Wildfire Exclusions in Your Bank’s Portfolio: Are Your High-Risk Assets Protected?

As wildfire seasons grow longer and more intense across the U.S., the financial implications for lenders and servicers are increasing. While most standard homeowners’ insurance policies technically cover fire-related damage, there’s a troubling trend emerging in wildfire-prone regions: exclusions or limitations on wildfire coverage.

This shift could leave critical gaps in protection, directly impacting your institution’s exposure.

The Coverage Gaps: Wildfire Exclusions

Standard property insurance often includes fire as a covered peril. However, in high-risk wildfire zones, insurers are increasingly:

• Raising wildfire-specific deductibles

• Imposing coverage caps

• Or excluding wildfire damage altogether

This means your borrowers could be underinsured without even realizing it or might need to purchase additional wildfire-specific coverage. For banks, credit unions, and lenders, this creates an elevated risk in portfolios tied to wildfire-prone geographies.

What Wildfire-Specific Policy Restrictions Mean for Your Portfolio

If your institution holds assets in areas where catastrophic wildfires are becoming more frequent, think California, Oregon, Arizona, and parts of the Rockies, you may have unidentified and unmanaged risk lurking in your coverage monitoring process.

Identifying Insufficiencies in Wildfire Coverage

The first step in protecting your institution is identifying where your exposure lies, and that starts with location-based risk awareness and policy-level detail review.

Where Are the Wildfire High-Risk Areas?

FEMA offers a powerful tool to assess wildfire risk based on both historical data and projected future conditions. Use this to identify hotspots in your portfolio:

•  Read FEMA’s Wildfire Risk Overview: FEMA Wildfire Risk

• Explore the FEMA Risk Map: Wildfire Risk Interactive Map

Understanding these zones helps you prioritize reviews of borrower coverage in at-risk areas.

Digging Into the Policy Details

Insurers vary widely in how they approach wildfire risk. That’s why a generic review isn’t enough.

You need to:

• Examine deductible structures for wildfire claims

• Look for wildfire exclusions and limits in the policies

These elements are often buried deep in policy declarations and endorsements, making them easy to miss without a rigorous insurance tracking process.

How CPIA Can Help: Proactive Protection for Your Portfolio

At CPIA, we specialize in helping financial institutions stay ahead of coverage gaps.

Our Approach:

• Comprehensive Insurance Tracking: We review borrower policies, identifying potential coverage exposures.

• Borrower Outreach & Documentation: When deficiencies are found, we notify borrowers on your behalf and request proof of adequate coverage.

• Lender-Placed Insurance (LPI): If a borrower fails to comply, we can seamlessly apply LPI to ensure your asset is protected, without interrupting your operations.

This process ensures you maintain compliance, reduce risk exposure, and keep your collateral protected against growing threats, like wildfires and other natural disasters.

Ready to Safeguard Your Portfolio?

With wildfires growing in both frequency and severity, now is the time to assess your insurance coverage strategy. Don’t wait until after a fire to discover your risk.

Partner with CPIA to close the coverage gap and fortify your financial position.Reach out to our team today to learn how we can tailor wildfire risk tracking to your institution’s needs.