to help expedite rebuilding in LA, is it just a change to the permitting process for reconstruction or would it be something else?

Speaker 1 You know, what if you offered a fast track approval if the home, you know, maybe you don't change the building code, but, you know, if the home met a higher standard, then you would, you fast-track approval.

Speaker 1 You get two-week approval instead of six-month approval. I'm not sure what the approval process is in LA here in San Francisco, it's years.

Speaker 1 Um, but if we could offer incentives for people to rebuild safely, that feels like a good use of time and taxpayer dollars.

Speaker 3 Maybe one last question for you since we're almost out of time, Bill. Um, you know, we are still at this 0% containment level.
Like, how does that change?

Speaker 3 When does this become something under control?

Speaker 1 Honestly, I think three things stop large wildfires: the weather changing, the ocean, or really large, massive aircraft dropping, you know, jets dropping huge amounts of retardant.

Speaker 1 You can't drop huge amounts of retardant in neighborhoods. It's too destructive and disruptive.
So you can't do that.

Speaker 1 The ocean is pretty far away from some of these fires. It stopped it in the Palisades, but I think it's a lot of structure defense and it's riding out the weather change.

Speaker 3 Can I ask

Speaker 3 perhaps a last triggering question? Sure. What would a more authoritarian country do?

Speaker 1 Aggressive restrictions on where homes can be built and how they are built. I think there would also be just a lot more surveillance.
Like, can you, if you can detect fires quickly,

Speaker 1 you can respond more quickly. So I think that's probably another big one.
Those are at least the two things that come to mind for me is,

Speaker 1 yeah, being much more restrictive on how people build.

Speaker 2 If you had a lot of surveillance, you should be able to pick up arson really fast too.

Speaker 1 You know, I actually think there's a really big national security issue here around around wildfire that doesn't really get talked about.

Speaker 1 But like, you know, okay, one thing to do to a neighborhood, but what about a military base? You know, what about a nuclear power plant?

Speaker 1 And not just sort of the sensitivity of these sites, but also like, you know, it's one thing to have three or four fires, but what if there were 30?

Speaker 1 You know, and so at what point does the system get overwhelmed? And it doesn't require all that much to do that.

Speaker 1 And so I think, you know, taking the national security aspect of this seriously to me is incredibly important. And I think we're, we're, we're just not.

Speaker 1 There's a part of me that unfortunately waits for the day that that's going to be something really significant.

Speaker 3 Bill, thank you for doing this. And, you know, we're thinking about everybody in the LA area.

Speaker 1 Thanks for having me on.

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