Wildfire has emerged as one of the most challenging perils for property insurers and real estate investors alike. The combination of climate change, development patterns, and forest management practices has created unprecedented risk concentrations in many Western U.S. markets.

The Growing Threat

Since 2017, wildfires have caused over $50 billion in insured losses in the United States alone. The 2017-2018 California wildfire seasons fundamentally changed how insurers view wildfire risk, leading to:

  • Significant premium increases in wildfire-prone areas
  • Non-renewals and market withdrawals by major insurers
  • Creation of state-backed insurance programs (FAIR Plans)
  • New building codes and defensible space requirements

How Catastrophe Models Assess Wildfire

Modern wildfire catastrophe models incorporate multiple factors:

  • Fuel loads — vegetation type, density, and moisture content
  • Topography — slope, aspect, and terrain features that affect fire spread
  • Weather patterns — wind speed, humidity, and drought conditions
  • Wildland-urban interface — proximity of structures to undeveloped land
  • Mitigation measures — defensible space, building materials, and community-level protection

Implications for REIT Investors

For equity REITs with exposure to California, Colorado, Arizona, and other Western states, wildfire risk translates directly into:

  1. Higher operating costs through insurance premiums
  2. Capital expenditure requirements for hardening and mitigation
  3. Potential asset impairment in high-risk locations
  4. Tenant concerns about business continuity

The Climate Global index methodology incorporates wildfire exposure as one of multiple perils in our Climate Robustness & Durability Score (CRDS), helping identify REITs with better-managed physical risk profiles.