Municipal Fire Insurance?

This is a “shout out” to someone that I greatly admired. I first met Ronny Coleman while doing a study for the City of San Clemente, where he was Fire Chief from 1973-1984. I ran into him again when we were doing a study for my hometown, Fullerton, where he was Chief beginning in 1985. In 1992, Governor Pete Wilson appointed him as California’s State Fire Marshal where he served for eight years before retiring. His accolades are numerous and can easily be found by googling his name. He died almost two years ago on September 22, 2023.

Before I knew he had died, I was thinking about the conversations that we had regarding the possibility of municipal fire insurance. When he proposed it, the insurance lobby buried the idea and chastised him for suggesting it. The current time seems ripe as fire insurance companies are suffering enormous losses from our “annual” fire season. Consequently, the insurance industry might be ready to turn the fire liability over to cities that create a municipal fire insurance program. It was while trying to contact Jonny about resurrecting his idea that I learned of his death.

One definition of a government service is something that the private sector can’t make money doing. This could be a “throw me into the briar patch” moment for local government if played correctly. Historically fire service was provided by a private fire insurance company. It gradually shifted to municipal fire companies due to the logistics being too difficult for multiple fire insurance companies to provide the service in the same general area.

Unfortunately, the current disconnect between paying for fire insurance separately from receiving fire protection has become stark. Fire insurance companies want improved fire protection from governments to keep their business profitable. Governments are cutting back on fire protection because they cannot afford the huge costs. In the recent fires in the Los Angeles area, a significant number of fire engines were unavailable due to insufficient mechanics to maintain them and many of those engines were over their useful life.

So, what Ronny proposed was a “Win-Win” situation: fire insurance companies stem their losses by letting municipal governments write fire insurance. In return, cities would get a source of fire service revenue that would cover the costs of personnel and equipment necessary to protect their community.

I don’t know how Ronny envisaged it, but I would do it by creating a JPA. This agency would take care of administering the process: (1) Calculating insurance cost per building; (2) Billing and collecting for each member government; (3) Distributing revenue to each member agency; (4) paying claims for fire loss; and, (5) Managing the self-insurance reserve and purchasing insurance for catastrophic risk. It would be similar in concept to self-insurance for workers’ compensation and liability insurance.

The advantage in California is that a JPA is legally authorized to issue bonds, particularly revenue bonds, to finance their programs for member agencies. This ties into the issue of catastrophic fire liabilities and how they could be financed. The issue that I would have as a city is whether, or to what extent does, my city wish to take on fire liabilities of other cities. When the JPA for Liability coverage was created in Orange County, I represented my inland city as its finance director. I stated at the time that my city did not want to be on the hook for the multi-million dollar claims that a certain beach city had from people jumping off their pier and becoming quadriplegic. We worked through that issue and many others. Another example is ICRMA (Independent Cities Risk Management Authority).

A JPA could be phased in over a 5-to-10-year period to work out the complexities, because the devil is in the details.

I’m writing this article to encourage those who can take a concept and turn it into reality. Wherever you are, now’s the time!