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Wildfires are becoming more frequent and intense across the United States. In high-risk states such as California, Colorado, and Oregon, the cost of wildfire damage has reached record levels. These developments have led to major changes in how insurance companies evaluate and price wildfire risk.
As a result, interest in wildfire mitigation has grown. Mitigation refers to actions that reduce the likelihood or severity of wildfire damage. These efforts may involve clearing vegetation, upgrading building materials, or participating in community-wide fire safety programs. Some insurers now offer premium credits in recognition of these actions.
This article explains how wildfire mitigation impacts insurance pricing, how credits are calculated, and what factors shape underwriting decisions in fire-prone areas.
Between 2017 and 2021, wildfires caused more than $80 billion in direct economic losses in the United States. Over 70 percent of these losses occurred in California. Both the number of wildfires and the size of the areas burned have risen in recent years.
This increase in wildfire activity has made affordable insurance more difficult to obtain in high-risk regions. Insurers have responded by raising premiums, reducing coverage, or withdrawing from certain markets. For many traditional pricing models, the financial risk of insuring homes in high-fire areas is no longer sustainable.
At the same time, a growing gap has emerged between actual losses and the amounts covered by insurance. Known as the protection gap, this discrepancy leaves more homeowners reliant on personal savings or public aid following a disaster.
Wildfire mitigation credits are insurance premium discounts awarded when property owners or communities take verified steps to reduce wildfire risk. These credits serve two key purposes:
In states with frequent wildfires, such as California, regulations now require insurers to consider wildfire mitigation when setting rates. A rule implemented in October 2022 requires California insurers to file rating plans that incorporate both individual and community-based mitigation credits.
There are two main categories of wildfire mitigation credits:
Individual property mitigation involves structural and environmental changes to reduce wildfire exposure. A study by Milliman and CoreLogic found that these efforts often have a greater impact than community measures alone.
Fire-Resistant Materials
Certain building materials are more resistant to ignition. For example, Class A roofing is designed to withstand severe fire exposure. Other qualifying materials include fiber cement or metal siding.
Research from the Casualty Actuarial Society indicates that fire-resistant construction can reduce wildfire damage risk by up to 40 percent. Insurers typically verify such materials using photographs, inspections, or construction records.
Defensible Space
Defensible space is the buffer zone around a structure where vegetation is managed to reduce fire spread. It is typically divided into three zones:
Creating defensible space is often one of the most cost-effective risk reduction strategies. Modeling studies link these practices to significant decreases in fire damage potential.
Ember-Resistant Vents
Flying embers cause most structure ignitions during wildfires. Vents with fine mesh screens or specialized baffles limit ember entry.
These products must meet standards such as ASTM E2886 or California Building Code Chapter 7A. Installing ember-resistant vents is a recognized home-hardening measure that reduces ignition risk.
Community-level mitigation complements individual efforts by lowering risk across neighborhoods or regions.
Community Wildfire Programs
Programs like Firewise USA and Fire Adapted Communities provide frameworks for collective risk reduction. To maintain Firewise certification, a community must:
Certified communities may qualify for premium credits, depending on the insurer’s criteria.
Shared Infrastructure Improvements
Infrastructure upgrades can reduce community-wide exposure. Examples include:
Insurers evaluate these upgrades in their models to determine how they affect fire spread and emergency response capabilities.
Insurers rely on catastrophe models to quantify wildfire risk and estimate the benefits of mitigation. These models simulate thousands of wildfire scenarios under various conditions.
Simulation Process: Virtual fires are modeled based on geography, fuel types, wind, temperature, and humidity
Property Inputs: Models incorporate features such as defensible space, roofing materials, and ember-resistant design elements
When mitigation features are verified, models adjust expected losses downward. For example, Class A roofing may lower the chance of ignition, while defensible space decreases the probability of fire reaching the structure.
Actuaries then use these adjusted risk outputs to determine credit amounts. These calculations support premium adjustments and ensure that pricing reflects actual risk reduction.
Catastrophe models focus on potential future outcomes rather than historical loss experience. This forward-looking approach is essential for capturing extreme yet plausible wildfire scenarios.
A growing number of U.S. states are requiring insurers to offer mitigation-based premium credits. These regulatory actions aim to create a more resilient insurance system by encouraging risk reduction.
California has led this effort. As of October 14, 2022, the state mandates that all homeowners insurers include individual and community-level mitigation credits in their rate filings. This regulation appears under Section 2644.9 of the California Code of Regulations.
State insurance departments oversee these filings to ensure that credits are actuarially sound. They verify that credit values are supported by risk models and aligned with established pricing principles.
The goal is to promote wider insurance availability while accurately reflecting mitigation impacts in premiums.
Despite their benefits, mitigation credits face several operational challenges.
Data Limitations
Accurate property data is necessary for determining eligibility. However, many insurers lack current information on home features such as roofing materials or landscaping.
Emerging solutions include:
Verification and Ongoing Maintenance
Credits require confirmation that mitigation actions were properly completed and remain effective over time. Verification methods include:
Ongoing checks are critical because conditions can change. Vegetation may grow back, or structures may degrade over time.
Ensuring Actuarial Fairness
Credits must reflect real reductions in risk. A common concern is overlapping benefits. For example, if both defensible space and reduced vegetation fuel receive separate credits but address the same exposure, the combined credit could overstate the risk reduction.
To address this, insurers are creating location-specific credit systems. These systems use catastrophe model results to calculate a combined credit that aligns with total verified mitigation.
The effectiveness of wildfire mitigation credits increasingly depends on strong regulatory support, advanced risk modeling, and reliable property data.
Catastrophe modeling remains central to this process. These tools simulate wildfire behavior under varying conditions and use granular property data to estimate expected losses.
Technology improves consistency and accuracy in applying credits. Satellite imagery, AI analysis, and structured inspections help confirm whether mitigation actions have been completed and maintained.
Effective wildfire mitigation programs require cooperation among insurers, regulators, and property owners. Each plays a critical role in building transparent and effective systems for risk-based pricing.