Increasing wildfire risk resulting from climate change is a growing problem for insurers and homebuyers in affected areas, particularly California, according to a new report from data provider CoreLogic.

With more than 1.2 million California homes at moderate or high risk of wildfire damage, CoreLogic estimates a total reconstruction cost of $760 billion for at-risk homes in the state. Colorado and Texas came in second and third place among at-risk geographies covered by the company’s annual Wildfire Risk Report, which was released on Thursday.

The report quantified the magnitude of wildfire risk across 14 central and western states, including Arizona, Oregon and Washington.

In California, CoreLogic estimates that reconstruction costs have gone up 33.5% year over year. Depending on greenhouse-gas emissions scenarios, average annual loss projections could increase 31% to 41% in California by 2050, and roughly 40% to 50% in Colorado. 

CoreLogic said insurers’ models should account for the current risk landscape, including climate change considerations. In June, insurance giants State Farm and Allstate pulled out of California’s home insurance marketplace, citing mounting construction costs. The actions contributed to instability in the state’s insurance markets which could have significant implications for homebuyers.

“These challenges require a comprehensive approach to the insurance business‘s underwriting side, including incorporating reinsurance costs into adequate rates, establishing realistic expectations of future losses, executing effective risk concentration management and recognizing and promoting meaningful and well-maintained mitigation measures,” CoreLogic said.

The report cited data from the National Oceanic and Atmospheric Administration (NOAA) National Center for Environmental Information (NECI), which suggested 510,058 acres of land had burned from 18,015 fires in the U.S. so far this year. Despite this below average year, NOAA and the NECI report that the average number of acres burned each year has steadily increased since 1983, with a significant acceleration of wildfire activity between 2010 and 2022.

Construction of homes within wildland–urban interface areas – a transition zone between unoccupied land and developed areas – is increasing the wildfire risk, said Jamie Knippen, a senior product manager at CoreLogic. 

Mitigation measures – including removing bushes or firewood near homes – can make a difference, he noted. In Paradise, California, for example, CoreLogic found that mitigation actions by both homeowners resulted in a 55% reduction in the average insurance premium. 

Realtors and homeowners, said Knippen, should carefully consider the fire risk implications of purchasing a property in an affected area.

“In certain states, insurance is required upon purchase and in states like California with homes that sit in those high-risk areas, it may be harder for the homebuyer to obtain insurance,” she said.