Wildfire risk in the western U.S. has reached new highs as 2.6 million homes are at moderate or greater risk—with a combined $1.3 trillion in potential reconstruction costs, according to Cotality’s 2025 Wildfire Risk Report. In response, insurers are pulling out of high-risk zones, leaving many underinsured and with massive coverage gaps.
Insurer Retreat and Coverage Gaps
“Private insurers are retreating from the wildfire-exposed West. In California’s wildland urban interface [(WUI)], many major insurers are no longer accepting new homeowners applications or have imposed caps on the number of policies issued in the state,” the report explains. “Those exits have driven unprecedented reliance on the California FAIR Plan, whose roll-book swelled to more than 452,000 policies in 2024, more than double the 2020 total.”
This trend is spreading to other states in the west, such as Colorado, where coverage in places such as Boulder and Evergreen have seen average premiums increase by almost 60% in only five years. In Oregon, “major insurers have retreated from central, southern, and eastern counties, forcing many homeowners to search for last-resort coverage or pay quadrupled premiums.”
While analyzing risk, insurance carriers must also navigate the complexities of individual state regulations. For instance, laws such as Colorado’s HB 1182, effective July 1, 2026, will force carriers to “disclose wildfire scores and classifications, give discounts for homeowner mitigation, and defend those scores on appeal.” However, the additional compliance burden could discourage new entrants even as the law seeks to make coverage more affordable.
Underinsurance Amid Rising Reconstruction Costs
“When reconstruction costs surge higher than dwelling limits, loans servicers often add force-placed coverage that runs roughly twice the price of a borrower’s own policy. This sudden increase in cost can eat into family budgets while borrowers scramble to cover the higher bill,” explains the report.
In California, according to Cotality’s True Standings Servicing data, payments that are 30 to 119 days past due (DPD) rose from 1.87% in December 2024 to 2.22% in February 2025 before easing to 1.90% in April 2025. Ventura and Orange Counties’ delinquency rates decreased over the same period due to missing the brunt of the fires.
Rebuilding in Los Angeles Stalled
Nine months after the January fires that plagued Los Angeles, very little progress has been made toward rebuilding thousands of lost homes. “LA County’s dashboard showed fewer than 50 rebuilding permits issued by late May, and Altadena officials said only 15 permits had been issued for the Eaton burn-scar,” states the report.
The obstacles causing this issue include a shortage of skilled contractors due to a tight labor market with high construction loan interest rates; inflated material costs amid demand surge; and underinsurance among residents who cannot absorb the gaps.
Wildfire Risk Throughout the West
“All across the western U.S….risk varies from property to property. Even next-door neighbors can have different risk scores due to their property’s slope, aspect, fuel, surface composition, drought, and winds,” according to the report. “By examining the quantity of homes and their reconstruction cost value (RCV) based on wildfire risk scores, we can understand individual risk levels as well as the entirety of the risk landscape. This holistic approach is crucial for effectively assessing and managing wildfire threats.”
There are nearly 2.6 million homes at moderate or greater risk with a combined RCV of $1.3 trillion in the western U.S. in 2025. Approximately 1.2 million homes, nearly half of the homes with elevated wildfire risk, have very high wildfire risk, the report states.
The top three states (California, Colorado, and Texas) have more homes with elevated wildfire risk than all the other states Cotality modeled, according to the report. “While California claims eight of the 15 most at-risk metropolitan areas, Austin, TX; Denver, CO; Bend, OR; and Flagstaff, AZ metropolitan areas also sit among the nation’s top 15 areas in number of homes with moderate-to-high wildfire risk.” These areas are at the top of the list due to their proximity to…the WUI, which elevates their risk.
Los Angeles has the most homes with moderate or greater wildfire risk. The nearly 241,000 homes with moderate or greater risk profiles represents a RCV of over $191 billion.
Modeling Wildfire Conflagration
“Although both the Palisades and Eaton fires in Los Angeles began as typical wildfires, they evolved into a different type of phenomenon: wildfire-induced conflagration,” states the report. Conflagration, which occurs when a fire’s primary fuel source shifts from vegetation to the built environment, impacts how it spreads, where it travels, and the scale of its potential destruction, the report explains.
Conflagration escalates losses exponentially, as those areas classified as “low-risk” may not adequately indicate the actual scale of potential destruction. “Cotality conducted a retrospective analysis of the Palisades and Eaton fires using the Wildfire Risk Score (WFRS) and Wildfire Conflagration Score products,” the report continues. “The analysis found that properties assessed as low or moderate wildfire hazard may still face high or very high conflagration risk, especially in wildfire-prone areas. This results in disputes over underwriting accuracy and coverage as risk assessments underestimate exposure.