Organizations must adopt a comprehensive, data-driven approach to wildfire risk, integrating exposure identification, financial impact assessment, and resilience planning while addressing unpriced risks to ensure long-term stability and resilience. Unpriced risks – often overlooked in traditional models – pose a significant threat to financial stability.

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Wildfire threats are escalating.

The recent Palisades, Eaton, and Hughes wildfires in Los Angeles are a stark reminder of the increasing threat posed by climate-induced hazards to communities, businesses, and critical infrastructure. Southern California, with its dense urban sprawl juxtaposed against fire-prone natural landscapes, presents a unique challenge. These fires are no longer rare events but rather an emerging norm driven by climate change.

Starting in January 2025, Southern California faced an unprecedented wildfire crisis, with the Palisades and Eaton fires scorching over 38,000 acres, destroying approximately 17,000 structures, and tragically claiming 29 lives. Driven by fierce Santa Ana winds reaching speeds of up to 100 mph, these fires led to mass evacuations, widespread infrastructure damage, and left a profound mark on the region.¹

A recent study highlighted a "climate triple whammy" that intensified these catastrophic events:

1. Increased global heating
2. Reduced rainfall from October to December
3. An extended high fire-risk period stretching into January

These factors have created conditions that are hotter, drier, and windier, and are estimated to be 35% more likely to occur because of climate change that has already happened.² The financial repercussions are staggering, with insured losses conservatively estimated to reach $28 billion (with actual losses potentially much larger), making this the most costly fire disaster in U.S. history.³

In response to the significant financial strain from these wildfires, State Farm, California's largest private insurer, has requested emergency rate hikes from the state's insurance regulator. The proposed increases include up to 22% for non-tenant homeowners, 15% for renters and condominium owners, and up to 38% for rental dwellings. State Farm reported receiving over 8,700 claims related to the recent fires, with payouts exceeding $1 billion. Over a nine-year period ending in 2024, the company experienced more than $5 billion in cumulative underwriting losses.⁴ This highlights the escalating financial challenges insurers face alongside homeowners in the wake of climate-induced disasters.

As businesses, communities, and policymakers grapple with these escalating threats, the need for precise, actionable climate risk analytics has never been more urgent. By leveraging data-driven insights, stakeholders can better anticipate potential risks and implement targeted strategies to lessen the damage. The key to mitigating wildfire risk in your organization lies in a structured approach: identifying your exposure, assessing the vulnerability of your assets, and planning for sustained resilience.

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Your first line of defense? Know your exposure.

Determine which of your assets are exposed. Understanding wildfire risk begins with mapping exposure. Geographic and environmental factors determine whether an asset is in a high-risk zone. To build an effective risk management strategy, organizations should leverage advanced climate risk modeling tools that provide:

• Granular risk mapping: High-resolution maps that pinpoint wildfire-prone zones down to a street or parcel level.
• Forward-looking projections: Predictive analytics that estimate how wildfire exposure may evolve over the next decade, factoring in both recent climate change as well as future climate change scenarios.
• Portfolio-level insights: For businesses managing multiple properties, aggregated risk analysis helps prioritize mitigation efforts effectively.

With these tools, stakeholders can make data-driven decisions to strategically allocate resources and avoid unplanned losses.

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But don’t stop there. Assess your vulnerability and financial impact.

Understand the extent of damage those assets could sustain and prioritize your mitigation efforts. Exposure tells only part of the story. Once your exposure is identified, it is equally critical to assess the extent of potential damage and financial consequences to your assets. The financial implications of wildfire risk hinge on asset vulnerability. You need detailed estimates of insurance technical premiums tailored to your asset's unique risk profile.

Technical Premium: This is the portion of an insurance premium that reflects the pure risk cost, based on the expected frequency and severity of losses, excluding operating expenses and profit margins.

Consider recent data from Southern California:

The mean technical premium stands at $1,362.67, but the distribution is highly skewed. The median premium is a modest $153.03, while the 99th percentile skyrockets to $22,083, with outliers exceeding $100,000.

This right-tailed distribution underscores a critical insight: certain properties face disproportionately high risks that are often underappreciated in traditional pricing models.

Physical and financial vulnerability varies across assets, and proactive planning is necessary to mitigate future losses. You should look for risk modeling solutions that offer:

• Risk-based premium calculations: Insurance premium estimates based on forward-looking climate projections, ensuring they align with your asset’s specific risk profile.
• Insights into distribution trends: Wildfire-related insurance premiums often exhibit extreme right-tail risk, meaning a small percentage of properties face disproportionately high premiums.
• Addressing unpriced risk: Your financial planning should incorporate the hidden vulnerabilities that traditional models tend to overlook.

By incorporating these insights, insurers, property owners, investors, and financial institutions can better understand and prepare for potential liabilities.

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Use Forward-looking Analytics for Smarter Decision-Making

With wildfires becoming more frequent and severe, businesses and policymakers must shift from reactive measures to proactive resilience building. Jupiter’s flagship analytics solution, ClimateScore^TM Global provides the insights needed to assess wildfire exposure, understand financial risk implications, and identify unpriced market risks. Key advantages include:

• Precision risk mapping: Identifying your at-risk assets with high-resolution models.
• Forward-looking wildfire projections: Leveraging predictive analytics to estimate future wildfire risk zones.
• Financial risk insights: Helping both businesses and insurers quantify exposure and allocate resources effectively.

CSG Wildfire - the only wildfire model available with global coverage - provides the forward-looking analytics that empower you to make informed decisions, reducing uncertainties and strengthening resilience against unrelenting climate-driven hazards.

Prediction with Precision

A striking comparison can be made between ClimateScore Global heat maps and NASA's wildfire data, which tracks the growth of wildfires across California from the 1970s to the present.⁵ NASA's visualizations vividly demonstrate the alarming increase in wildfire frequency and scale, especially since 2020. This trend mirrors ClimateScore Global's data, which identifies concentrated wildfire risks in Southern California, particularly around Los Angeles.

Moreover, a California Census Tract Heat Map reveals the density of properties with significant wildfire risk. The darkest red areas - representing the highest property concentrations at risk - align closely with NASA's data on recent wildfire hotspots. ClimateScore Global enhances this analysis by providing predictive insights into how these risk zones will expand in the future, helping stakeholders prepare proactively.

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Unmasking Unpriced Market Risks

Perhaps ClimateScore Global's most transformative capability lies in uncovering unpriced risks lurking within the market - risks that traditional models often overlook. An asset price bubble occurs when the market price of an asset significantly exceeds its fundamental value, often due to mispricing or underestimated risks. Using a forward-looking model (FWL), ClimateScore Global calculates the value of the economic impact (EI_Value) by discounting present and future technical premiums.

Identifying an Asset Bubble: An asset bubble is identified when Current Market Premiums < Dynamic Modeled Premiums

Magnitude of the Asset Bubble: This is calculated as the present discounted value of current and future Premium Differential.

This methodology helps ClimateScore Global identify not only visible risks but also the unpriced asset risks lurking beneath the surface. By comparing the current technical premiums with forward-looking modeled premiums, stakeholders can pinpoint areas where the market has not yet priced in the true extent of climate-related risks.

These risks are particularly concentrated in Southern California, especially around Los Angeles.

• Extreme Right-Tail Risk: Jupiter's analytics reveal that unpriced risks start manifesting significantly around the 90th percentile of exposure, with asset price bubbles exceeding $10,000 and climbing above $100,000 at the 99th percentile.

• Market Implications: These unpriced risks pose not just financial threats but also opportunities. Investors, insurers, and policymakers equipped with Jupiter's insights can preemptively adjust strategies, potentially capitalizing on market inefficiencies or mitigating looming losses.

True resilience lies in long-term planning

Operationalize resilience in your organization by going beyond addressing the immediate impact of each incident. Building resilience requires more than identifying risks; it demands actionable strategies. ClimateScore Global empowers organizations to stress-test asset structures, evaluate the impact of different building materials, and model various climate scenarios. You should consider:

• Structural vulnerability assessments: Evaluating building materials, age, and design to determine susceptibility to wildfire damage.
• Risk reduction strategies: Implementing fire-resistant building codes, maintaining defensible spaces around structures, and investing in early warning systems.
• Financial planning for sustainability: Ensuring financial buffers are in place to cover potential damages and insurance premium fluctuations.

Key Takeaways

As organizations face increasing wildfire risks, a comprehensive approach is necessary - one that integrates exposure identification, financial impact assessment, and long-term resilience planning. Advanced risk analytics, such as those offered by ClimateScore Global, allow you to make data-driven decisions that minimize losses and safeguard assets. 

In addition, unpriced risks – often overlooked in traditional models – pose a significant threat to financial stability. Addressing these risks proactively ensures that businesses, investors, and policymakers are not caught off guard by unexpected liabilities. 

A Path Forward

The recent LA wildfire serves as a wake-up call, reinforcing the need for proactive risk management strategies. By leveraging advanced analytics, businesses and policymakers can move beyond reactive responses and toward long-term resilience planning.

With the right forward-looking analytics and strategic thinking, you can gain the clarity and foresight needed to navigate wildfire risk effectively - ensuring that they not only survive but lead in an era of increasing climate uncertainty.

You can read more about wildfire risk and CSG Wildfire, our global wildfire risk model, or contact us for a demo.

References

1. New York Post. (2025, February 2). Palisades, Eaton fires in LA now 100% contained after 3-week battle. 
2. The Guardian. (2025, January 28). Climate triple whammy boosted risk of LA fires, study shows. 
3. California Department of Forestry and Fire Protection (CAL FIRE). (2025, January 7). Palisades Fire Incident Overview. Climate triple whammy boosted risk of LA fires, study shows | Extreme weather | The Guardian
4. State Farm seeks rate hikes in California to offset wildfire payouts. (2025, February 4). Rate hikes sought by Insurers in California.
5. NASA Earth Observatory. (2021, August 19). What’s Behind California’s Surge of Large Fires? 

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