A run for cover: LA’s fires and insurance

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The Economist. Hello and welcome to the Intelligence from the Economist. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Donald Trump's pick, Defense Secretary Pete Hegseth, has some strong opinions when it comes to women in the military. Our correspondent argues that in many ways he is, in a word, wrong. And we take a look at children's literature and the merits and demerits of sugarcoating stories through the centuries. After all, the classic ending. And they lived happily ever after, often used to be. And if they haven't died, they're still alive. First up, though.

It's been sort of nightmarish here in Los Angeles.

Erin Braun is the Economist's west coast correspondent.

Everyone's constantly checking an app to make sure they don't have to evacuate, looking at the sky to see how much smoke there is and where the wind is blowing. This weekend I went out to Altadena, which is one of the neighborhoods that has been destroyed by one of the fires. And I went out there with Henry Tricks, one of my colleagues at the Economist. We had to ask the California National Guard to even let us into the neighborhood because they've got it all roped off, This entire neighborhood, parts of it are just wiped off the map. It's absolutely devastated. It's right in the shadow of the San Gabriel Mountains. So embers from the main fire burning up there blew in those really strong winds down here into a very populated area. And unlike the Palisades, Altadena is more of a mixed income neighborhood. You have middle class folks living here as well as kind of wealthier people living in mansions in more secluded parts of town.

I'm not sure whether we're standing in.

Front of burnt out houses or burnt out buildings.

It was definitely a house. I found children's toys and a dining room table.

Right.

Like, you know, the things that you.

See, you see the burnt out washing machines and the filing cabinets and, and over there in A little corner of.

The garden, there's like some chairs where.

I guess they would sit out in the garden and those are unscathed.

Can you see over there? That looks like a little tree house.

Oh yeah, a little treehouse, a swing.

Set where kids would play and that survived.

But like everything else is just absolutely obliterated.

Henry and I met a couple, Laurie and Robert Bilotta. They live in Pasadena, right up against Eaton Canyon. And Bob actually saw the fire start on the canyon Tuesday night.

I was on the national news because for two seconds, because we have a 95 and a 90 year old living in that two story house. And within the last month she had fractured her pelvis. So I ran the policeman up there, I said, you have to carry or get them out. You have to carry them down from the second story.

So they got them down and Bob.

Drove, I drove their car down to.

The Arco and then I had to.

Come back, walk back up to get.

Us out of here.

They were remarkably lucky. They said an ember came and burned part of their backyard and actually the wall that separates their house from their neighbors. And then it went out or firefighters put it out. So their house completely survived. And they think it was sort of a miracle. Just walking through these neighborhoods that are destroyed, it became apparent just the absolute SC of the devastation and the fact that even when these fires are put out, because let's remember that they're still burning, it's going to take months if not years to clean up these places to get rid of all of this debris. And Lori and Robert had this really lucky escape, but they'll be financially affected by this as well. The insurance on their two houses in California is already costing them about 1,000 bucks a month. And that's going to increase.

I just don't understand how the insurance companies aren't going to go broke over this.

It's billions.

I mean, even no matter who insured you, how can you cover that many? And that's not including the Palisades and all the other fires that are going on.

The Los Angeles fires will be very expensive. They're raging through some of the most highly priced real estate in the world.

Gavin Jackson is a finance and economics correspondent at the Economist.

These fires are shocking. But for anybody who's been paying attention, they can't be said to be a surprise. In fact, the increased likelihood of these fires due to climate change has already been damaging California's faulty insurance market.

Now, just to put some numbers to it then, how expensive? Safe in the knowledge that these Numbers may well change still. What kind of numbers are we on now?

So JPMorgan Chase, which is a bank, they estimate there's about $50 billion of economic losses. So that's in terms of everything that the world has lost from this. The lost productivity from people not being at their jobs, the damage to health, all of those kind of things. And of that, about $20 billion is insured losses. That's the houses that are burned down need to be replaced as well as the money the insurance companies will pay out. Put people up in hotels, buy them new cars, that kind of thing.

Now you mentioned at the start there California's faulty insurance market. What do you mean by that? In what way is it faulty?

Well, many insurance companies have stopped selling policies altogether in the state. In March, State Farm, which is one of the biggest insurers in America, cancelled 30,000 home insurance policies in the state. Now it pulled out due to the risk of losses from wildfires. A combination of climate change and people tending to live at what's called this urban wilderness boundary. So on the edge of forests and the edge of mountains where there's plenty of dry land close to their houses, has increased the likelihood of these kind of wildfires. Typically that would mean expensive insurance. Insurance companies exist to price risk. The problem in California is there's regulatory measures that prevented companies from actually doing that.

Wait, what do you mean by that Prevented?

Back in 1988, California passed a measure called Proposition 103. So this was a ballot measure that was directly voted on by the California, and this regulated the insurance market. And one of the things it did was forbid insurers from using model based estimates of catastrophe risks. Now what that means is that because climate change is about how the climate is changing, the past is not a good guide to the future. Insurers, however, had to use historical data on the risks of wildfire rather than modelling how that risk would change in future. So the insurers couldn't pass on the cost of these higher risks to their customers. And when that happens in the insurance market, if you can't properly price your risk, you just don't provide insurance. So they left the state altogether.

So in short, some people couldn't even get insurance.

Well, in California there's this non profit insurer of last resort called the Fair Plan, which meant to provide home insurance for anyone who can't get it. Now obviously that's going to be the most expensive form of insurance available. So some people will choose not to have insurance whatsoever instead of going onto the Fair Plan. But what's happened in California, especially over the last six years, is the Fair Plan's taken a bigger and bigger chunk of the insurance market and state. In the Pacific Palisades, the neighborhood that's seen some of the worst fires plan is now exposed to about $3 billion of potential claims. In Pacific Palisades, the number of policies the Fair Plan was writing grew by 85% between 2023 and 2024. Now, fair only covers $3 million of losses. So some millionaires who have $10 million houses may end up out of pocket and others will be uninsured altogether.

So clearly, the system you're describing is living in an unsustainable state for the near term. What happens next?

So once the fires burn out, people will start making claims against the Fair Plan. They'll want to be paid back on the insurance policy that they've taken out. The Fair Plan has a certain amount of money on hand to meet those claims, and it also has reinsurance policies it can claim against. If that doesn't meet all the claims, and I think it's very unlikely that it will be able to, the Fairplan will seek to recoup the cost from all the private insurers in the state. So because this is an industry wide nonprofit, it's essentially funded by the industry. What it does is it levies a fee, a proportion of the fee based on each company's market share. And ultimately the insurers will pass that on to their clients. So even if you're a California not living anywhere near wildfires, or even an American in a distant state with nothing to do with California, you may also see yourself paying for some of this wildfire.

And in the longer term, it still sounds like, in the face of coming climate change, a system that can't work as it's currently designed.

Well, fortunately, the system I've described to you has already changed. So Californians knew this was a problem. So the insurance commissioner has already instituted a set of reforms. And on January 2, coincidentally nothing to do with the wildfire, the reforms came into effect. And these reforms allow insurers to price the risk using models which may induce some to return, and it could lead to more expensive coverage in the very long run, that will lower Los Angeles house prices. But ultimately, we're living on a hotter planet and more expensive insurance is just one aspect of that reality.

Gavin, thanks very much for your time.

Thank you for having me.

This week, confirmation hearings for Donald Trump's Cabinet nominees will begin in America's Senate. The nominee for Secretary of defense is Pete Hegseth, a regular Fox News commentator for a decade and a former National Guard officer. Among the facets of his past coming under scrutiny are his views on staffing the military.

Because I'm straight up just saying we should not have women in combat roles. It hasn't made us more effective, hasn't made us more lethal, has made fighting more complicated.

These aren't comments dredged up from long ago. They were made on the Sean Ryan podcast just last month. And he didn't mince words.

The reason women started getting in combat is because of forward support companies. That's different than intentionally saying we're going to put women in combination into combat roles so they will do the combat jobs of men, knowing that we've changed the standards in putting them there, which means you've changed the capability of that unit. And if you, if you say you haven't, you're a liar.

Mr. Hegseth conceded that there were roles for women in other parts of the armed forces. Clearly true. But his take on women on the front line, not so clearly true.

It's still a relatively recent thing in most big Western armies to have women serving in frontline combat roles.

Shashank Joshi is our defense editor.

There have been a lot of lessons learned from this over the past decade, but by and large, there are vanishingly few women who choose to serve or can meet the standards to serve in these positions. But the truth is that there isn't really much evidence that standards have been lowered across the board. Pete Hegseth is dragging up an issue and creating a controversy where I don't think there is any big problem.

But this topic does feel like one of those where liberal notions of equality do bump up against bare facts of body differences, though.

Well, we need to, I think, define just for a moment what combat means.

Right.

In many armies it means things like infantry, armour, artillery units in some cases which are closer to the front lines at greater risk of direct fighting. Pete Hegseth complains about sex differences in bone density, lung capacity, muscle strength, and he says these things preclude women from combat. Now, that was the official view of most Western armies until not that long ago. And there were two aspects to that. One of them was the heightened risk of, of injury during training. The second aspect was the raw physical demands of combat, particularly being in the infantry, the need to march long distances carrying very substantial amounts of kit. Some of the most detailed evidence of this came from a study by the US Marine Corps that was conducted roughly a decade ago. And they Pitted mixed units with all male units in a battery of realistic tests, marksmanship, artillery shell loading. What they found at the time was, in 93 out of 134 tasks, the all male units performed better. They were especially concerned at the time by the inferior performance in integrated units on casualty evacuation. And you can understand why that's a big deal for infantry. On the other hand, there's a view for a long time that the presence of women actually undermines unit cohesion. I think there's a lot less evidence supporting that view.

Well, let's go back to how that view has evolved, the history of women in combat roles.

So in the past, when you had these big conscript mass armies of the 20th century, the view was if you wanted them to gel into coherent, capable military units, the appeal to masculinity to the male bonds was essential. What happened later is, as you got these more professional, well trained Western armies, you didn't need that reliance on masculinity as much. And so what we saw was that some armed forces lifted restrictions on women decades ago. Sweden and Canada did so in 1989. Finland, which is one of Europe's most capable ground forces, did that in the 1990s. America gradually eased some of its restrictions in the 90s and 2000s, but the big step came in 2015. It was the Obama administration and they opened all combat positions to women. Britain made the same change about a year later, saying that women could serve on the front lines.

So America, late to this particular revelation. But what about Mr. Hegseth's suggestion that in order for things to have changed, that the bar had to be lowered.

Systematically across the board? I have not seen evidence of that, Jason. So if you look, for instance, at the US army, they did change their standards for basic fitness tests back in 2022, and they allowed women to lift less weight and to take more time to complete runs. But studies that were commissioned by the army showed that the scores on those specific tests did not predict performance in combat roles or rates of injury. And this is the important bit. Female soldiers who wanted to serve specifically in combat positions, they must still pass more demanding and specialised tests, which are gender neutral. And that's the bit that I think people forget, and that's not a surprise. So let's take the example of Canada, which is now, what, 36 years on from the introduction of women. Women make up about 5% of combat arms, but a tiny proportion of infantry. In America, they make up about 1.4% of infantry. Even in Ukraine, which is in the Middle of this war of existential survival, there are very few women serving in assault units. So we're talking absolutely minuscule numbers here. This is not some big issue in the armed forces. But my view is that if you reduce the debate just to combat units, I think you do a massive disservice to the role that women play much more broadly in modern militaries in the West.

What do you mean by that?

Well, intelligence officers, logisticians, engineers. So, for example, in the American military, I think women make up somewhere in the region of about 20% of intelligence officers. If you look at the Israeli military, one of the reasons we got the disaster of the October 7 attack by Hamas was that female intelligence units that saw many of these preparations were ignored, possibly for reasons of misogyny or sexism. And the fact is that Western militaries are suffering from a huge crisis of recruitment. If you denigrate women, if you push them out, if you ignore them, you are going to struggle to meet your requirements to fill your ranks.

Which is to say it's about more than just passing the physical tests, but also providing a good working environment.

Absolutely right. And I think in some ways this is still a big issue. We still see continued sexual harassment, sexual abuse in Western armed forces. This is a very live issue in the UK and in the us, But I think there is a case to be made that the culture has genuinely changed. I was listening to a former British junior defense minister, Andrew Morrison. He was a Conservative minister, and he was saying when he was in the defence ministry about 10 years ago, he said you would never get senior people talking about menstruation bras, anything like that, with anything other than a sense of profound embarrassment. And he said, these days it is common parlance. So I think things have really changed. And you know what? It's partly that cultural change that I think has triggered people like Pete Hegseth and others in the orbit of Donald Trump and on the American hard right who find this very discomforting.

So this isn't a war fighters thing, it's a culture war thing.

Well, I think they sincerely believe that America's warrior ethos has been undermined by wokeness run amok in the Pentagon. Pete Hegseth himself has vilified CQ Brown, the chairman of the Joint Chiefs of Staff, that's America's top military officer, suggesting that he may only have got his job because he was black. And Lisa Franchetti, who is the Chief of Naval Operations, the head of the US Navy, saying that she may only have got her job because she was a woman. I think that these are both completely crazy claims to make. I think they're also quite dangerous. They're likely to push women out of the armed forces, cause morale to plummet. And all of this in this moment where America is losing its military edge to China, in which it needs people to serve their country. It needs talented people with motivation, with science and technology skills. And instead they're being told that they are incapable of serving in uniform, that their contributions are worth less than men. That doesn't strike me as the way to build a strong, cohesive Pentagon.

Shishong, thanks very much for your time.

Thanks very much, Jason.

Once upon a time, there were two little boys who lived in a deep, dark forest.

Catherine Nixie is a culture correspondent for the Economist.

Their father had died and their mother was poor, so she slaughtered pigs for food while their aunt castrated cocks with a knife and then dabbed butter on the wounds. When the boys grew up, Napoleon invaded. One brother traveled to war. There he saw villages burned, girls raped, and piles of corpses so vast that the villagers couldn't bury them. But this story has a happily ever after of sorts, because when the little boys, the Brothers Grimm, grew up, they also wrote down stories. They wrote Snow White and Cinderella. And indeed they wrote the line happily ever after. This is a story about children's stories. It's about princes and princesses and fairy godmothers. It's also about murder, rape and violence. And it is about what children's stories should be made sugar and spice and all things Nice, or frogs and snails and incest. And it's about how grim the telling of these stories should be, which in the Grimm's day was extremely in the stories that were told in the late 18th century, fathers abuse daughters, Rapunzel gets pregnant and Red Riding Hood is raped. In one Swiss retelling of Snow White, Snow White is a slut. The seven dwarves are murdered and their house is burnt to the ground. Disney didn't option that version. This debate about whether children's books should be full of princesses or big bad wolves is one that still matters now in Britain, Roald Dahl's stories were edited to take out the bits that some considered to be filthsome. In America, in 2023, 17 states attempted to censor over 100 books. It matters too, this debate, because not only the stakes are high, but the sales are. The best selling book in America over the past decade was Dr. Seuss's oh, the places you'll go. So adults care about children's books because they sell. But perhaps the real reason that adults care about controlling children's books is because they know full well that they can't. If you go into Narnia or Neverland or Wonderland, then you, like Lucy or Peter Pan or Alice, go alone. So if you're sitting comfortably, then we shall begin. For centuries, there was no debate about children's books because there were no children's books. Later, they even treated them with disdain. The writer Martin Amis said that he would only write children's books if I had a serious brain injury. But there were those who paid attention to them. The philosopher John Locke said that children's minds were so easily formed that you should write special books for them. Locke said that they should have as many pictures of animals in as possible. What books there were for children were pretty heavy going. They tended to be about grammar or religion, or often both together. So when the Grimms arrived with their slaughter, torture and violent deaths of animals, they felt almost larky. But the Grimm stories weren't actually intended for children. They were linguists, not novelists, and their aim was preservation, not entertainment. Industrialization had started to creep through the deep, dark forests of Germany, and as it went, it was destroying species and stories. Narrative naturalists. The Grimms wanted to capture these stories and press them between the pages of their books before they were lost forever. Not everyone was happy about this. Some of their first readers complained about all the darkness and the gore. Even the actual structure of these stories was pretty tough going. The famous Happily ever After ending used to alternate with the and if they haven't died, they're still alive. The Grimms would reply to their critics briskly, if you want to hide children from bad things on the page, they said, you may as well simply blindfold them so that they can't see at all. Though that was a bit disingenuous, because they did change their stories a little bit. Originally, the wicked stepmother of fame was actually a mother, but eventually she gained the step. The Grimms felt that the bosomy bourgeois muti should be motherly and not murderous. The Grimms had completely, unwittingly embroiled themselves in what is now a very long running debate. Should books for children be virtuous and good, or should they be much like children are nasty, brutish and short? Both kinds of books do really well. If you look at the Amazon Best Seller list, then a book called Guess How Much I Love youe sells incredibly well. Then so too does a book called the Fart that Changed the World. But Then again, children's books have never really been just for children. Adults happily read Harry Potter and Philip Pullman, and all good children's writers know that even when you're writing for very young children, you're writing for a double audience. You're writing for the child who is being read to and for the person who's doing the reading. And frankly, you're also, above all, writing for the person who's doing the best buying. So perhaps you should just forget what the child wants and buy what you want, and the child can just find something they enjoy about it, and then you'll all live happily ever after. If that is, you are not dead.

You can read more about these grim tales in Catherine's review of the Brothers Grim by Ann Schmied. The link is in the show notes. That's all for this episode of the Intelligence. We'll see you back here tomorrow.

Sam.