‘Adaptive’ wildfire insurance approach needed

Calling rising wildfire insurance rates an “urgent challenge,” a Headwaters Economics and Columbia Climate School report released this month points to potential approaches to address the financial burden on Montana property owners.

Nationwide, property insurance rates are rising — but they’re doing so even faster in areas with “climate-related perils” according to a report published by the U.S. Treasury Department at the beginning of this year.

Non-renewal of policies is also an issue and that same Treasury report found that in areas with “the highest expected losses from climate-related perils,” non-renewals of property insurance coverage were more common.

The Headwaters report looks at five strategies that could be employed to help communities in high-risk areas find insurance. These approaches include community risk pooling, ideas pulled from agriculture insurance and large-scale state reform.

According to the state’s insurance commissioner, James Brown, the state could see the fifth-highest state increase in property insurance increases this year, citing a National Association of Realtors report. Montana policy holders paid a little more than $4 billion in premiums in 2013, that number in 2022 was almost $7.4 billion, according to the National Association of Insurance Commissioners.

He pointed to escalating fire risk in a May letter as part of the problem.

“First, wildfires have become more frequent and intense. Nearly 70% of all wildfires recorded in Montana have occurred since 2000,” Brown wrote. “These longer-lasting, more destructive fires dramatically increase the risk to homes, pushing insurance rates higher. Second, Montana’s scenic appeal and lifestyle continue to attract new residents, inflating property values and replacement costs — thereby driving up premiums.”

He went on to write that half of all properties in Montana are “at risk of catastrophic wildfire damage.”

‘Ability to financially rebound’

About 75,000 acres burned in Montana this year with one main residence, according to the state’s Department of Natural Resources and Conservation. Fires involving large numbers of structure losses — such as the Eaton and Palisades fires around Los Angeles earlier this year — have become more common and the economic losses are staggering.

Montana has seen some fires that have destroyed homes, including the 2021 fire in Denton and the Bridger Foothills Fire in 2020.

According to a 2023 Department of Interior report, the annual burden of wildfires on the U.S. Economy was between “$71 billion to $348 billion in 2016 dollars ($87 billion to $424 billion in 2022 dollars).” The same report said there are “huge” data gaps around “property damage, loss of life, and healthcare costs.”

Tens of millions are spent on fire suppression and mitigation in Montana each year and nationally, suppression costs consistently ring in at well over a billion dollars annually.

But even with the suppression and mitigation efforts, communities can struggle when faced with a fire disaster.

“As the protection gap expands between those with insured losses and those without, a community’s ability to financially rebound is weakened, municipal revenue flows including property taxes may be diminished, and significant federal investment may be needed to offset recovery and rebuilding costs,” the Headwaters report reads.

It also cautions that no single strategy will solve all problems and goes on to say a, “layered, adaptive, and equity-focused framework,” will be needed to address insurance issues caused by wildfires. Additionally, the report does not cover renters nor the “unique” experiences of Native Americans living on tribal reservations.

“Land inside reservations may have unique ownership structures and be subject to federal oversight in ways that interfere with private sector insurance coverage, and tribes have long contended with additional administrative barriers to public support systems,” the report reads.

‘Reducing their own risk’

The report suggests five “new pathways” for insurance in the state, which are: voluntary certification programs, community-based catastrophe insurance, parametric policies, FAIR state plans (insurance of last resort), and state regulatory reform.

The report discusses the benefits and drawbacks of each approach, as well as examples from other states that have utilized some of those ideas. FAIR plans have been implemented in Florida, for example, while parametric policies essentially model agricultural drought insurance.

Voluntary certification is the idea that’s gained the most traction, said Kimi Barrett, a lead wildfire research and policy analyst at Headwaters. Barrett, along with Columbia Climate School’s Lisa Dale, authored the report.

Voluntary certification, where citizens do specific things to reduce fire risk on their property in tandem with others in their community, leans into the idea of home and community hardening, an approach conservation groups applaud.

Some scientists have argued the root of the wildfire issue is actually a structural ignition problem and that losses could be lessened by better building codes and materials.

These types of policies have mostly been done in western parts of the country.

“It’s modeled off of what hurricane mitigation is required in places like Alabama and elsewhere, where it’s essentially a fortification of a home to that hazard,” Barrett said. “And in doing so, demonstrating to insurance providers that the risk has been reduced enough to meet criteria for insurance retainment moving forward.”

Colorado has modeled this policy, passing a statewide fire code this year that made a home-hardening inspection mandatory at point of sale. The report also found there are potentially psychological factors to consider within the voluntary certification program.

“Shifting residents’ current expectations of external support, including home protection from firefighters, disaster relief from FEMA, and insurance as a buffer from loss will take a concentrated effort,” the report reads. “When homeowners accept personal responsibility for reducing their own risk, they may find the costs associated with home hardening to be more acceptable. Fostering this mindset change will take significant public outreach.”

‘A house in the country’

However, population trends show that people keep moving to and building in fire-prone areas.

According to the Montana Environmental Information Center, the number of new homes built in wildfire-prone areas doubled between 1990 and 2020.

Areas like the Bitterroot and Flathead Valleys are particularly vulnerable, even as southwestern Montana has exploded in population. Grass fires in Montana are a concern too, as evidenced by the fire that swept through Denton in 2021.

“Everyone wants a house in the country, right? It’s beautiful, and yet we created the imperfect storm,” Dominick DellaSala, a conservation scientist, said to the Daily Montanan. “Because now the climate has shifted, the Forest Service can’t possibly put out all these fires that are increasing in speed, intensity and acres burning where all these houses were built. So what do we do about it?”

The state Legislature is looking at the broader issue of property insurance rates in an interim committee and there’s a wildfire study bill as well. Those discussions could end up becoming legislation during the 2027 Legislative session, and the hope from the Headwater Report’s authors is that it helps inform these discussions.

It’s also important to note what insurance companies are looking for, Barrett said.

“Insurance is spending money on homes getting damaged and destroyed by wildfire,” Barrett said. “What they need to see is risk reduction ahead of a wildfire to those homes and communities placed in high risk areas, and that forest treatments and fuels reduction of landscapes alone, will not get them there, nor will suppression and response. It requires addressing the built environment at the same level that we currently address suppression and forest treatments.”

Insurance advocates have pointed to low amounts of hazardous fuels work being done under the Trump Administration — possibly as much as a 38% drop in annual average of acres treated — and are looking to see more done.

“We’ve seen more evidence and more informative reports for policyholders and homeowners about what they need to do to help protect and defend their home and make sure that they’re safe,” said Jayson O’Neill, an insurance advocate. “We aren’t seeing this sort of same urgency from our regulators and our state insurance commissioner and our state legislators.”