Who Owns the Risk of Wildfire in The Climate Change Era?
The risks of intensifying wildfire threats exacerbated by extreme heat and prolonged drought are increasing. So far in 2025, wildfires in Los Angeles and the Carolinas are again forcing us to ask: Who bears the financial burden of these disasters, and how can we mitigate the risk?
The staggering cost of wildfires has risen sharply. The 2023 Maui wildfire disaster alone resulted in an estimated $6 billion in damages and early estimates put the cost of the 2025 Los Angeles wildfires at over $50 billion. Nationwide, wildfire-related destruction is increasing, with insurers, homeowners, investors, and taxpayers all caught in the financial crossfire. Yet, our financial systems remain murky when it comes to identifying and distributing risk ownership.
Who Holds the Financial Risk?
Just as with other environmental hazards such as coastal flooding, multiple stakeholders carry the burden of wildfire risk:
Homeowners – Many are left struggling with rebuilding costs, particularly as insurers exit high-risk states like California.
Insurance/Reinsurance Companies – They shift risk from individual property owners to broader markets, but rising losses have made wildfire-prone areas increasingly uninsurable.
Developers – Their site selection, building materials, and design choices directly impact wildfire risk, influencing both exposure to potential losses and long-term insurability.
Utilities – Power lines have been a frequent ignition source, leading to lawsuits and utility-driven bankruptcies. At the same time, wildfire damage to infrastructure can disrupt service, increase repair costs, and strain financial stability.
Municipal Governments – Localities bear responsibility for emergency response and infrastructure damage, straining already tight budgets.
National Government – Federal disaster relief funds provide assistance but often at great expense.
Taxpayers – Through federal and state relief programs, they ultimately subsidize recovery efforts for wildfire-affected communities.
Lenders – Banks and mortgage companies risk financial losses when properties become uninhabitable or uninsurable.
Investors – They fund real estate and infrastructure projects, often without a clear understanding of climate risks.
Engineering & Construction Companies – These entities face financial risks from damaged projects, costly delays, and potential liability for structures that fail under fire conditions.
The Market’s Response to Wildfire Risk
As wildfires intensify, three key groups—insurers, taxpayers, and the federal government—have the potential to drive down risk. How can they take action?
Insurers: Pricing Risk and Encouraging Prevention
Insurance companies can signal risk through pricing, but they also play a role in risk mitigation. Some have already begun requiring fire-resistant retrofits for insured properties or offering premium discounts for defensible space measures. Others are pulling out of high-risk areas, forcing government-backed programs to step in.
One major move insurers could make? Expand their role as investors in wildfire resilience, funding projects such as prescribed burns, firebreaks, and early detection technology. By adopting “smart risk investing,” the insurance industry can transition from merely pricing risk to actively managing and reducing it—ultimately protecting their bottom line by reducing future payouts, stabilizing at-risk markets, and ensuring continued viability in fire-prone regions.
Taxpayers: Demanding Smarter Policies
Taxpayers should not continue to foot the bill for rebuilding in extreme-risk zones without significant policy reforms. As voters, they can push for zoning laws that restrict development in fire-prone regions and support funding for community fire prevention measures such as prescribed burns, firebreak construction, and fire adapted landscaping. Additionally, publicly available tools like wildfire risk maps can guide homebuyers in making informed decisions.
National Government: Reforming Disaster Assistance
Current federal wildfire response programs often focus on post-disaster recovery rather than proactive risk reduction. A critical step would be restructuring disaster relief funding to prioritize pre-disaster mitigation efforts—such as controlled burns, improved forest management, and better emergency response infrastructure.
The One Move That Could Reduce Wildfire Risk
A fundamental shift is needed: every decision-maker, from homeowners to investors, should integrate climate risk stress testing into their financial decisions. There are now climate risk tools out there for every decision maker. A freebie for private property is the flood, fire and heat risk data available for each home property on realtor.com.
By incorporating risk projections into everything from insurance pricing to mortgage approvals, we could see fewer developments in fire-prone areas, stronger returns on resilience investments, and greater collaboration across industries to reduce wildfire vulnerability.
Wildfire risk isn’t going away—but through smarter financial and policy decisions, we can make it more manageable. The challenge now is ensuring every sector steps up to share the responsibility. What do you think is the most important step for your sector?
(Joyce Coffee authored a similar article in Triple Pundit in 2018. See here: https://www.triplepundit.com/story/2018/who-owns-physical-risks-climate-change-and-what-one-move-can-make-it-less-risky/13246 )