Assessing Catastrophe Risk Insurance in California Wildfire-Prone Homes Storefronts

Thesis Abstract

In the face of rapidly increasing wildfire incidence and escalating property losses in California, homeowners and insurers confront mounting catastrophe risk that is poorly captured by existing underwriting models, prompting a critical examination of catastrophe risk insurance (CRI) uptake, affordability, and coverage effectiveness in wildfire-prone homes and storefronts. The study aims to evaluate the determinants, provisioning adequacy, and policy implications of CRI within this high-risk context, with specific objectives to (i) quantify the relationship between environmental exposure, property attributes, and CRI purchase decisions; (ii) assess the adequacy of existing CRI product structures, pricing, and claim settlement processes in wildfire scenarios; (iii) examine the role of information asymmetry, trust, and insurer communication on policy uptake; (iv) identify barriers to accessibility for storefront businesses and residential properties located in wildfire zones; and (v) propose an evidence-based framework for improving CRI design and governmental incentive schemes. The theoretical lens integrates the Protection Motivation Theory to explain risk perception and protective action through insurance purchase behavior, and the Real Options Theory to model investment in wildfire-resilience as a complement to CRI. A mixed-methods design combines quantitative modeling and qualitative inquiry. The population comprises California households and small storefront businesses situated within high- and extreme-wildfire exposure zones as defined by the California Department of Forestry and Fire Protection (CAL FIRE). A stratified random sample of 1,200 households and 400 storefronts will be drawn across three counties with the highest average annual burn area over the past decade. Data collection will employ structured surveys (n=1,200 households; n=400 storefront managers), insurer product manuals and pricing sheets, and semi-structured interviews with 40 frontline underwriters and 20 policyholders who recently filed wildfire claims. Instrument validity will be assessed through content validity with wildfire risk and insurance experts, and pilot testing (n=60 respondents). For data analysis, the study will use logistic regression and multilevel modeling to identify predictors of CRI uptake and policyholder satisfaction, survival analysis to examine time-to-claim settlement, and generalized linear models to assess pricing adequacy against expected losses. Thematic analysis will be applied to interview transcripts to elucidate perceived barriers, trust in insurers, and communication effectiveness. A structural equation model will integrate latent constructs of risk perception, perceived value, and policy satisfaction. Ethical considerations include informed consent, data anonymization, and compliance with California ethics guidelines. Expected findings anticipate that higher exposure, lower perceived resilience, and greater information asymmetry will significantly increase the likelihood of CRI purchase when coupled with targeted insurer outreach and transparent pricing. It is expected that storefronts experience lower uptake due to perceived affordability constraints and limited liquidity for business continuity coverage, unless policy provisions align with business interruption needs and rapid claim settlement. The study should reveal gaps between actuarial pricing and observed loss experience, suggesting systematic underestimation of contingent liabilities in wildfire scenarios. The contribution to knowledge includes an integrated empirical assessment of CRI effectiveness in wildfire-prone settings, a validated model linking exposure, perception, and uptake, and a policy-oriented framework for refining CRI design, pricing, and public-private collaboration. The study will inform insurers, policymakers, and practitioners about effective CRI deployment in wildfire-prone communities, offering actionable recommendations such as tiered pricing, resilience-linked discounts, streamlined claims processes, enhanced disclosure protocols, and targeted subsidy mechanisms to improve affordability and access for both residential and storefront sectors. It concludes that a combined emphasis on robust risk transfer through CRI and investment in pre-disaster resilience yields the greatest potential to reduce post-disaster financial vulnerability and accelerate recovery in California’s wildfire landscape.