Insurance in the age of megafires

W

ildfires are an undeniable reality across the West. Many landowners and land managers are grappling with protecting their property and livelihood. Insurance coverage is a critical component to this, but understanding and obtaining necessary coverage is proving to be more and more challenging.

“We’re no longer living in an era of reliable home insurance,” said Nick Mott, co-author of the book “This is Wildfire: How to Protect Yourself, Your Home, and Your Community in the Age of Heat.”

“Insurance companies are businesses first and foremost,” said Janet Ruiz of the Insurance Information Institute, a trade association representing the industry. “It’s not a requirement for them to write a policy.” When a company “non-renews” a client, it may reflect that the company’s portfolio simply carried too much risk in that geographic area. The 2018 Camp Fire in California that killed 88 people and destroyed the town of Paradise also put one insurance company out of business. “[They were] a regional company who had insured too many properties in the area,” noted Ruiz. All of the company’s policyholder claims were turned over to the California Insurance Guarantee Association, an industry-funded group that pays claims when insurers go under. Insurers, through the association, are required to cover the insolvent insurer’s policies, making it an industry priority to balance portfolios and diversify risk within companies.

The impact on the insurance marketplace in the West has been dramatic. “Since 2022, at least even of the 12 largest insurers in the country have pulled out, or at least altered, the way they offer policies in California,” said Mott. The trend isn’t limited to California. According to First Street Foundation, a nonprofit that models and communicates climate risks, 39 million homes nationwide are at risk of losing insurance due to climate hazards.

Property eligibility for fire coverage depends on factors like loss history, age, construction quality and credit scores. In wildfire-prone areas, insurers also assess location, fire response timing, topography, defensible space and surrounding vegetation. For homeowners, these factors determine insurability, but for working ranches and large properties, the equation becomes even more complex.

RANCH RISK CALCULUS

Unlike residential policies, which focus on individual structures, landowners must insure landscapes, infrastructure, livestock and operations—often with fewer policy options and greater financial risk. And as wildfires grow more intense, securing coverage has become a mounting challenge.

“What we are already seeing is across the country, especially in fire country, insurers are leaving entirely, they’re offering insufficient insurance or charging extremely high premiums,” said Mott. “This is in large part because insurance is not prepared for megafire. Insurance is built for one-offs.” 

Landowners are frustrated. “When I got here 10 years ago, we had insurance on everything. It was no problem,” one Colorado ranch manager actively engaged in fire preparedness who asked to remain anonymous to protect the privacy of his employers said in an interview with On Land. Over time, he said, rates increased, coverage decreased, and eventually insurance was no longer available. “They just full-on dropped us. They’re not really looking at the actual land management and the risks on that particular piece of property, but rather the region as a whole,” he said. “That’s a little disheartening to me.” 

On a neighboring ranch, the insurance company was willing to provide insurance but quoted a 400% rate increase from the year prior. “It’s their way of dropping you without dropping you,” said the ranch manager. 

“We’re living with wildfire now. It’s not something we’re ever going to get rid of, so what are we going to do to adapt?” said Scott Eskwitt, government affairs director at Wildfire Defense Systems, which offers private wildfire defense systems and sells insurance to those clients. Mott agrees. “We need to be thinking differently about these newer, collective disasters [wildfires, floods] that we are seeing.”

COMMUNITY-DRIVEN MITIGATION APPROACHES

In regions around the West, utility companies, community leaders, fire services, landowners and insurance providers are teaming up to reduce the risk of catastrophic wildfires and ensure properties in their region can still access affordable insurance. 

For example, Boulder County, Colorado, has a program, called Wildfire Partners, that includes county-led, large-scale forest and grassland management, educational resources for landowners, and rebate incentive programs to help property owners make critical structural protections and defensible space improvements. A similar program in Archuleta, Dolores, La Plata, Montezuma and San Juan counties of Southwest Colorado, called Wildfire Adapted Partnership (WAP), has been around since 2003. Ruiz and Mott both suggested property owners check to see if their community has such a program.  

Meanwhile, environmental organizations and some insurance companies are working together to develop insurance products that account for healthy forestry practices. This year, The Nature Conservancy (TNC) of California and Willis Towers Watson Insurance announced “first-of-its-kind wildfire resilience insurance” that takes into account the property’s long-standing forest health work. “By placing this innovative insurance product, we hope to inspire other insurance underwriters to account for the benefit of thinning and prescribed fire,” said TNC California’s lead forest scientist Kristen Wilson, “and increase the implementation of this type of work more broadly.