# California’s fire insurance backstop faces a large funding gap

Markdown copy of https://realalpha.app/s/californias-fire-insurance-backstop-faces-a-large-funding/ on Real Alpha, the best minutes from long interviews with the people building AI. Cite and link the page, not this copy.

- Speaker: [Scott Galloway](https://realalpha.app/people/scott-galloway/) (Host)
- Host: [Ed Elson](https://realalpha.app/people/ed-elson/)
- Show: Prof G Markets
- Episode: [LA Fires, Trump Trades, TikTok, and Legacy Media’s Fate — ft. Andrew Ross Sorkin | Prof G Markets](https://realalpha.app/v/t3WiXCtS-9A/), Jan 16, 2025
- Moment: 14:09 to 18:18 of the episode (4 min), playing on https://realalpha.app/s/californias-fire-insurance-backstop-faces-a-large-funding/; the episode from there: https://realalpha.app/v/t3WiXCtS-9A/?t=849

## Quote

> “I don't think taxpayers in California should have to bail out people who decide it's their birthright to live in **fire-prone areas**.”
> — [Scott Galloway](https://realalpha.app/people/scott-galloway/) at [17:09](https://realalpha.app/v/t3WiXCtS-9A/?t=1029) · Prof G Markets

## Takeaways

1. The FAIR plan’s exposure is nearly half a trillion dollars.
2. It has about $200 million in cash and $2.5 billion in reinsurance.
3. Scott argues taxpayers shouldn’t absorb the cost of fire-prone property.

## About this segment

Scott Galloway lays out the FAIR plan’s nearly $500 billion exposure, with $200 million in cash and $2.5 billion in reinsurance. He argues people choosing fire-prone areas should bear more of the cost rather than taxpayers.

From “LA Fires, Trump Trades, TikTok, and Legacy Media’s Fate — ft. Andrew Ross Sorkin | Prof G Markets”, Jan 16, 2025. [Watch the full episode](https://realalpha.app/v/t3WiXCtS-9A/)

## Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

[14:22](https://realalpha.app/v/t3WiXCtS-9A/?t=862) Now, any thoughts on the wildfires before we get into the conversation with Andrew Ross Sorkin? It's fascinating. The second order effects here around what happens are going to be fascinating. First off, I think the Pacific Palisades in five years is going to be arguably the best neighborhood in the nation. Very hot take. Well, it's... No pun intended. There you go. A, it's blessed with the geography that is some of the most beautiful collision of sea sky and, you know...

[14:52](https://realalpha.app/v/t3WiXCtS-9A/?t=892) and earth that is the California coast. It's a beautiful neighborhood, but quite frankly, some of it is just kind of bad 70s architecture. Also, a lot of it is tinderboxes. We don't have these super fires on the East Coast, obviously because of weather, but a lot of it is the materials we use to build our homes. But there's going to be a lot of second order effects here and a lot of really interesting discussions. And the insurance market, I mean, I've told you, I go naked on insurance because you get 55 cents on the dollar.

[15:21](https://realalpha.app/v/t3WiXCtS-9A/?t=921) Insurance is such a fascinating industry because what it convinces people to do is enter into a relationship where you're going to have a series of guaranteed losses in exchange for hopefully not having a tragic loss. It's like deciding to have a relationship with someone who's just awful every day such that she don't date a murderer. And I just made that up. I like that. A very boring, safe partner.

[15:46](https://realalpha.app/v/t3WiXCtS-9A/?t=946) Yeah, this is kind of awful and passive aggressive, but she's not a murderer. I like that a lot. Anyways, what this is going to inspire is a healthy conversation, because I think generally what happened was insurance companies are only in the business of assessing risk. That's all they do. And the risk assessments they did, I imagine, are getting better and better in terms of calibration because of AI.

[16:12](https://realalpha.app/v/t3WiXCtS-9A/?t=972) They said the Palisades or Southern California, fuck that. What they've had to do, though, is that California said, well, OK, if people people need have to have insurance or they might need to move or whatever. So they implemented something, a state supported property insurance plan called FAIR to increase its total policy holdings or to basically back certain insurance companies because they put caps on how much they could raise the rates.

[16:40](https://realalpha.app/v/t3WiXCtS-9A/?t=1000) So a lot of insurance companies said, OK, girlfriend, we're out of here. The fair plan still exposure is almost half a trillion dollars, a 61 percent year on year increase because the people who are profit motivated said we're out of here. We've done the math. They only have about $200 million in cash and $2.5 billion in reinsurance. So the question inspires is the following, and I'm a bit of a capitalist or right-wing on this, and that is I live on the ocean in Florida. I don't think I have a birthright to do that.

[17:10](https://realalpha.app/v/t3WiXCtS-9A/?t=1030) And as climate change becomes more of a reality, I think I should have to bear the costs of additional insurance or the cost of my house going down. But I don't think taxpayers in California should have to bail out people who decide it's their birthright to live in fire-prone areas. And that will be, people will not like that because they see it as the government has a response, but people should have to leave their homes.

[17:38](https://realalpha.app/v/t3WiXCtS-9A/?t=1058) My attitude is, look, Los Angeles is an accident. This meteorological anomaly of a high pressure system colliding with a low pressure system, all funneling through a series of mountains creates the mother of all hot air blow dryers, where certain times a year you get a 60 or 80 mile an hour hot wind that can take a match and spread it across, turn it into embers that spread, you know, 100 feet every three seconds.