The insurance industry sets fire to houses just to send a message.
The fires are controlled, set in a research lab or staged in training facilities used by fire departments. They are designed to simulate the conditions that promote wildfires to spread through neighborhoods and cause what insurers call a “conflagration event,” such as the one that killed 102 people and destroyed the town of Lahaina on the Hawaiian island of Maui last August.
The message to homebuilders is clear: Homes in some parts of the United States must now be built with wildfires in mind or they will likely not be insured, meaning they could not be purchased with a mortgage.
Partly because of climate change and the resulting increase in catastrophic storms and wildfires, homeowners insurance in some parts of the country has become a loss-making business for the industry. In the United States, insurers are projected to lose $33 billion in 2023 on personal home and auto insurance, according to AM Best, an industry rating agency.
In California, where wildfires have burned more than 220,000 acres of land this year alone, major insurers like State Farm, Allstate and Farmers have all backed down. In some areas, they’ve stopped writing new policies and canceled some existing ones. This month, State Farm asked California’s insurance regulator to approve a 30% rate increase on the homeowners insurance it still offers in the state.
“We’ve always had insurance, it’s always existed, it’s been part of our daily processes, like getting a mortgage,” said Josh Wilkins, a retired Idaho firefighter who now advises insurers and property owners on reducing wildfire risk. But “that business model is dying,” he said. “The end users — the insurance customers — are going to have to do something to make sure they maintain that business model.”
That “something” could be the biggest overhaul of building codes in more than 30 years. After Hurricane Andrew devastated parts of South Florida in 1992, pressure from the insurance industry forced homeowners and builders in the state to adopt stronger windows and roof ties. The industry is now applying similar pressure in response to the growing risk of wildfires.
The Insurance Institute for Business & Home Safety (IBHS), backed by more than 100 insurance companies, is leading the effort. IBHS is advocating for new standards for landscaping, fencing and building materials that it says can help prevent a wildfire from ravaging a neighborhood. It also holds side-by-side burn demonstrations, comparing fire-resistant designs and materials with more traditional structures.
The institute’s last fire occurred in June at the Pacific Coast Builders Conference, a trade show in Anaheim, California, where builders from across the West Coast had gathered. On a concrete lot used as a training ground by local firefighters and rescue workers, two newly constructed one-room structures stood side by side.
The wildfire-resistant building was surrounded by a five-foot-wide moat. On one side, a fireproof metal fence, designed to look like wood, stretched out, and the house had protective siding to keep burning embers from entering the roof vents and eaves.
Three meters away, the other building was surrounded by shrubs and mulch, resembling a typical house in many suburbs across the country. There was a wooden fence on one side.
The new standards worked as intended: after a fire started by local firefighters, only a single smoking board remained of the traditional structure. The fire-resistant building remained intact.
Architects, investors and lobbyists have hailed the country’s biggest homebuilders, but not everyone has reacted positively. After the fire, at another presentation, a landscape architect complained that builders would “not be happy” about having to give up valuable space around a house for a ring of fire-resistant concrete.
A California Department of Forestry and Fire Protection official responded that architects and designers should “reimagine beauty.”
“It’s kind of like driving at the speed limit,” said John Morgan, the agency’s chief of staff for wildfire risk reduction. “We may not like it, and we may not always do it, but we should do it.”
Insurers don’t just want builders building new projects to adopt the standards; they want homeowners to retrofit their buildings to be wildfire-resistant. Homeowners are being asked to cut down trees, remove shrubs, replace windows and gutters, and remove wooden decks and fences and rebuild them with metal, stone or other noncombustible materials.
Through the IBHS, homeowners can have inspectors come in and certify that their retrofit efforts worked. Such certification can help lower their insurance bills. States like California and Oregon have recently adopted their own requirements for how homes and subdivisions must be retrofitted to protect against wildfires, but they aren’t as strict as the IBHS standards.
The need for insurance sparked a similar wave of change 30 years ago, when insurers went out of business in Florida after taking a $16 billion hit from Hurricane Andrew. State officials at the time scrambled to find a way to get the insurance companies back. They set up a mechanism for homeowners to show their insurers that they had made improvements to their roofs and windows to help their homes better withstand hurricanes.
Wildfires are becoming more frequent and severe due to widespread droughts, higher temperatures and stronger windstorms. Between 2018 and 2022, wildfires worldwide caused $39 billion in losses to insurers, and four of the five costliest fires during that period occurred in California, according to a report from Munich Re, a reinsurance company. Scared by these numbers, insurers are refusing to write policies in large areas of the American West.
Regulators have the power to approve or block insurers’ rates and prevent them from making excessive profits. But if insurers decide to exit an industry, regulators are virtually powerless to stop them. They cannot force insurance companies to write policies.
Mr. Wilkins, a consultant in Idaho, estimates that insurers want to reduce fire risk by 20 percent before they will consider returning to an area. To assess their risk, insurance companies use powerful forecasting models that synthesize information about precipitation, vegetation, wind, topography and human activity to perform detailed analyses.
One such model, developed by data and analytics company CoreLogic, can assess risks down to the square foot and focus on a single structure. The model overlays colors on satellite maps of an area that act like traffic lights: A green hue represents low-risk areas, while high-risk areas are tinted red. Insurers use these models to decide how much to charge a homeowner or business for an insurance policy, or to decide whether to purchase a policy on the structure.
Dan Dunmoyer, executive director of the California Building Industry Association, said he realized how serious insurers were about the need for change when he saw the annual premium for a new condominium project near San Diego climb from $40,000 to more than $2 million last year. The condominiums were intended to be the least expensive in the area — about $500,000 per unit compared with the $1 million average price for a single-family home in the area — and rising insurance costs have slowed the project’s expansion, Dunmoyer said.
“The most accessible product we sell is now impossible to build,” he said.
In recent years, the IBHS has begun to embrace its fire demonstrations as a key way to get its message out. The institute began conducting them at its lab in South Carolina, including one that was broadcast live on “Good Morning America.” In September, the group began holding public demonstrations, staging four in California and one in Idaho, states with high wildfire risks.
It’s unclear how many builders are heeding the industry’s message. The IBHS keeps track of the number of builders and homeowners who have applied for its wildfire-resistant certification, and a spokeswoman said there has been a recent uptick in applications. Since the certification program launched two years ago, The group received 4,400 applications and awarded certification to 600 of them.
Insurers and firefighters are working on a way to track adoption of the standards, in part because both groups want to be able to include that information in their risk models. But no common tracking system is yet in place.