Reconstructing Risk and Recovery: Examining California's Fragmented Wildfire System

The January 2025 Eaton and Palisades fires exposed fundamental vulnerabilities in how California allocates wildfire risk. This paper argues that California’s wildfire crisis largely reflects a systemic failure to distribute catastrophic losses efficiently and equitably across insurance markets, mortgage systems, utilities, and government to provide homeowners the support to rebuild and recover. Using state-level data and policy analysis, I demonstrate that the current framework misprices risk, concentrates losses on vulnerable households, and relies on taxpayer backstops. Insurers are withdrawing through targeted non-renewals, forcing reliance on California’s undercapitalized FAIR Plan. Mortgage obligations persist on destroyed properties while lenders absorb unpredictable losses. Utilities receive pre-funded liability protection while homeowners face unlimited exposure, and federal spending prioritizes suppression over prevention. I propose restructuring wildfire risk allocation through structured mortgage relief for total-loss events, mandatory insurer participation requirements, expanded utility prevention mandates, and reoriented public spending toward fire mitigation. These reforms formalize the risk-bearing roles already played informally, creating a more transparent system that aligns exposure to loss with capacity to prevent and absorb it.