Closing the gaps in wildfire risk

Transcript:  

Howard Botts:

I get asked a lot of questions, and we at Cotality get asked a lot of questions as to what's going on with the cost of insurance increasing, or post-fire, why are so many homeowners reporting they're underinsured? And I think, you know, part of that is we don't always price in when we're thinking about buying a home, the actual environmental peril. And it leads many of us, I think, to end up in a place where we're really stretched in terms of our debt to income.

Maiclaire Bolton Smith:

Welcome to Beyond the Buildings by Cotality. I am your host, Maiclaire Bolton Smith, and I'm just as curious as you are about everything that happens in the property industry. On this podcast, we satisfy our collective curiosity, explore questions from every angle, and look beyond the obvious. With every conversation, we illuminate what is possible.

Imagine doing everything right. You buy a home two miles away from the nearest forest, believing you are safe from wildfire. But the real danger isn't the forest—it's the flammable fence next door and the neighborhood full of homes that act like fuel. This is the story for a growing number of homeowners who fall through the cracks of how we traditionally measure risk.

A new report from Cotality identifies four systemic failures: an assessment gap, an incentive gap, a temporal gap, and a protection gap. So today, we're joined by Cotality’s Chief Scientist, Howard Botts, to help us break down what this new research reveals about the future of wildfire risk. Howard, welcome back to Beyond the Buildings.

Howard Botts:

Thank you, Maiclaire. Always a pleasure to be on with you.

Allie Barefoot:

Before we get too far in this episode, here's a friendly reminder about how to see what's coming up next in the property market. To make it easy, we curate the latest insight and analysis for you online. Find us using the handle @Cotality on all of our social media channels. But now, let's get back to the show.

Maiclaire Bolton Smith:

So, as I mentioned, there's a lot of gaps that we talk about in this report. So, it starts with the assessment gap, which is a major systemic failure in how we view the risk. Traditionally, models really focused on the natural vegetation, meaning that they may label a suburban home as safe simply because it's miles from the forest. But that can completely miss some of the inherent danger that's just there from the built environment. Now Howard, I know you know this better than anyone because you have lived this yourself, living through the Palisades Fires. So can you just talk a little bit about how this gap has historically really not been paid attention to by the industry, and what the real danger is from urban conflagrations?

Howard Botts:

Yeah, absolutely, Maiclaire. You know, as you indicated, historically, legacy models have mapped the wildland hazard really with the primary risk driver being vegetation fuel load. And predicted losses would essentially focus on homes in the wildfire zone or near the wildland-urban interface where vegetation meets urban structures. And these models have really treated the adjacent urban neighborhoods as a non-factor.

And so we've relied on this kind of flawed assumption that peril uniformly decreases as development density increases. But as you indicated, as we've seen in the Palisades Fire, or theMarshall Fire, or the Lahaina Fire, and on and on and on, this really misses what happens when the fire breaches the urban-wildland interface, and structures themselves become the primary fuel source.

So really, you know, the blindspot is the mechanics really of wind-driven urban conflagration, where proximity to the forest is really less relevant than proximity to highly combustible structures. And our models show that embers can easily travel a half-mile or more from the natural vegetation, you know, really bypassing these traditional zones. And as you indicated, I'm a kind of Palisades wildfire survivor. And we could tell, because we didn't evacuate quickly, when the smell of the smoke transitioned from burning vegetation to burning homes as the fuel source. So, you know, really today, the biggest dollar loss, bigger, biggest home loss and business losses really coming from urban conflagration.

Maiclaire Bolton Smith:

Yeah, and I feel like that term, urban conflagration, has become so common now that, you know, a few years ago, yes, there were several examples: the Tubbs Fire back in 2017, the Marshall Fire in Colorado, obviously Lahaina was a big one as well. But it really was the Eaton Fire and the Palisades Fire in 2025 that kind of made this concept of conflagration something that people can't ignore anymore.

So, when we look at our modeling, I'd like you to really talk about how it works and, you know, how we calculated on this structure-to-structure spread, because it really can change a risk score of a property. Isn't that right?

Howard Botts:

You're absolutely right. A dynamic impact on risk, and really a risk that most homeowners, I think, in particularly high-severity fire areas, don't often take into account. And the way we do it at Cotality is we really leverage our high-definition spatial analytics, looking at things like structure density, specific building materials, and micro-level wind patterns at the parcel level.

And what these do is really allow us to understand the sort of neighborhood-driven externalities, or if you will, the things causing one home to cause another home to burn. And, you know, these would include things like ember cast, which is a fancy way of saying burning pieces of wood or glowing coals potentially originating from adjacent buildings rather than nearby trees. And after the Palisades Fire, the roof of my house, which didn't burn, was covered—as well as my yard—with pieces of destroyed homes from across the street and upwind.

And so, from the actuarial standpoint, which all our insurers are focused on, really they need to understand the difference between a hardened, defensible property versus one that's highly vulnerable construction types. So we integrate structure-to-structure vulnerabilities into our algorithms, and we can see as much as a 40-point increase between a risky property on a 0-to-100 score and one that's seemingly, you know, safe by more modern building characteristics. So, definitely, the world has changed from sort of looking at risk in a more broader context, to really we need to understand, you know, a granular, individual property evaluation. And I think that's a big change we're seeing in the industry.

Maiclaire Bolton Smith:

Well, and I think a lot of what you said is kind of what we're going to get into today, Howard. But something you mentioned, Howard, was your roof didn't catch on fire, and I know your house very well, and you have a Class A roof, and you did a lot to mitigate your home when you built it just a few years ago.

And that really is what we're talking about with the incentive gap—we found that this massive difference in expected losses between, you know, homes that were mitigated and homes that weren't mitigated for wildfire. So can you maybe just talk about, like, how can the industry use this data to really kind of understand which properties are safer, and especially from an insurance perspective, which insurers may want to insure because they may be a safer property?

Howard Botts:

Yeah, I think you hit absolutely the critical factor. And one of the things we do so well at Cotality, because we provide replacement cost value to the insurance industry, as well as supporting real estate and mortgages, is we literally understand every individual structure: year built, type of material, and literally hundreds of other factors that are going to basically determine which homes may be highly resilient to wildfire risk or urban conflagration risk, and those that are more vulnerable.

And we're really interested in, you know, the kinds of variables for a particular home, like using aerial imagery to determine: is there a 0-to-5-foot non-combustible perimeter, also known in California as Zone 0, in which people have cleared any kind of vegetation that could potentially burn? You know, and that's what the Insurance Institute for Business and Home Safety (IBHS) has found to be one of the most critical factors.

But we're also looking at: what kind of roofing do you have? Is it Class A fireproof versus say a cedar shake roof, which is just waiting to burn? Do you have double-pane windows, enclosed eaves, or things like having no wood structures attached to your house or close by it?

In the Palisades fire, a lot of the homes are in canyons, and people literally had wooden decks extending out over the canyon attached to their homes. And you could see those homes burned where neighbors that didn't have that didn't. So really, these very detailed sort of structural elements are hugely important in understanding loss.

Allie Barefoot:

‍When a wildfire sweeps into a neighborhood, the destruction is rarely uniform. One house will burn down completely, while the home right next door stands perfectly untouched. Why? Because property loss is as individual as every property. Yet for decades, the industry has relied on broad, regional maps that treat entire zip codes exactly the same. They miss crucial property-level details, like the materials of a roof, the exact distance to a neighbor's wooden fence, and the true path of wind-driven embers. It's time to close the gap between broad assumptions and individual reality. Check out Cotality's 2026 Wildfire Risk Report to see the new map of wildfire risk. The link is in the show notes.

Maiclaire Bolton Smith:

Yeah, and I feel like this whole topic of mitigation is one that we're just going to continue hearing more and more about in the coming years because it's really beginning to shed light on how important hardening your home and clearing the space around your home is for, you know, not just wildfire, for all of these major disasters as well, too.

The other gap that we talk about in this report, Howard, is the temporal gap. And, I mean, this is really interesting because an area that's been burned by a wildfire all of a sudden doesn't have a high risk anymore because there's nothing left to burn. So that's why it's important when, you know, looking at wildfire risk, that you're tracking both the, you know, what it looked like before the fire and what it could look like after. And then, you know, once something has a lower risk, if you have a heavy rain season and there's more time for the trees to grow, you end up with high vegetation again, and then the risk goes up. So, like, it's not constant, the risk, as well. Like, it's constantly fluctuating. So you just want to talk about the importance of paying attention to that?

Howard Botts:

Yeah, absolutely. You know, I think as you indicated, it's really a false assumption to assume you have zero risk after a wildfire, and assuming that, oh, for the foreseeable future, that'll be the case. Particularly, I think, in the areas we see throughout the Western U.S. states, they have the type of vegetation that typically responds very quickly after a fire and begins to regrow. And in some cases, even pine forests, which you think of, oh, maybe 20-30 years, the vegetation that grows immediately after a fire is often more flammable than the trees that preceded it.

And so these, you know, vegetative fuels typically regenerate relatively rapidly, so we definitely need to not only look at current fire risk, but what was the pre-fire level. And, you know, that, in a way, helps us make sure that we really understand the loss.

And I think you were also talking about post-fire. You know, once, particularly in steep-sloped areas, suddenly mudflow and other things become an interconnected risk, if you will. And I know, you know, they're predicting a wet winter ahead for California. You know, that will lead to the growth of more vegetation, which will certainly exacerbate wildfires and potentially urban conflagration.

And we've seen rising temperatures, so even vegetation in the past we didn't worry about too much, you know, the heat will pull a lot more of the moisture out of water, leaving us with much higher risk levels. So, you know, we definitely need to pay close attention, as you described the temporal gap, because I don't think it's nearly as long a grace period, if you will, today that we once thought we had in the past.

Maiclaire Bolton Smith:

That we might think it may be, yeah. And you touched on something else, Howard, about it being a wet winter this year. That is because we are currently in an El Niño year. And we talk about El Niño a lot when it comes to hurricane season, and I think people, you know, necessarily may think of, they hear El Niño, they think hurricane season, may or may not, you know, how it will impact that. We don't often hear about people talking aboutEl Niño and the impacts it has on wildfire season. But can you just talk about what we might be expecting because of El Niño, and what it might do to wildfire season?

Howard Botts:

Yeah, I think it has a number of major factors. Essentially, the biggest one for the Western United States is really the change in the jet stream. So in winter, the jet stream during an El Niño shifts to the south. And so we do expect, since this is supposed to be a "super" El Niño starting this winter, substantial amounts of rain in Northern and Southern California. And that typically drives a huge growth in vegetation. And then come summer, that vegetation rapidly dries and becomes high wildfire risk.

North of California, typically winter will be much drier. And as we've seen this year and other years, you know, Washington, Oregon, Idaho, these states are experiencing a significant amount of wildfires, and that will be even exacerbated more by the lack of rainfall.

So, you know, I think really, as you mentioned, hurricanes are typically what we think of, but we worry a lot in California about El Niño events and what that's going to mean for future wildfire risk.

Maiclaire Bolton Smith:

Yeah, Howard, you mentioned California. I think it's no surprise to anyone that California is a really high risk, as well as, you know, much of the Pacific Northwest as well. But there may be some surprises when you look a little deeper and you look at the actual metro areas.S o can you talk a little bit about, when we look at the metro areas, where are some of the riskiest places across the country?

Howard Botts:

Yeah, I think, you know, you highlighted that we would expect California cities, particularly Los Angeles, which is number one on the list for number of properties and the reconstruction cost values that Cotality determines, and places like Riverside, San Diego, again, really not a surprise.

I think the one that surprises most people is Austin, Texas. Because when you go to Austin, you say, "Wait a minute, it's an urban area. I don't see any risk." But I think what people don't recognize is how that city has really expanded into the hill country to the west. And areas on the east side, Bastrop and some of the other areas just outside Austin, have a very, very high fire damage. And we have Austin ranked number four on our list with over 100,000 homes at risk, and a reconstruction cost of $49 billion, which is obviously very, very significant.

And, you know, Austin, when we look at it from fire science, really has the largest grouping of these moderate-to-severe wildland-urban interface exposures in the country. You know, so what we're seeing, I think, in Austin is a good example of a lot of Western cities, Texas in particular, in which municipalities are really aggressively expanding outward. We could talk about San Antonio, Waco, really any of those along the kind of hill country. And, you know, that extends up to, you know, we've seen that happen in Arizona, New Mexico, certainly Utah, all of which we're seeing substantially more homes burning as cities spread out into these fire-prone areas.

Maiclaire Bolton Smith:

Yeah, so I think that that's a really important thing, is that this is not just a California problem, and that when you dive a little deeper, there are places like many of these cities in Texas that you called out that, because of, you know, we've talked before about increased population growth, there's more homes being built, and they're building these homes in riskier areas.

Well, Howard, that kind of leads me to the final gap that we talk about in this report, is the protection gap. And you mentioned reconstruction cost values, and I think one thing that people may not necessarily have top-of-mind is, you know, just where we are in the world with inflation, and especially in a post-disaster rebuild situation, that there have been more and more situations where people have had this gap between what their policy covered and what it actually cost to rebuild their home. So can you just talk about why this is becoming a bigger concern?

Howard Botts:

Yeah, absolutely, Maiclaire. You know, I ge tasked a lot of questions, and we at Cotality get asked a lot of questions as to: what's going on with the cost of insurance increasing? Or post-fire, why are so many homeowners reporting they're underinsured?

And I think, you know, part of that is we don't always price in when we're thinking about buying a home, the actual environmental peril. And it leads many of us, I think, to end up in a place where we're really stretched in terms of our debt to income. In my example, although it's a sample size of one, was for the years I owned my home, typically $2,800 was the insurance premium. But last year, as insurance companies began to understand the true risk, it shot up to $14,800 a year. So literally $1,000 a month I hadn't factored into it.

And I think what you're seeing in the price of a lot of homeowners as they try to balance these increases in insurance costs against their household budget, they're often choosing to either not, on an annual basis, look at what the increase value of their home is related to inflation, cost of labor, materials, other things, and not really addressing the increased cost it's going to be to repair their home for fear really that that's going to increase their monthly premiums.

Or, we've seen many, many cases in which a homeowner, when they're getting a policy, chooses a lower reconstruction cost with the idea of having lower premiums—which probably works out well until there is a wildfire, an urban conflagration. We saw this a lot after the Marshall Fire. People never thought a fire could burn that far out onto the Great Plains. And certainly, you referenced the Tubbs Fire earlier, where the Coffee Park neighborhood, long distance away from the wildlands, you know, you had 3,000 homes burn.

So I think, you know, the big thing here is really this protection gap is the difference between what our current reconstruction cost is and in our policy, and what the actual reconstruction cost is. Now, we at Cotality spend a lot of time building probabilistic models that look at things like average annual loss and other things which help predict loss. But this doesn't always find its way to consumers, I think, who, if they understood the true cost, would definitely be examining their insurance policies every year.

Maiclaire Bolton Smith:

Yeah, I feel like there's a huge component of this of public education. You know, one of the things that we say here at Cotality as well is "know your risk to accelerate your recovery." And I think from a consumer homeowner perspective, that means so much as well. Like, we think about it from an insurance perspective usually, but as a standard homeowner, do you know what the reconstruction cost valuation of your home is? Do you know if that's accurate in today's environment? You know, these are things insurance companies are required to annually send their policy holders: "This is what your current reconstruction cost valuation is." Pay attention to those things when they come, because that number could be very important.

Howard Botts:

And I think that number, because of kind of increased heat, increased climate variability we're seeing, in some ways, insurance is like the canary in the coal mine. It's the first thing that responds to this increased environmental risk we're having. And we've talked about wildfire, but we could talk about a whole lot of other hazards, too. AndI think translating these complex factors into actionable risk numbers that homeowners can understand, we need to do a lot more work on that. There's a lot more, as you said, education that needs to occur.

Maiclaire Bolton Smith:

Yeah, absolutely agree.

Allie Barefoot:

It's that time again! Cotality just dropped new numbers about what's happening in the housing market. Here's what you need to know. There's a new formula defining home affordability, and it's inflating the price of stability. According to the latest Cotality data for 180,000 single-family homes in the US, affordability is no longer measured by just the mortgage payment. Homeownership now requires a property risk management calculation because natural hazard-related insurance coverage, repair costs, and physical safety are increasingly determining whether someone can actually afford their monthly housing costs.

For hundreds of thousands of homes, hazard risk is even more pronounced. They're facing a triple threat: they're at an extreme risk from three natural hazards, and they're not located necessarily where you'd think. Risk now has a direct claim on affordability, meaning buyers, lenders, and insurers need property-level clarity before the true total price of a home can be judged with confidence. To read the full report, visit Cotality.com/Insights. And that's a sip! See you next time.

Maiclaire Bolton Smith:

Okay, well, Howard, I feel like I could talk to you all day. But we are going to wrap up with my question that you know this is coming: pull out your crystal ball. We like to finish these podcasts this way, but I think for this one, it's really important because if we had gone back, if you and I had had this conversation 5 or 10 years ago, the crystal ball may not have said what ended up happening. So, if you look 5 or 10 years into the future, what do you think, as environments are shifting, development plans are shifting, people are building more into the wildland-urban interface, what do you think is going to happen across the industry that maybe as we kind of try to evolve to close some of these gaps that currently exist? What do you think a truly resilient housing market could look like in the future?

Howard Botts:

That's a really great question. And, you know, and I think we've covered some of those, you know, the idea that these broad, maybe zip-code level risk mappings are going to be completely obsolete. No company is going to continue to go that way. You know, the industry will be compelled by these market forces and really regulatory pressure to evaluate risk at the individual structure.

And I think we're seeing that inCalifornia, where insurance companies are required to provide a mitigation credit for people who make their homes or more resilient or harden them against wildfire risk. But I think a truly resilient and functioning market will really drive a lot more transparency into what the dollar value of these changes are.And so, hopefully, we will transition from an industry that retroactively kind of responds to catastrophic loss to one that really has transparently priced mitigation risk well before, you know, ignition happens in your home.

And I think we're moving to that structure, but I think in the future, I think each of us will really understand when we purchase a home what the true costs are. And we're seeing over and over again now that people are buying homes in really environmentally hazardous areas, largely because they're often very aesthetic, and, you know, we like to be near the mountains or we like to be on the coast. And so in the future, I think we're going to understand much more about what is the cost of living in these kinds of places.

So I look forward to a world in which we have a much greater understanding of all the changes we can make on our property, and our neighbors can also make in terms of wildfire to keep our risk lower and to keep costs of insurance at an acceptable rate.

Maiclaire Bolton Smith:

Yeah, you and me both, Howard. And I think we're moving in that direction, so I look forward to see how things evolve in the next 5 or 10 years. So, Howard, thank you so much for joining me, as always, on Beyond the Buildings by Cotality.

Howard Botts:

Thank you, Maiclaire. Always my pleasure to be on with you.

Maiclaire Bolton Smith:

Okay, and thank you for listening! I hope you've enjoyed our latest episode. Please remember to leave us a review and let us know your thoughts, and subscribe wherever you get your podcasts to be notified when new episodes are released. And thanks to the team for helping bring this podcast to life: Producer Jessi Devenyns, Editor and Sound Engineer Romie Aromin, our facts guru Allie Barefoot, and social media duo Sarah Buck and Makaila Brooks. Tune in next time for another conversation that illuminates the ideas that will define the future.

Allie Barefoot:

You still there? Well, thanks for sticking around. Are you curious to know a little bit more about our guest today? Dr.Howard Botts is Cotality’s Chief Scientist and executive leader of the Science and Analytics team. Dr. Botts leads climate change and natural hazard science, analytics, and geospatial professionals who generate and maintain solutions for the insurance, capital markets, mortgage, banking, and energy industries. With over 30 years of experience in GIS, Dr. Botts is a recognized expert in developing natural hazard risk solutions, and his work has been published extensively. He frequently presents to business and professional organizations on a variety of topics, such as climate change impacts on the real estate ecosystem, natural hazard risk, weather forensics, market potential models, and geographically based market analysis.