Wildfire policies can leave major rebuilding gaps

Standard homeowners insurance generally pays for damage from wildfire flames, smoke and ash. The larger problem is whether the coverage ceiling matches the cost of rebuilding. Insurance Information Institute figures indicate that roughly two-thirds of U.S. homeowners lack enough protection, commonly leaving a gap near 20%. California regulators reached a similar conclusion after examining more than 74,000 claims tied to fires.

Even careful policyholders may discover a shortage only after losing a home. Research by professor Robert Klein puts the share of wildfire claimants without sufficient coverage at approximately 80%, with the typical deficit averaging 25%. Costs exceeding the policy maximum remain the homeowner’s responsibility, along with losses below the deductible and belongings that are excluded or subject to smaller limits.

Other restrictions can also affect a claim. Home insurance generally leaves out flooding, including water damage occurring around the time of a wildfire. Vacant properties may have special conditions. Temporary living costs also may not qualify when an evacuation forces residents out but the house itself remains intact. In areas with elevated fire exposure, insurers may also consider vegetation, building materials, local fire protection and past wildfire activity when setting prices or deciding whether to offer coverage.