Wildfire risk has largely been measured by the terrain and vegetation surrounding a home; however, as wildfires expand further into developed communities, the homes themselves can become the fuel, according to Cotality’s Mind the Gap: 2026 Wildfire Risk Report.
Four systemic failures are responsible for transforming localized wildfire risk into a compounding industry crisis, the report states: the assessment gap, the incentive gap, the protection gap, and the temporal gap.
The Assessment Gap
The assessment gap is how physical risk is modeled in the built environment, with conflagration being one of the greatest dangers. “Traditional wildfire models generalize hazard from natural vegetation and terrain, giving properties the highest risk score where fuels are dense and slopes are steep, then stepping risk down as development thickens,” states the report. “That logic holds until the fire reaches the built environment, where legacy models alone fall short, with the result being a risk mis-assessment.”
The report emphasizes that fires change when they move from the WUI into a neighborhood, as structures become the dominant fuel source. Wind-driven conflagration threatens all the homes in its path—even those that are rated low-hazard by vegetation-focused models. Cotality’s Wildfire Risk Score, which ranks from 0 to 100, shows that conflagration potential onto a traditional wildfire risk score can add as many as 40 points to a property’s score.
“Closing the assessment gap requires high-definition models that evaluate structure density, building characteristics, wind patterns, and ember influence alongside terrain and natural fuels,” states the report. “Carriers that account for these structure-to-structure externalities upfront can ensure properties are adequately insured against neighborhood-driven catastrophes rather than just forest fires alone.”
The Incentive Gap
The incentive gap refers to how property-level mitigation is rewarded and where it fails without community-wide adoption, according to the report. “The scientific consensus on structure survival is clear: outcomes are determined largely within the Home Ignition Zone (HIZ)—the building itself and the immediate 100-foot perimeter.”
The report notes that, although homeowners can “harden” HIZs, an incentive gap persists because insurers have historically lacked the property-level data required to grant verified premium credits. The resulting lack of financial reward and awareness of risk leads homeowners to invest little in mitigation, meaning that “risks remain elevated, carriers retreat, and policies pour into overburdened state residual markets.”
The cycle can be broken with address-specific analytics. “A property-level mitigation score (scaled 0.1 to 100) combining community protections, parcel conditions, and structural hardening provides underwriters a defensible basis for pricing,” states the report. “Two high-leverage signals carry the strongest weight: noncombustible zone 0 maintains a 0- to 5-foot ember-resistant perimeter around the foundation; and class A roof verification to ensure top-tier fire resistance where ember accumulation is highest.”
Cotality’s analysis of 6.8 million single-family residences demonstrates that modeled loss costs fall significantly as mitigation improves. Homes in the top 10% for mitigation carry expected losses roughly 78% below the statewide average, while the bottom 10% run over 10 times the average. Regulations in wildfire-prone states are reflecting these numbers. California’s Safer from Wildfires regulation requires premium discounts for verified mitigation, and Colorado’s House Bill 25-1182 requires carriers using wildfire risk scores to “disclose them, credit parcel- and community-level mitigation, and provide homeowners a formal channel to appeal incorrect scores or uncredited property improvements.”
The Protection Gap
The protection gap indicates “how shrinking insurance availability, combined with coverage limits that lag with real-world reconstruction costs, leaves policyholders severely exposed,” according to the report. “When valuations remain static, policyholders fall victim to a silent exposure: years of compounding construction inflation and post-disaster ‘demand surge.’” WUI wildfires often cause total losses, leading to severe out-of-pocket reconstruction costs that can trigger mortgage delinquencies, diminish community resilience, and introduce systemic risk into the overall housing finance system, the report states.
From Q3 2021 to Q3 2026 nationwide, reconstruction costs in the U.S. increased by an average of 40%. “To close this gap, the industry must move beyond static valuations,” the report emphasizes. “Dynamic [reconstruction cost valuation (RCV)] intelligence that tracks labor and material costs keeps coverage limits aligned with true rebuilding costs, while probabilistic catastrophe models translate physical risk into expected annual dollar losses before policies are written.”
The Temporal Gap
The temporal gap refers to how dynamic landscape changes are tracked over time. Because wildfire risk is subject to shifts in landscapes, preventing sudden premium increases requires examining preburn risk (long-term horizon), which “reflects baseline hazard conditions before recent fires”; and postburn risk (immediate horizon), which “captures real-time exposure by factoring in active burn scars—providing the precise, current reading for immediate underwriting decisions.”
According to Cotality’s parcel-level analysis identifying U.S. properties with a postburn wildfire risk of 51 or higher, the top 10 exposed states contain over 2.5 million properties with a moderate or greater risk of wildfire and a combined RCV of nearly $1.4 trillion. Even metropolitan areas mirror the state rankings, the report states, with California claiming six of the 10 most exposed Core-Based Statistical Areas (CBSAs), led by Los Angeles, “where nearly 250,000 at-risk properties represent more than $209 billion in RCV.”
The Year Ahead
“Seasonal forecasts indicate 2026 may bring one of the strongest El Niño events in modern history,” states the report. “Cotality scientists expect the cycle to redistribute wildfire risk rather than retire it. Conditions in the Southwest should ease once winter precipitation arrives, while the Pacific Northwest dries into conditions associated with larger, more extreme fires.” The report notes, however, that by “pairing real-time postburn exposure with long-term preburn trends, carriers can avoid risk assessment surprises as natural fuel regenerates.”
Declining housing affordability, coupled with tightening insurance capacity, demonstrate a need for an updated risk assessment approach. The report suggests that addressing the four gaps will be vital to ensuring property and insurance resilience against wildfires.
About the Author:
Angela Sabarese is an associate editor at CLM Magazine. angela.sabarese@theclm.org