Over the last eight years, California wildfires have challenged even the biggest, longest-standing property insurers. Many of these carriers have retreated, believing that a stable, sustainable home insurance market simply cannot exist in the Golden State.
With unprecedented wildfires striking California about every other year, it’s no longer sufficient for insurers to rely solely on historical loss experience models to manage risk in high burn potential areas.
Long even before the Palisades and Eaton wildfires devastated multiple Los Angeles communities earlier this year, insurers have been advocating for the California Department of Insurance (CDI) to permit the use of forward-looking probabilistic loss models in support of rate applications. Tools like this are allowed in other states, providing insurers with the ability to assess risk more accurately and continue offering coverage in high-risk areas without placing heat on lower-risk policyholders.
It hasn’t been so simple, however, for the CDI to allow these technologies in certain insurer risk assessment workflows. The regulator ran into obstacles from Proposition 103, a consumer protection measure passed in 1988, which created barriers to using forward-looking risk models — especially for wildfires.
The CDI has been working behind the scenes, though, and in 2024, it launched the Sustainable Insurance Strategy (SIS) to overcome key legislative hurdles that had previously blocked progress toward creating a more insurable California.
As part of the SIS, the CDI enacted the PRID (Pre-Application Required Information Determination) process — a framework for reviewing probabilistic wildfire risk models. Once a model is approved through the PRID, insurers can use the model in support of a complete rate application in California.
By paving the way for insurers to use probabilistic wildfire risk models in rate applications, the CDI has taken an important early step toward creating a more resilient California.
The value of taking time to secure the right probabilistic wildfire risk model
Using probabilistic models to understand wildfire risk isn’t new in California.
For years, decades even, insurers have used modeled loss relativities combined with historical loss experience to help develop territories and risk tiers. What’s new with the PRID process is that insurers can use approved wildfire risk models to support their rate applications. This provides a much more straightforward and transparent mechanism.
Probabilistic loss models combine science, engineering, and actuarial analysis to help insurers assess risk more accurately — something that insurers cannot do with historical data alone. These future-focused insights are especially important in a dynamic region like California, where recent development has pushed deeper into the wildfire-prone wildland-urban interface.
The common approach in many catastrophe-prone areas is for carriers to assess risk based on the outputs of a blend of multiple models. This blended risk assessment allows insurers to submit rate applications that better mimic their underwriting profiles, while remaining competitive.
The first probabilistic models accepted through PRID will be far from the last. More wildfire risk models are expected to “pass the PRID test” as soon as within the coming months. This will result in more options and hope for insurance rate stability that California needs to drive a competitive market.
Key updates on the horizon: Cotality U.S. Wildfire Model for insurers and reinsurers
Scheduled for PRID review during late 2025, the Cotality U.S. Wildfire Model is trusted by both insurers and reinsurers to facilitate accurate risk assessments. In western states beyond California, insurers rely on the model in rate filings and in the insurance-linked securities (ILS) market to evaluate wildfire liability exposure. Electrical utilities even use the Cotality model to assess the wildfire-related risks tied to California’s electric utilities.
Losses from wildfire represent a material risk to insurers in the west. News reports from the 2025 California wildfires indicate that approximately 20% of the gross losses were ceded to reinsurance.
The Sustainable Insurance Strategy also allows insurers to incorporate reinsurance costs into their rates. This is expected to increase the volume of reinsurance purchased in California.
The Cotality wildfire risk model continues to help investors and reinsurers assess concentration risk and the severity-frequency distribution of losses in the state, supporting insurers in their quest to continue delivering reliable and stable insurance coverage.
With a new version to be released later this year, the Cotality U.S. Wildfire Model will include the core functionalities insurers rely on, while incorporating the latest updated observations and data insights to support long-term wildfire risk management.
Cotality leverages its deep property database to deliver the deepest risk management insights through its probabilistic models. Cotality’s wildfire model will support the full spectrum of use cases for insurers in California, and beyond, with:
- Granular insights at the deepest risk gradient
Wildfires are a high-gradient peril — two adjacent homes or neighborhoods can have dramatically different risk profiles. To enable the necessary risk differentiation, Cotality’s granular, property-level model delivers precise wildfire risk insights that insurers and reinsurers need to make more confident, data-driven decisions.
Model outputs reflect both geospatial and meteorological granularity . Cotality’s wildfire model also takes into account all the potential agents of damage, including conflagration, which is one of the most overlooked factors of most modern wildfires. Cotality’s deep level of granularity is also key in these scenarios, as conflagration risk can vary greatly within neighborhoods.
Unlike most models that rely on averages, Cotality solutions generate results that better represent the high-gradient risk that insurers need to understand to successfully manage wildfire risk.
- A robust, up-to-date archive of the most current, relevant historical insights
The Cotality U.S. Wildfire Model is forward-looking yet also leverages historical wildfire data. Comprehensive historical data about major wildland-urban interface fires from the 1900s through the present is used to calibrate and validate losses. This data set includes the number of structures destroyed in every historical fire.
A constantly evolving model, this solution also already incorporates the footprints of the Palisades and Eaton Fires.
By fusing past insights with future projections, this transformational solution brings a 360-degree perspective to any insurer’s wildfire risk management strategy.
- Innovation to support resiliency alongside recovery
Insurers need a solution that grows alongside the evolving nature of modern wildfires.
Cotality’s anticipated December 2025 updated model release will also feature:
- Pinpoint, individual property-level analysis for improved risk evaluation.
- Hazard, vulnerability, and data updates
- Deep dives into extreme windspeed and direction, humidity, and other critical atmosphere factors that directly influence wildfire behavior.
- A multitude of property-specific characteristics to meticulously modify and assess risk at the most granular level.
Cotality emphasizes building resilience alongside the rebuilding processes. We aren’t just solutions providers; we are partners to insurers who strive to build a more predictable future for everyone.
A hopeful future for Californians
By allowing the use of certain probabilistic models in insurer rate applications, the CDI is providing much needed relief for California property insurers and homeowners. As a model provider, Cotality remains committed to supporting the CDI’s mission of achieving sustainable insurance across California.