Western U.S. Wildfire Risk Reaches $1.4 Trillion As Conflagration Potential Increases

The financial implications of wildfire risk in the western United States are escalating, with over 2.5 million properties now categorized under moderate to severe wildfire threat, according to Cotality's 2026 Wildfire Risk Report, released on August 12. The estimated reconstruction costs for these properties have reached nearly $1.4 trillion.

California is at the forefront, accounting for the majority of this risk with 1.28 million properties valued at approximately $850 billion in reconstruction costs. However, it’s noteworthy that nearly half of the properties at risk—49.9%—are located outside California. States such as Colorado and Texas house almost 560,000 of these properties, contributing significantly to the overall risk with a combined valuation of $252 billion. This figure is closely rivaled by the remaining seven states, which collectively represent $277 billion.

Los Angeles tops the list of metropolitan areas with wildfire exposure, housing around 250,000 at-risk properties valued at $209 billion. Interestingly, four of the ten most vulnerable urban centers are now outside California, with Austin leading this group at over 100,000 properties valued at $49.2 billion. This shift reflects population growth encroaching into areas commonly considered fire-prone.

Wildfire Risk Affects National Trends

The trend aligns with earlier analyses from Triple-I, which indicated that roughly one-third of all homes in the continental U.S.—exceeding 46 million properties—reside within regions facing some level of wildfire risk. Recent years have seen record wildfire seasons in states like Florida, Georgia, and Nebraska, suggesting that traditional underwriting practices tied to California’s fire experience are being challenged in new markets.

Understanding Conflagration Risk

Cotality's report emphasizes the role of conflagration risk—the manner in which fires spread from wild vegetation into built environments. This element can significantly impact risk scores, sometimes adding as many as 40 points to an otherwise stable wildfire risk assessment. Areas previously deemed low risk can thus suddenly exhibit a sharp increase in perceived hazard.

This finding is critical for insurance brokers. A rise in a client's risk score, without any changes to the property itself, may now stem from this new conflagration modeling. Brokers need to effectively communicate that these scores take into account factors like structure density, construction materials, wind conditions, and ember exposure, not merely the proximity to wildland areas. This deeper understanding empowers brokers to provide clients with actionable strategies to reduce their risk.

Jamie Knippen, Cotality’s Director of Hazard Insights, framed this increased risk as an opportunity rather than a setback. “Higher risk scores present a chance for the market to evolve,” he noted. By incorporating detailed assessments of structural vulnerabilities, insurers can expand their underwriting reach while also rewarding policyholders who invest in protective measures.

Mitigation Ratings Show Significant Disparities

The report identified stark differences in expected losses based on mitigation efforts. Properties within the top decile for mitigation demonstrate expected losses approximately 78% lower than the statewide average, while those in the bottom decile face losses more than ten times the average—roughly $47 for every $1 in expected loss for the best-defended homes.

Legislative Changes Support Risk Transparency

State policies are beginning to align with this evolving risk landscape. Colorado's HB25-1182, effective July 1, 2026, mandates that insurers disclose wildfire risk scores to homeowners. This law requires insurers to offer discounts for mitigation improvements and to defend risk assessments against homeowner appeals. California is also adapting, allowing insurers to integrate forward-looking wildfire models into their pricing strategies, contingent upon evaluating property-level and community-level mitigations.

For brokers operating in these wildfire-prone areas, this shifting regulatory framework presents new challenges and responsibilities. They must ensure that clients understand the implications of conflagration modeling and the different mitigation strategies that insurers now factor into risk assessments. As the landscape changes and regulatory requirements increase, brokers will need to possess a nuanced understanding of wildfire risks and mitigation approaches to effectively guide their clients.