Wildfire Risks Spark Insurance Woes for Utility Companies

Homeowners aren’t the only ones facing high insurance rates and difficulty finding coverage because of wildfires. Power companies are also feeling the heat.

Utilities in states affected by wildfires are struggling to find affordable insurance — if they can find it at all, according to Bloomberg.

“The trouble comes after power companies from Hawaii to Texas have collectively faced tens of billions of dollars in damages from wind-driven wildfires linked to their equipment,” Bloomberg reports.

Power lines spark wildfires

Power lines can cause wildfires in multiple ways, according to the Texas Wildfire Mitigation Project. If a power line falls and fail-safe systems fail, a live line can lay on the ground and arc for “multiple tens of minutes.” Lines that come into contact with vegetation may cause a branch to ignite. Circuit components may fail, or conductors may slap into each other, all creating conditions that could lead to a fire.

Climate change has increased the frequency and severity of conditions that can lead to wildfires, according to California’s Public Utilities Commission. “Hotter, drier conditions during summer and a longer dry season have resulted in lower moisture levels in vegetation, making it easier to ignite,” the commission says on its website.

Wildfires lead to lawsuits

Wind-driven wildfires linked to utility company equipment have prompted numerous lawsuits, Bloomberg reports.

Hawaiian Electric faced more than a dozen lawsuits following the deadly wildfires that swept Maui and claimed more than 100 lives in August 2023. In California, Orange County has sued Southern California Edison in connection with wildfires in 2020 and 2022. Xcel Energy faces hundreds of lawsuits stemming from a 2021 fire in Colorado and a February 2024 fire in the Texas Panhandle.

What’s next? Impact on insurance for consumers and utilities

In states with high wildfire risks, like California, Texas, New Mexico, and Colorado, homeowners face escalating home insurance costs and a shrinking number of options. Texas and Colorado are also among the most expensive states for home insurance, according to Insurify data.

Utility companies are finding themselves in the same position, Bloomberg reports. Insurance for power companies has become “prohibitively expensive, if not impossible” to secure, the journal says.

Without affordable options, utilities must either self-insure or go without coverage altogether, leaving them exposed to the financial impact of lawsuits. Being uninsured also makes it more difficult for utility companies to find capital to fund much-needed improvements to their power grids.

“If utilities can’t get insurance, or if the insurance is really expensive, it’s harder for them to construct new facilities they need to build, like transmission lines and distribution lines,” Michael Wara, director of the Climate and Energy Policy Program at Stanford University, told Bloomberg.