The rise of destructive wildfires across the western U.S.—and especially in California—has reshaped the P&C insurance landscape. What was once perhaps considered a seasonal concern has become a year-round, multi-billion-dollar risk factor. As carriers navigate increasingly volatile conditions and rising loss ratios, a key question looms: Can risk models evolve fast enough to preserve market stability?
The answer depends on how quickly and effectively the industry adopts – and regulators approve - the next generation of
Traditional approaches to wildfire risk assessment are faltering in the face of accelerating losses, urban encroachment, and stressed suppression infrastructure. Broad-brush underwriting techniques that once sufficed now lead to inaccurate pricing, blanket rate increases, market subsidies that increase costs in non-wildfire areas and, in some cases, market exits.
Welcome to a
A precision approach to risk
Historically, wildfire risk has been assessed using geographic proxies—zip codes, counties, or designated fire hazard severity zones. These broad boundaries often fail to reflect the real, nuanced differences in exposure at the property level. Two homes on the same block may face drastically different wildfire risks based on slope, aspect, vegetation density, fuel types, access roads, defensible space, and other mitigation actions.
That's where modern wildfire risk models come in. Built on high-resolution geospatial data, climate, weather and fire science, these models leverage AI to provide real-time, property-specific risk scores. They incorporate variables such as:
- Vegetation type and density
- Slope, elevation, aspect and topography
- Historical fire activity and recurrence intervals
- Prevailing wind patterns and ember travel
- Fire suppression resources and emergency response capacity
This shift from coarse-grained assessments to high-fidelity scoring helps insurers differentiate high-risk from lower-risk properties with far greater accuracy, and without penalizing entire communities.
A game-changer: Quantifying mitigation
The next evolution in wildfire modeling is the ability to incorporate mitigation into risk scores. For years, the industry has acknowledged the importance of defensible space and home hardening—but struggled to reflect these efforts in pricing or underwriting decisions.
That's changing. Data collected from more than 90,000 home inspections in California, analyzed by Guidewire HazardHub, shows clear patterns:
- Basic efforts like trimming vegetation and cleaning gutters can reduce risk by 20% or more.
- Homes that adopt a full suite of mitigation actions—such as installing ember-resistant vents, replacing flammable fencing, and using fire-resistant building materials—can see risk reductions of up to 74%.
Incorporating mitigation factors into wildfire risk models is rapidly becoming an industry imperative. It allows insurers to reward policyholders who invest in resilience through tiered pricing, premium discounts, or broader coverage, aligning financial incentives with safer outcomes. The key challenge is accessing accurate, high-resolution data in real time. That's where insurtechs like Nearmap, GreenShield, Faura, and others are stepping in, using AI to close the information gap and power smarter underwriting decisions..
California: Still insurable—if we get smarter about risk
As insurers reassess their presence in California, some have questioned whether the market remains viable. The reality is more nuanced. According to HazardHub data, 98% of wildfire-related losses come from just 10% of the state. In other words, wildfire risk is not uniform—it's highly concentrated.
This suggests that California remains largely insurable, provided carriers can pinpoint and price high-risk properties accurately. But to do that, base rates must be actuarially sound, and underwriting must reflect the true nature of property-level exposure.
To strike that balance, insurers can:
- Use wildfire risk models to identify and price high-risk properties appropriately
- Coordinate with the California Department of Insurance to establish statewide rate adequacy
- Encourage mitigation through policy design, renewal underwriting, and ongoing communication
- Monitor portfolio concentrations and avoid geographic aggregations that may jeopardize policyholders surplus and stifle growth
Rather than withdrawing entirely, this approach empowers insurers to maintain a presence while protecting their balance sheets—and their policyholders.
Rebuilding trust through smarter underwriting
Wildfires aren't going away—and neither is the demand for insurance in vulnerable regions. With stronger data, smarter modeling, and better alignment between pricing and risk, insurers can chart a more sustainable course that helps build resiliency in the industry and in the world. By making buildings more resilient, firefighters are free to focus on fighting the fire instead of rescuing lives and property for those who failed to prepare and now find themselves in harm's way
Rather than relying on outdated assumptions or pulling out of markets altogether, smart carriers are doubling down and taking advantage of the opportunity to lead with innovation.
Modern wildfire risk models are not just tools for underwriting—they're instruments for change. By leveraging them, the industry can help protect communities, reduce uninsured losses, rebuild trust in the face of a growing threat, and lead the way towards true climate resilience.
