California residents have become the first in the nation to receive state-mandated discounts on property insurance for protecting their homes against wildfire.
But the discounts, which aim to encourage mitigation, are being launched with little understanding of their effectiveness — and in many cases little savings.
Starting Sept. 1, State Farm policyholders in California who install or have fire-resistant windows became eligible for premium reduction of 0.1 percent. A hypothetical homeowner in a wildfire-prone area who pays a $13,800 premium would save $14, State Farm documents show.
The discounts offered by State Farm and dozens of other property insurers in California are too small to encourage wildfire mitigation — at least for several years, experts say.
“The discounts are immaterial, and especially immaterial for any residents outside of a very high fire hazard zone,” said Kate Stillwell, co-founder of FireBreak Risk, a wildfire mitigation technology startup.
Stillwell said she expects the value of the discounts will likely grow, “but there’s going to be a lot of short-term pain.”
The state-mandated discounts in California are the latest effort to address a nationwide insurance crisis that’s grown as insurers drop policies and spike premiums amid mounting losses due partly to increasingly destructive wildfires and other disasters. Communities, policymakers and regulators are scrambling to prepare households for catastrophes while keeping insurance affordable.
At least 13 states, mostly in the Southeast, require insurers to reduce premiums of policyholders who protect their homes against wind damage, according to a POLITICO’s E&E News analysis of state laws and regulations. To qualify, policyholders must get a home inspection and submit the inspection report to their insurance company.
California is the first state to require insurers to provide discounts to policyholders who reduce wildfire risk.
Other Western states are watching the program but say they’re not ready to require discounts. While research shows taking an entire suite of mitigation steps significantly reduces risk, there’s less understanding of the extent to which just one or two of those steps could reduce damage and insurance claims.
Washington state is awaiting “data that shows the mitigation reduces claim costs” before requiring insurance discounts, Aaron VanTuyl, spokesperson for the office of the insurance commissioner, said in an email.
The lack of reliable data led the insurance industry to oppose California’s decision in 2022 to require discounts for individual mitigation steps — and is making insurers cautious by providing minimal discounts.
“Discounts are a good thing,” said former California Insurance Commissioner Dave Jones. “But it’s not in an absolute sense going to dramatically reduce the out of pocket [premiums] that someone pays.”
The small savings could limit the California program’s success.
“It is tough to make a decision to put money that you may or may not have into your home or business when there’s only a wisp of a belief that you may see a reduction in premium at some point,” said Julie Shiyou-Woodard, CEO of Smart Home America, an Alabama nonprofit, that promotes disaster-resilient construction.
Discounts for property-clearing and fire-resistant decks
The discounts are required under a rule adopted by the California Department of Insurance in 2022 that lists 12 wildfire-protection measures that insurers must credit.
They range from removing leaves, firewood and other flammable objects from around a home to making windows, decks, eaves and roofs fire-resistant.
Insurers also must give discounts to policyholders who live in communities where homeowners are working together to reduce wildfire risk and communities where local agencies are managing wildfire risk according to best practices.
As of mid-August, 63 insurers had submitted proposed discounts to the state, according to the insurance department. Forty-eight have been approved, including discounts from Western Mutual, USAA, Liberty Mutual and State Farm.
In California, each insurer sets its own discounts. That contrasts with wind-mitigation discounts in Alabama, which has one of the largest discount programs and sets uniform discount ranges that insurers must follow. California’s approach has created inconsistencies among insurers.
Some insurers are applying discounts to an entire premium while others apply them to only the portion of a premium that covers wildfire damage. Companies also account for each property’s wildfire risk — resulting in larger savings for the most exposed policyholders.
Consider discounts approved for General Insurance Co., a Liberty Mutual company.
The company in July began providing policyholders up to 21 percent off the wildfire portion of their insurance premium if they achieve the two community-level discounts and get an insurance-industry nonprofit to certify — at a cost of $125 — that they have done substantial mitigation.
In Angels Camp, a small city in central California surrounded by forest, the 21 percent discount would save a hypothetical policyholder $286 a year on a $2,202 premium.
In an urban part of the Los Angeles suburb Pasadena, where wildfire risk is low, the 21 percent discount would save a policyholder with a $3,573 premium just $5.
State Farm offers policyholders up to 10.1 percent off their premium if they take all 12 mitigation steps listed by the state and get certified by the nonprofit.
For a hypothetical property in a low-risk area, a $989 premium could be cut by $98. A different property in a high-risk area could see a $13,788 premium cut by $1,441 per year.
Insurers are essentially multiplying the “likelihood that you’re ever going to meet the fire, with how much stronger [mitigation steps] make the house,” said Judd Boomhower, an economics professor at the University of California, San Diego.
But even the larger savings can exceed the cost to qualify for the discounts.
Retrofitting a two-story, 2,000-square-foot home in California by taking steps such as installing flame- and ember-resistant vents, keeping gutters clean or using non-combustible mulch can cost $10,000 to $15,000, according to a 2024 analysis by Headwaters Economics, a research nonprofit focused on community development.
Completely retrofitting a similar home to “adequate wildfire resistance” through measures such as enclosing eaves and replacing windows, roofs and deck boards can cost $23,000 to $40,000, the analysis says.
“In too many cases, the financial impact is dwarfed by the investment needed to do that mitigation,” said Carmen Balber, executive director of consumer advocacy group Consumer Watchdog. “If you are a homeowner in the highest risk area with the most generous company, you might see a higher benefit.”
State insurance department spokesperson Michael Soller acknowledged that some homeowners will see limited savings but said those facing the highest risk will get substantial discounts. Insurance discounts aren’t meant to cover the full cost of retrofits in the first year but will be “cumulative over the life of the policy,” Soller said in an email.
“Wildfire safety is the priority,” Soller said.
The discount program needs to be supplemented with state grants, tax incentives and other methods to reduce retrofit costs and promote the discounts, said Karen Collins, vice president at the American Property Casualty Insurance Association, an industry group.
“An insurance premium credit for mitigation is not what’s going to fully pay for mitigation,” Collins said. “It has to be actually a holistic set of incentives.”
Will California’s discounts increase?
Although discounts in California may not generate major savings or extensive mitigation in the immediate future, officials and experts expect that to change as insurers begin to understand their effectiveness.
California Insurance Commissioner Ricardo Lara suggested as much when he adopted the rule in 2022 and said his department “will work diligently to increase discounts.”
A similar situation unfolded when insurers began offering discounts for wind mitigation: It took years before the insurance industry, homeowners or policymakers understood which discounts reduce insurance claims.
After Hurricanes Ivan and Katrina devastated the southeast U.S. in 2004 and 2005, Alabama began in 2009 requiring insurers to provide discounts for homes that are built or retrofitted in accordance with wind-mitigation standards created by the property-insurance industry’s research arm.
The Insurance Institute for Business and Home Safety studies building modifications that reduce damage from natural disasters and has created mitigation standards.
The wind-mitigation standard — dubbed “Fortified Home” — was developed using decades of research, claims analysis and lab testing to determine which homes withstood hurricanes and tornadoes.
Alabama residents increasingly protected their homes as the state incorporated the Fortified Home standard into its building code and began helping policyholders pay for mitigation.
The program exploded after Hurricane Sally hit Alabama in 2020 and revealed the effectiveness of Fortified Home. Of the 17,000 certified homes hit by the Category 2 storm, 95 percent experienced little to no damage, the insurance institute said at the time.
“Not only did the citizens go, ‘Oh, my God, it worked,’ but the insurance companies didn’t write a whole bunch of checks. And that shifted their entire outlook on Fortified,” said Shiyou-Woodard of Smart Home America.
The program certified 11,825 homes in 2021 — more than double the number certified in 2019.
Today, more than 71,000 homes across 28 states are certified as “Fortified.” At least 13 states, from Georgia and Mississippi to Connecticut and Florida, require insurers to provide discounts to policyholders who have reduced their risk, with some states tying the discounts to a Fortified certification.
Participation is highest by far in Alabama, where more than 50,000 homes have the designation. Shiyou-Woodard credits the state’s decision to set minimum discounts that insurers must offer.
Coastal Alabama residents who update their roof are guaranteed 25 to 35 percent off their wind premium under state law. Those who attain a Fortified “Gold” designation, which requires taking comprehensive steps including anchoring walls to the foundation, are guaranteed discounts between 45 and 55 percent.
Compared to hurricanes, wildfires that destroy communities are a newer phenomenon — as are efforts to reduce their damage. The insurance institute published a wildfire mitigation standard only in 2022, which was largely developed through lab work and post-fire field research.
Although the industry lists measures that it says will protect against wildfire, its standard has yet to prove its value in actual wildfires. That’s left insurers cautious about offering discounts.
“People just refuse to believe something will work until it gets tested,” Shiyou-Woodard said. “Unfortunately, a wildfire will need to pass through [an area with mitigated homes] to make people realize, ‘OK, that does work.’”
Even less certain is the how much protection comes from installing fire-resistant windows or vents.
“If you haven’t actually established through credible data that this is going to move the needle, then the discount for an individual action is probably not going to be meaningful, either,” said Collins of the insurance association. “As there’s more data and more credibility, the confidence of that will increase, and you may see more meaningful discounts over time.”
