"Dear Guest,
I do understand your concerns. As I'm sure you understand the wildfires are beyond my control. If you feel the need to cancel, please do so. You will be refunded in accordance with my cancellation policy which you agreed to when you booked. For any monies you are not refunded, please file a claim against your travel insurance policy. I'm sure your travel agent will be happy to assist you."
By phrasing it in such a way you're assuming they were smart enough to have travel insurance, it takes away the perceived burden that you are responsible for insuring their stay. If they come back with, "We don't have travel insurance", they're already admitting they failed in their due diligence.
My response in that case would be, "Oh dear, that is unfortunate! I thought everyone purchased travel insurance these days. It is cases such as these for which travel insurance was created. In the spirit of being a good host, what I can offer is this: if you cancel your reservation, I will refund any days I am able to rebook. Please advise what you wish to do."