As wildfires continue to devastate western states, a growing trend among state legislatures is raising red flags in the insurance industry.
According to Neil Alldredge (pictured), president and CEO of the National Association of Mutual Insurance Companies (NAMIC), efforts by utility companies to obtain legal immunity from wildfire-related liabilities could have sweeping consequences for insurers, policyholders, and state economies.
“This is a major problem,” Alldredge said in an interview with Insurance Business. “The utility industry in about a dozen western states is pushing legislation to shield them from being held financially responsible if their equipment causes a wildfire.”
Subrogation, the legal process by which insurers recover claim costs from third parties found at fault, is a vital mechanism in insurance systems. But recent moves in states like Nevada and Hawaii are threatening to dismantle it in the context of utility-caused wildfires.
In February, the Hawaii Supreme Court ruled that insurers could not subrogate against utility companies involved in the 2023 Lahaina wildfires, despite mounting evidence that poorly maintained infrastructure contributed to the disaster.
Hawaii’s move sets a dangerous precedent for the industry, said Alldredge. “If a logging or construction company caused a wildfire, no one would argue they should be immune,” he said. “Why should utilities be treated differently?”
NAMIC has confirmed that legislation limiting subrogation rights has already passed in two states – Nevada and Wyoming – and is under consideration in California, Arizona, Idaho, Montana, North Dakota, Oregon, Texas, and Kansas.
The issue has returned to the spotlight after California wildfires that erupted early in 2025 caused an estimated $40 to $50 billion in insured losses. The event is reminiscent of the 2019 Camp Fire that killed 86 and displaced 50,000 from their homes.
Investigations found that a poorly maintained transmission tower from one of the state’s largest utilities, Pacific Gas and Electric, could have contributed to the 2019 disaster. Pacific Gas and Electric agreed to a $13.5 billion settlement over damages from the wildfires.
“Subrogation helps keep premiums affordable by holding the responsible parties accountable,” Alldredge said. “When that option is taken off the table, those costs shift directly to policyholders – and insurers.”
The debate over subrogation also comes as the property and casualty insurance industry contends with what NAMIC has described as a “perfect storm” of financial pressures. The start of 2025 has been especially harsh for insurers, Alldredge said, following a relatively stable 2024.
Wildfires in California, spring storm activity across the Midwest, and rising inflation have sharply driven up insurance claims costs. Combined with the impact of supply chain disruptions and new tariffs, which have particularly strained the auto insurance sector, carriers are struggling to maintain profitability without pricing themselves out of the market.
“Cars that cost $100,000 today aren’t going back to $60,000,” said Alldredge. “Home values have doubled or tripled in many regions. And litigation costs are surging.”
Amid these changes, subrogation remains one of the few tools insurers can use to manage risk across the system and keep premiums in check. According to Alldredge, dismantling it risks further destabilizing the market.
“It’s better to have something expensive but available than nothing at all,” he said. “Limiting insurers’ ability to recover losses leads to availability issues – fewer carriers willing to write policies, and ultimately fewer options for consumers.”
NAMIC and its member companies are not fighting the utility immunity bills alone. Alldredge said the organization is working closely with local firefighter associations, builder groups, and consumer advocates to push back on proposed legislation.
“This isn’t just about the insurance industry,” he said. “If you remove the financial incentive for utilities to maintain their infrastructure and invest in fire prevention, you put entire communities at greater risk.”
Insurers aren’t denying coverage to utilities, Alldredge added. In fact, several specialized mutual insurers serve rural electric cooperatives and other power providers. But granting blanket legal immunity removes accountability and creates what he calls a “moral hazard.”
“There’s no shortage of insurance capacity for utilities. But there has to be a limit to how much financial risk can be transferred onto the backs of policyholders,” he said.
Alldredge said NAMIC will continue to track and oppose legislation that seeks to erode subrogation rights, particularly as wildfire seasons grow more destructive and frequent due to climate change and expanding development into high-risk areas.
He’s calling on lawmakers to consider the long-term implications of shielding any industry from responsibility for damages it causes.
“We’ve already seen what happens when bad infrastructure and bad policy collide. Lives are lost, property is destroyed, and insurers are left footing the entire bill,” Alldredge said. “Removing accountability won’t make wildfires go away. It will just make recovery harder and more expensive for everyone else.”
