California’s new perspective on wildfire loss models, what this means for real estate insurers

Last year, the California Insurance Agency (CDI) took some serious actions to address the state’s insurance crisis and launch its Sustainable Insurance Strategy (SIS). With SIS coming with a range of initiatives designed to help insurers provide affordable long-term property insurance in California, coverage has become scarce over the past decade. This shortage is mainly due to the excessive amount of destructive wildfires occurring on average every other year.

As part of this strategy, CDI opens doors for insurers to use certain probabilistic models to support their insurance premium rates. It first establishes the required information determination (PRID) before application, which is the regulatory process for approving these probabilistic solutions. Until then, real estate insurers could only establish wildfire insurance pricing based on historical losses.

This is a major action for CDI, which overcomes legislative barriers established by decades-old Proposition 103, which sets controls on insurance premium rates for insurers. Now, it is possible for insurers to get critical probability support in the pricing process.

The PRID process introduces the potential to provide relief to many insurance companies in California that provide coverage. With the ability to use more innovative risk prediction modeling technologies, many operators may return to provide coverage in California’s wildfire-prone areas.

This is crucial to increase frequency and intensity in California.

Consideration of evaluating probabilistic wildfire loss model

As insurers become more familiar with the PRID-approved probabilistic wildfire hazard risk model, it is important to remember that they do not need to discard models that confidently use other purposes that are not related to price. For example, insurers can continue to use their time-tested models for exposure management, retain losses and reinsurance purchases without PRID approval.

The operators can also expect that CDI has approved more models through PRID to support the near future. Some of the most commonly used models in the industry will be submitted for approval soon – Includes COTALITY™ Wildfire Risk Model.

prid accepts standards and Other key requirements for a comprehensive wildfire risk model

Models approved by CDI through the PRID review process may meet the following criteria:

• Establish a foundation for good scientific and accurate data
• Output reflecting historical wildfire behavior
• Consistent and repeatable results
• Unbiased
• Transparent frame for interpreting rate determination

These features are important for effective models, but insurance companies must also consider other features to support major use cases. Also keep in mind that many models will be accepted for PRID comments in the near future. In other words, just because a model that has not yet been strong, reliable and innovative has not yet been approved by PRID does not mean it won’t – probably soon.

The Cotality Wildfire risk model is one of these solutions. Trusted by insurers, reinsurers, and utilities, the model evaluates the severity of losses-frequency distribution across California. Its next iteration will be available this year, aiming to meet PRID requirements and plans to undergo an official review by the end of 2025.

To support California’s most comprehensive, effective, long-term wildfire risk management strategies, the updated 2025 Cotality’s U.S. wildfire model will provide:

All angles of risk insights are at the steepest risk gradient (not the average)

To more accurately support the exact risk differences (arguably the greatest danger) required for today’s wildfires, Cotality’s model reflects improved geospatial and meteorological output granularity. The model also considers all potentially harmful drugs, including fires, increasingly relevant and neglected modern wildfire factors. Although most models produce results based on averages, Cotality’s model produces value of risk and data that provide location-specific insights that reveal a true risk profile for any personal property.

The latest, most relevant historical insights, including the 2025 fire

Cotality is constantly innovating its forward-looking model, which also provides the latest archive of historical fire intelligence dating back to the 1900s. The model already includes the footprints of Palisades and Eaton Fires. Cotality is also committed to providing models that calibrate and verify future fire losses.

Continuous innovation to support long-term resilience

Of all its technologies, Cotality focuses on incremental innovation that makes the most sense for the industry. As wildfire reality changes, Cotality’s wildfire loss model will also properly reflect risks. The next version of the Cotality US Wildfire model will have:

• Accurate, personal property-level analysis to improve risk assessment.
• Hazards, vulnerabilities and data updates.
• Depth infiltration directly affects extreme wind speeds and directions, humidity, and other key atmospheric factors that directly affect wildfire behavior.
• A variety of specific specific features are specific, allowing risk assessments at the most granular level.

Cotality Innovation will not stop with PRID either. Through the continued development of this model, the team will continue to strategically support California’s resilience.

To learn more about this model, Contact Cotality today.

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