In response to the devastating wildfires of January 2025, California lawmakers introduced Assembly Bill (AB) 254, a sweeping piece of legislation designed to overhaul the state's wildfire prevention, mitigation, and funding strategies. With an $18 billion infusion into the state's Wildfire Fund and provisions targeting insurance subrogation claims, transmission infrastructure, and wildfire risk reduction, AB 254 promises significant changes for utility companies, insurers, and wildfire-affected communities.
Expansion of the Wildfire Fund
Originally established under AB 1054 in 2019, the Wildfire Fund serves as a financial safety net for electric utilities facing wildfire-related claims. AB 254 introduces a $18 billion Continuation Account to bolster the fund’s liquidity. This expansion is split into two sources:
This enhanced funding mechanism aims to stabilize the Wildfire Fund amidst mounting financial pressures from recent wildfire claims.
One of the bill’s innovative provisions addresses the rising costs associated with insurance subrogation claims. Historically, insurers have sold these claims to third parties, such as hedge funds, increasing settlement costs for the Wildfire Fund. AB 254 introduces a right of first refusal, requiring insurers to offer subrogation claims to the affected utility company before selling to third parties. Utilities have 30 days to accept the terms, fostering direct settlements and reducing financial strain on the fund.
AB 254 establishes a Transmission Infrastructure Accelerator program to streamline financing and development of high-voltage electric transmission projects. The program, managed by California’s Go-Biz and supported by a revolving fund, offers public financing options and tax credits of up to 20% annually (capped at $20 million). This initiative aims to modernize transmission infrastructure while reducing costs for projects critical to the state’s growing electricity needs.
The legislation also includes:
AB 254 introduces significant changes that will impact insurers operating in California. The right of first refusal for subrogation claims could reduce the profitability of selling claims to third parties, compelling insurers to reassess their strategies. While this provision aims to lower costs for utilities and the Wildfire Fund, insurers may face additional administrative burdens in negotiating directly with utilities.
Moreover, the expansion of the Wildfire Fund provides a more robust financial backstop for utilities, potentially easing insurer concerns about claim reimbursements. However, the bill’s focus on wildfire risk reduction and infrastructure improvements may shift the insurance landscape toward a more proactive risk management approach. Insurers will likely need to collaborate with utilities and policymakers to align their underwriting practices with the state’s evolving wildfire mitigation strategies.
Finally, AB 254’s emphasis on clean energy and infrastructure upgrades could create opportunities for insurers to develop specialized products tailored to renewable energy projects and underground infrastructure. As California continues to grapple with the effects of climate change, insurers must adapt to the shifting regulatory environment and emerging risks.
Assembly Bill 254 represents a bold step in addressing California’s wildfire crisis. By enhancing the Wildfire Fund, introducing innovative mechanisms for managing subrogation claims, and investing in infrastructure improvements, the legislation aims to create a more resilient framework for wildfire prevention and recovery. For the insurance industry, AB 254 presents both challenges and opportunities, requiring strategic adjustments to navigate the changing dynamics of wildfire risk and mitigation.