Wildfires: the drivers putting people and assets at risk

Climate change and federal policies are making wildfires more frequent and intense. Migration patterns are increasing the exposure of assets to wildfire threats. And assets that are more vulnerable to wildfires translate into higher costs.

Wildfires: the drivers putting people and assets at risk
Photo by Josh Berendes / Unsplash
PART 1: This is part one in a two-part briefing on wildfires. Part two of this Wildfires Briefing series focuses on the levers that exist to reduce these impacts.

Millions of people throughout the United States face the risk of wildfires every year. Since 2000, 17 of the 20 largest wildfires by acreage, and 18 of the 20 most destructive wildfires by number of buildings destroyed, have occurred in California. Last year, just one fire in Hawaii—the fire that swept through Lahaina on Maui—caused an estimated $12 billion in damage in less than 72 hours. 

Why are wildfires becoming more frequent and more costly? Climate change is one reason, but the factors contributing to some of the most dangerous wildfires in history are numerous, and the solutions to reduce the impacts of wildfires are nuanced. 

In this two-part Epicenter Briefing, we will identify the drivers making wildfires so frequent, costly, and dangerous; the levers available to us to reduce their damage; and how investors, corporate leaders, insurance companies, community leaders, and policy-makers can stay one step ahead of the next fire.

Let’s be clear: this is not a story of inevitable doom. The growth in wildfires has been met by a renaissance of solutions, innovations, and coordinated efforts that can keep people and property out of harm’s way. Private capital has a major role to play in protecting communities and assets, limiting damage, and managing risk.

Wildfire basics

The U.S. Federal Emergency Management Agency (FEMA) defines a wildfire as an unplanned, unwanted fire burning in a natural area.

The impact of a wildfire is far-reaching. In addition to loss of life and loss of property, wildfires also cause smoke-related health risks, greater risks of future disasters like flooding, contaminated water supplies, and even changes to the atmosphere’s hydrological cycle by altering snow retention and runoff. And Black, Hispanic, and Native American communities experience a 50% greater vulnerability to these wildfire impacts.

But wildfires should not be viewed only in negative terms. Wildfires are naturally-occuring and contribute to the health of ecosystems and habitats. For thousands of years, Indigenous Land Management Practices have leveraged natural and prescribed fire, also known as cultural burns or controlled burns, to clear areas for crops and travel, manage the land, hunt game, and regenerate soil and ecological habitats. These practices have been used to prevent more devastating wildfires.   

Wildfire drivers

As mentioned in The Epicenter’s briefing on Why Disasters are So Expensive, the research points to four main drivers contributing to the growth in billion-dollar disasters across all disaster types: 

  1. Higher frequency and severity are increasing the cost of disasters–climate change is increasing the frequency of weather extremes that lead to billion-dollar disasters.
  2. Greater asset exposure drives costs up–population growth, migration, and land use practices have pushed communities and assets into harm's way.
  3. More vulnerable assets translate into more expensive disasters–when buildings aren’t built with up-to-date codes or disaster resilient materials, they’re more vulnerable to damage; when assets are left uninsured, it’s harder to afford their replacement costs.
  4. Premiums to rebuild drive up reconstruction costs–in the wake of disaster, rebuilding costs surge as demand outpaces supply, leading to soaring costs. 

As it relates to wildfires, we’ve found unique drivers within the first three categories that contribute to greater frequency, more intense destruction, and higher costs related to wildfires. 

Driver #1: Climate change and federal policies are making wildfires more frequent and intense.

  • Climate change is making wildfires more frequent. Intense wildfires are now twice as common as they were in the 2000s. The number of megafires—fires that burn more than 100,000 acres—has ballooned in recent decades. Before 1970 there had never been a megafire. Since the 1970s, the wildfire season in western states has become 2 months longer and now peaks earlier in the year
  • Climate change is making wildfires more intense. A warming climate has produced hotter and drier conditions and periods of prolonged drought. These conditions lead to earlier snowmelt, longer fire seasons, and the accumulation of drier vegetation–which increases the likelihood of larger, hotter, and more intense fires. Both the annual area burned and area burned by high-severity wildfires have increased in the American West about 8x since 1985
  • Policy decisions exacerbate wildfire intensity. Forest management policies have also worsened the severity of wildfires. Historical fire suppression strategies have made wildfires more severe, by too quickly stopping small fires that are beneficial for reducing brush accumulation that otherwise fuels more severe fires later. 

Driver #2: Migration patterns are increasing the exposure of assets to wildfire threats.

green trees and green grass field during daytime
Photo by Porter Raab / Unsplash
  • Population migration is exposing more assets to wildfire risk. The Wildland Urban Interface (WUI) is the land area where structures and human development intermingle with undeveloped wildland or vegetative fuels, presenting greater wildfire risk. The WUI is the fastest-growing land use type in the contiguous United States. From 1990 to 2020, the number of homes in the WUI grew by 47%. The WUI covers only 9% of land in the U.S., but is now home to 39% of all houses in the country
  • The costs associated with migration-related asset exposure are higher for certain populations. Unaffordable housing in urban centers has increasingly driven middle- and lower-income residents into the WUI. As of 2021, in the counties with the highest wildfire risk there was an overrepresentation of people of color (51%), people with disabilities (12%), and non-native English speakers (7%). And while all residents in the WUI will experience similar risks, differences in how certain populations are excluded from social, economic, and political structures will disproportionately impact the ability of certain households to prepare for wildfires, and in turn increase the costs associated with recovering from those wildfires.
  • These population shifts have translated into more expensive fires—both in terms of fighting them and in terms of property damage. The U.S. Forest Service spent nearly 4x as much fighting fires in 2020 as in 1989 (after adjusting for inflation)—and those costs could rise as much as 84% by 2050. Meanwhile, FEMA allocated about $4.5 billion in post-wildfire disaster funding from 2016 to 2020, an 8x increase compared to the $500 million between 2001 and 2005.

Driver #3: Assets that are more vulnerable to wildfires translate into higher costs.

Not only are more physical assets exposed, but those assets are also more vulnerable to wildfire damage and associated costs.

  • Out-of-date land and community-planning practices contribute to costs. Zoning, local ordinances, and building codes can reduce wildfire damage, but many municipalities are missing up-to-date fire policies and codes like requiring fire-resistant building materials and perimeters around homes that are cleared of brush.
  • Changes in insurance coverage are leading to rising costs for households. Private insurers are rapidly changing where and how they insure properties facing fire danger. In 2023, Allstate and State Farm backed out of California’s home insurance marketplace, citing “rapidly growing catastrophe exposure.” In August 2024, 17,000 California policyholders were notified that they would lose fire insurance. More than one in 10 U.S. homes is uninsured.
  • The up-front costs required to protect assets from wildfires leads to even higher costs for lower income and marginalized households. A study from 2020 found that the spread of fire is 6% more likely to be suppressed when the average value of properties in the fire’s path increases from $200,000 to $400,000. Meanwhile, many households in rural, low-income, and immigrant communities lack the capital necessary to pay for insurance, rebuilding, or continual investment in fire safety, further increasing their vulnerability to wildfire. These compounding factors leave the assets of more vulnerable households at even greater risk, resulting in ultimately higher rebuilding costs.

Compelling levers exist to reduce the costs from these drivers

In Part II of this Wildfires Briefing, we unpack the levers we see for where and how private-sector actors can leverage capital to protect and fortify existing assets, and catalyze solutions and innovations that reduce the consequences of devastating fires. Part II explores the following levers:

  1. Implementing modern building materials, zoning requirements, and land use policies
  2. Technologies for better decision-making, risk identification, and fire management 
  3. New insurance models 
  4. Private-sector financing for forest management

Our goals with these briefings are to describe the mechanisms at play in driving costs, to highlight where and how private capital can flow to advance strategic solutions that reduce those costs. We welcome thoughts from our audience on any items that especially resonated with you, or any of the nuances we’ve missed or mis-captured in our analysis.

If you have ideas, examples, or solutions we should include, please share them with us!

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