What Are Wildfire Risk Scores and How Are They Calculated?

Wildfire risk scores are scores assigned to properties by third-party vendors based on the likelihood of direct or indirect exposure to a wildfire. Wildfire risk scores can be a factor used by insurance companies when making coverage decisions. Additionally, wildfire risk scores can be a helpful metric for real estate developers to consider when determining whether to buy a piece of property.

There are a variety of vendors that use unique methods to calculate wildfire risk scores. For example, CoreLogic, FireLine, and RedZone are vendors used by insurance companies in California. Some vendors' scoring scales are from 1-10, and some are from 1-100, but generally the higher the score, the higher the likelihood of a wildfire impacting the property. There is no national, standardized scoring scale.

The wildfire risk scoring system was originally designed to help property owners identify their likelihood of experiencing a natural disaster and take appropriate steps to mitigate damage. However, as damage from natural disasters became more extensive and costly, insurance companies began using wildfire risk scores as well.

Vendors calculate wildfire risk scores in various ways. They rely on satellite images of the property, census data, historic fire information, climate projection over the span of decades, and even simulated wildfires generated with AI. Additionally, property data like vegetation, slope, access, fuel nearby, boundaries, and buildings are considered.

What Do Insurance Carriers and Underwriters Use Wildfire Risk Scores For?

Insurance companies rely on wildfire risk scores to calculate the price of premiums. The higher the risk, the higher the premium. Underwriters also use wildfire risk scores to balance out the overall risk in their insurance portfolios.

Additionally, wildfire risk scores are considered when insurance companies decide whether they will cover or renew coverage on a property. If an insurance company thinks a wildfire risk score is too high—for example, if it increases following a fire in an area—they might discontinue coverage altogether. While many insurance companies rely on wildfire risk scores, some companies—like State Farm—have decided to simply stop providing coverage to new property owners in fire -prone areas in California.

Mitigating fire risk can be a critical part of ensuring the availability of insurance, particularly given the current market in California, which has seen some insurers refuse to write new policies or to renew older ones due to wildfire risks. Some developers are finding that their homebuyers are being forced, in high wildfire risk areas, to turn to the ever-growing FAIR Plan, which is the insurer of last resort in California.

What Should Property Owners Know?

The California Insurance Commissioner implemented a new regulation in 2022 that imposed requirements on insurance companies with respect to their use of wildfire risk scores. Under California Code of Regulation section 2644.9, insurance companies are required to: 1) provide insureds with their wildfire risk scores; 2) submit their wildfire risk score models to the California Department of Insurance; 3) provide discounts to property owners who take steps to mitigate the risk of wildfires; and 4) allow customers to appeal their wildfire risk score decision.

If property owners are in a fire -prone area or are assigned a high wildfire risk score, there are various mitigation measures they can take to reduce their premium. Under California Code of Regulation section 2644.9, insurance companies are required to consider the following mitigation efforts when calculating premiums: community-level mitigation efforts; property-level mitigation efforts, such as clearing vegetation and debris; and building hardening measures on structures like a Class-A fire rated roof, enclosed eaves, fire-resistant eaves, multipaned windows, and at least six inches of noncombustible vertical clearance at the bottom of a building.

There are other mitigation efforts that property owners can take, but insurance companies are not mandated to consider them. For example, the slope of the property relative to potential sources of ignition; accessibility of the property to firefighters; the direction of the slope relative to the direction of structures on the property; materials used in construction; and wind vulnerability may be considered.

If property owners are denied coverage or if they disagree with their wildfire risk score, section 2644.9 allows them to appeal their wildfire risk score decision. However, the appeal is processed by the insurance company; the Department of Insurance is uninvolved. Therefore, if an appeal of a wildfire risk score decision is denied by an insurance company, the customer is essentially back to square one.

What Should Developers Know?

Developers who are interested in buying property can obtain the wildfire risk score on it by reaching out to their insurance broker, who likely has an account with a vendor that provides wildfire risk scores. Alternatively, developers can create their own account with a vendor, then simply enter an address or latitude and longitude coordinates on the vendor's platform to receive a report with the estimated wildfire risk score for a property. If a developer has their own account, they can check the wildfire risk score on a piece of property regardless of whether they actually own the property yet. Accounts start at around $100 per month and reports start at around $2 each. Developers and builders should consider obtaining the wildfire risk score early in the due diligence process. We recommend talking with counsel early in the due diligence process when considering a land purchase. Newmeyer and Dillion attorneys are available to assist with all of your real estate needs.