The insurance industry is setting homes on fire — just to make a point.
The fires are controlled, kindled in a research lab or staged at training facilities used by fire departments. They are designed to simulate the conditions that help wildfires spread through neighborhoods and cause what the insurers call a “conflagration event,” like the one that killed 102 people and destroyed the Hawaiian town of Lahaina on Maui last August.
The message to homebuilders is stark: Homes in certain parts of the United States must now be constructed with wildfires in mind, or they most likely will not be insured, which would mean they can’t be bought with a mortgage.
In part because of climate change and the resulting increase in catastrophic storms and fires, insuring homes in some parts of the country has become a money-losing proposition for the industry. Across the United States, insurers lost $33 billion in 2023 on personal home and auto insurance, according to AM Best, a ratings agency for the industry.
In California, where fires have consumed more than roughly 220,000 acres of land in just this year, major insurers like State Farm, Allstate and Farmers have all pulled back. In some areas, they have stopped writing new policies and have canceled some existing policies. Earlier this month, State Farm asked California’s insurance regulator to approve a 30 percent rate increase for the owner-occupied home insurance it still provides in the state.
“We’ve always had insurance, it’s just been there, it’s been included in our everyday processes like getting a mortgage,” said Josh Wilkins, a retired firefighter in Idaho who now consults with insurers and property owners about reducing fire risk. But “that business model is dying,” he said. “The end users — the insurance customers — are actually going to have to do something to make sure that they keep the business model going.”
That “something” could be the biggest overhaul of building standards in more than 30 years. After Hurricane Andrew devastated part of South Florida in 1992, pressure from the insurance industry compelled homeowners and builders in the state to switch to stronger windows and roof ties. The industry is applying a similar kind of pressure now in response to growing wildfire risk.
Leading this effort is the Insurance Institute for Business & Home Safety, or I.B.H.S., which is backed by more than 100 insurance companies. The I.B.H.S. is advocating new standards for landscaping, fencing and building materials that it says can help prevent a wildfire from ripping through a neighborhood. It is also staging side-by-side burn demonstrations, comparing the fire-resistant designs and materials to more traditional structures.
The institute’s most recent burn took place in June at the Pacific Coast Builders Conference, a trade show in Anaheim, Calif., where builders from up and down the West Coast had gathered. In a concrete lot used as a training ground by local firefighters and emergency medical workers, two newly built one-room structures stood side by side.
The wildfire-resistant building had a five-foot “moat” of pavement around it. Stretching off one side was a fence made of a noncombustible metal made to resemble wood, and the house had protective coverings to stop burning embers from getting into roof vents and eaves.
Ten feet away, the other building was ringed by shrubs and mulch, resembling a home typical of any number of suburbs across the country. It had a wooden fence to one side.
The new standards worked as advertised: After a blaze started by local firefighters, all that remained of the conventionally built structure was a single, smoldering plank. The fire-resistant building stood untouched.
There were oohs and aahs from the audience of architects, investors and lobbyists for some of the country’s largest homebuilders, but not everyone responded positively. Following the blaze, during a separate presentation, a landscape architect complained that builders were “not going to be happy” to have to cede valuable space around a house for a fire-resistant ring of concrete.
An official from California Department of Forestry and Fire Protection responded that architects and designers would have to “reimagine beauty.”
“It’s kind of like driving the speed limit,” said John Morgan, the agency’s chief of staff for wildfire risk reduction. “We might not like it, and we might not always do it, but we should.”
Insurers don’t just want builders creating new developments to adopt the standards; they want property owners to retrofit their buildings to the wildfire-resilient specifications. Owners are being asked to cut down trees, tear up shrubs, replace windows and gutters, and to remove wooden decks and fences and rebuild them with things made out of metal, stone or other noncombustible materials.
Through the I.B.H.S., owners can have inspectors come and certify that their retrofitting efforts worked. Such certification can help lower their insurance bills. States like California and Oregon have their own recently adopted requirements for how homes and developments need to be overhauled to protect against wildfire, but they are not as stringent as the I.B.H.S. standards.
The need for insurance created a similar wave of changes 30 years ago, when insurers stopped doing business in Florida after taking a $16 billion hit from Hurricane Andrew. Officials in the state government at the time scrambled to figure out how to lure the companies back. They established a mechanism for homeowners to show their insurers that they had made improvements to their roofs and windows in order to help their houses better withstand hurricanes.
Wildfires are increasing in frequency and severity because of widespread droughts, hotter temperatures and stronger windstorms. Between 2018 and 2022, wildfires around the world caused $39 billion in losses for insurers, and four of the five costliest fires during that period were in California, according to a report by Munich Re, a reinsurance company. Spooked by these numbers, insurers are declining to write policies in huge swaths of the American West.
Regulators have the power to approve or block insurers’ rates, and to keep them from earning excessive profits. But if insurers decide to pull out of an area, regulators are virtually powerless to stop them. They cannot force insurance companies to write policies.
Mr. Wilkins, the consultant in Idaho, estimates that insurers want to reduce wildfire risk by 20 percent before they will consider returning to a region. To assess their risk, insurance companies are using powerful prediction models, which synthesize information about rainfall, vegetation, wind, topography and human activity to make detailed analyses.
One such model, from the data and analytics company CoreLogic, can pinpoint the risk assessment to within a square meter and focus on a single structure. The model overlays color-coded tints onto satellite maps of an area that function like traffic lights: A green tint represents the lowest-risk area, while the highest-risk spots are tinted red. Insurers use these models to decide how much to charge a home or business owner for a policy — or whether to write one for the structure at all.
Dan Dunmoyer, the chief executive of the California Building Industry Association, said he learned how serious insurers were about the need for change when he saw the yearly premium on a new condominium development near San Diego spike last year from $40,000 to more than $2 million. The condos were destined to be the most reasonably priced in the area — around $500,000 per unit compared with the average price of $1 million for a single family home in the area — and the spike in insurance costs slowed the expansion of the development, Mr. Dunmoyer said.
“The most attainable product that we sell is now unbuildable,” he said.
Over the past few years the I.B.H.S. has come to see its burn demonstrations as key to getting its message across. The institute began by doing them in its lab in South Carolina, including one that was broadcast live on “Good Morning America.” In September, the group began to stage demonstrations in public, holding four in California and one in Idaho, states where wildfire risk is high.
It’s not clear how many builders are heeding the industry’s message. The I.B.H.S. keeps track of how many builders and homeowners have applied for its wildfire-resilient certification, and a spokeswoman said there had recently been an uptick in applications. Since launching the certification program two years ago, the group has received 4,400 applications and has granted the certification to 600 of the applicants.
Insurers and firefighting officials are working on devising a way to track the adoption of the standards, in part because both groups want to be able to include the information in their risk models. But no shared tracking system is in place yet.
