California’s property insurance market has been under extraordinary strain for years, driven largely by increasingly severe wildfire losses and a steady retreat of insurers from high-risk regions. In response, the California Department of Insurance (CDI) has taken decisive action to stabilize the market, launching its Sustainable Insurance Strategy (SIS) to help restore availability and affordability of coverage statewide.
The strategy reflects a clear acknowledgment of reality: traditional insurance pricing methods no longer align with the pace, scale, or unpredictability of modern wildfires. As destructive fire events continue to escalate—now occurring with alarming regularity—insurers need better tools to accurately measure risk and support sustainable underwriting decisions.
A regulatory shift toward forward-looking risk assessment
One of the most consequential elements of the Sustainable Insurance Strategy is the CDI’s decision to allow insurers to incorporate approved probabilistic wildfire models into property rate filings. To enable this, the department introduced a formal regulatory pathway known as the Pre-Application Required Information Determination (PRID).
Before PRID, insurers were largely restricted to historical loss experience when justifying wildfire-related pricing—an approach that struggled to reflect today’s rapidly changing risk environment. PRID now makes it possible for carriers to rely on scientifically grounded forecasting models that estimate future loss potential, rather than solely past outcomes.
This policy change required navigating long-standing legal constraints, including those established by Proposition 103, which has governed rate-setting practices in California for decades. By carving out room for advanced modeling within that framework, the CDI has opened the door to more realistic pricing without abandoning regulatory oversight.
Why PRID matters for market participation
The introduction of PRID has the potential to ease pressure across California’s property insurance ecosystem. For insurers that have reduced or eliminated wildfire-exposed portfolios, the ability to use modern risk analytics may make certain regions economically viable again.
More accurate risk differentiation can support:
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Sustainable pricing
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Expanded coverage availability
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Improved confidence in long-term market participation
As wildfire frequency and severity continue to rise, this shift is a critical step toward maintaining an insurable California.
How insurers should think about probabilistic wildfire models
As PRID-approved models become more common, insurers don’t need to abandon existing analytics tools that serve other functions. Models used for exposure monitoring, reserving, or reinsurance strategy can remain in place without regulatory approval, provided they are not used directly in rate filings.
It’s also important to recognize that PRID approvals will expand over time. Several widely used wildfire models are expected to enter the review process, meaning the absence of approval today does not signal long-term exclusion.
What the CDI expects from PRID-reviewed models
Although each submission is evaluated individually, models that pass the PRID process generally demonstrate several core characteristics:
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A foundation in established scientific research and reliable data
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Results that align with observed wildfire patterns
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Repeatable and consistent outputs
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Neutral, unbiased assumptions
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Clear documentation explaining how outputs support pricing decisions
While these benchmarks are essential for regulatory acceptance, insurers should also evaluate whether a model delivers the depth, granularity, and flexibility required for underwriting, portfolio management, and long-term planning.
Advancing wildfire risk intelligence for California
Some next-generation wildfire models already align closely with PRID expectations and are actively preparing for regulatory review. One example is the Cotality Wildfire Risk Model, which is widely used by insurers, reinsurers, and utilities to evaluate loss concentration and frequency-severity dynamics across California.
An updated version of the model is scheduled for release in 2025, with formal PRID submission planned for later that year. The enhanced model is designed to support both regulatory requirements and real-world wildfire complexity.
What sets the next generation apart
Granular, property-level risk differentiation
Rather than relying on averaged loss assumptions, the model delivers location-specific insights that reflect sharp variations in wildfire exposure. It accounts for multiple drivers of damage—including large-scale conflagration events that have become increasingly common in recent years.
A continuously updated historical foundation
The model incorporates detailed wildfire intelligence dating back to the early 20th century and is regularly refreshed to include recent events, including fires occurring in 2025. This historical depth supports ongoing validation and calibration efforts.
Ongoing innovation for future resilience
Cotality’s approach emphasizes practical, incremental improvements that track the evolving nature of wildfire risk. Upcoming enhancements include:
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Individual-property risk scoring
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Updated hazard and vulnerability assumptions
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Expanded analysis of wind behavior, humidity, and atmospheric conditions
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A broader set of property characteristics to refine loss estimates
These advancements are designed to help insurers understand not just where fires may occur—but how severe losses could be under extreme conditions.
Supporting a more resilient insurance market
California’s move toward probabilistic wildfire modeling reflects a broader shift in how regulators and insurers are responding to climate-driven risk. By allowing scientifically sound forecasting tools into the pricing process, the state is creating a pathway toward more sustainable coverage and long-term market stability.
As wildfire behavior continues to evolve, insurers that combine regulatory-aligned modeling with ongoing innovation will be best positioned to manage risk, maintain solvency, and serve policyholders across California’s most vulnerable regions.
To learn more about advanced wildfire risk modeling and upcoming regulatory alignment, connect with Cotality today.
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