Residents of U.S. towns damaged by wildfires may need to prepare for another repercussion: insurers that decide to cancel policies because of increased risks from more frequent fires.

Facing mounting losses, some property insurers are pulling back from selling policies in California and other western states where wildfire risk is elevated. In California alone, damages had mounted to at least $12 billion by early 2018, while the state's Carr fire likely added another $1.5 billion in insured losses.

The tinderbox conditions in California were already dangerous in January when Insurance Commissioner Dave Jones warned of the "growing problem" of fire insurance unavailability within the state. Now an additional 17 fires are burning throughout the state, including the Carr fire, which has forced 3,800 people to evacuate and scorched nearly 1,000 homes.

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California Gov. Jerry Brown has called such conditions "the new normal," with more than two million of the state's households at high or extreme risk of having their homes burn down.

California appears to be a test case for how property insurers are reacting to this new reality. More than 60 uncontrolled fires are now burning across the western U.S., and in seven states more than 13 percent of homes are at risk, according to a study by Verisk Insurance Solutions. In Oklahoma, more than three-quarters of a million acres burned two years ago.

"These more frequent, intense and extensive mega-fires spell trouble for how insurance premiums are priced," said Nik Steinberg, director of analytics at climate intelligence firm Four Twenty Seven.

Anecdotal evidence shows that private insurers are starting to "drop homeowners" with a high exposure to wildfires, he added.

Property insurers denied they are leaving their largest and most profitable market.

"California insurance companies are well-regulated, well-capitalized, and heavily reinsured to protect consumers and ensure claims are paid following major catastrophes like the current 2018 California wildfires," said Vice President Mark Sektnan of the Property Casualty Insurers Association of America. "California continues to have a competitive and healthy homeowner's market."

But homeowners near Santa Rosa, California, which was hard-hit last year by fire, may see it differently. Some homeowners reported cancelled insurance policies. And that is why they are asserting their opinion at the state legislature, where a bill by State Sen. Bill Dodd, whose district includes the fire-hit Napa Valley wine region, would prevent the non-renewal of a homeowner's insurance policy for two years after such a disaster. It has yet to become law.

Currently, non-renewals "are difficult to track," said California Department of Insurance spokeswoman Nancy Kincaid. "Insurers aren't required to report non-renewals. (But) we're advising consumers to call the department's hotline and let us know."

Based on that information, the department estimates non-renewals rose 15 percent from 2015 to 2016.

The most vulnerable homes

California's most vulnerable homes aren't located in cities. Instead, they're found in areas defined as "wildlife-urban interface" – built just close enough to woodlands so that a spark from a tree can set a whole town on fire. An Oakland resident said his policy was terminated because he lived in an "ineligible brush area." It's a pattern that's been repeated over and over in recent years.

A report from Commissioner Jones' office shows that 25 percent of housing is in "high or very high risk" areas in almost half of the state's counties.

"You can see why wildfires are now an everyday threat to life and property for Californians," Jones said in a statement.

And insurers see it too, Jones said. By using sophisticated computer models that include climate projections to determine if some areas of the state are at too high a risk, insurers can then decline to write, or renew policies there, according to Jones. They may also write policies without fire coverage, according to recent news articles.

Current and future laws, like the one Sen. Dodd is trying to pass, could delay the inevitable, but property insurers will almost certainly try to limit their risk in areas where they lose money. It's already happened in Florida and along the East Coast after repeated hurricanes in 2004 and 2005 delivered a "harsh awakening to insurers," said Lynn McChristian, a professor of risk management at Florida State University. Some insurers left the state while others reduced their exposure to coastal areas.

Impact on the property market

If property insurers leave suburban California, it could minimize the market for new modestly priced homes just as the state is facing a huge homeless population. Another problem: if private insurers drop the ball, it will pass to California's FAIR plan, an organization of all this state's insurance companies, which insures those who can't otherwise get coverage. The cost of such a plan will almost certainly be much higher than a private carrier and also inferior, said Steinberg of Four Twenty Seven.

A homeowner can also opt to purchase insurance from an out-of-state carrier that could pick up the policy, said spokesperson Janet Ruiz, who handles California for the Insurance Information Institute, which represents property-casualty insurers. Among those carriers: the London-based Lloyds syndicate. But these carriers are usually not state-licensed and therefore not as closely regulated.

But one thing is certain. California conflagrations are now a year-round problem, and the Golden State is becoming a model for what other states should and shouldn't do.

"California is the lab for managing exposure to wildfire risk," said McChristian.