Europe’s wildfire insurance gap widens as risks soar

Europe is confronting an escalating wildfire threat driven by climate change, with Southern Europe particularly vulnerable due to increasing frequency and severity of fires. As Julian Enoizi, CEO of Europe at Guy Carpenter, observes, the impact now extends well beyond property damage to encompass business interruption, smoke exposure, evacuations, and supply chain disruptions, all amplifying the economic toll. This broader disruption complicates risk assessment and insurance claims, underscoring a growing resilience challenge that insurers must address.

Despite the rising wildfire activity, insured losses have so far remained relatively contained because many recent fires have affected rural areas with lower property density. However, Guy Carpenter warns that this could change rapidly if fires encroach on more densely populated regions, potentially triggering a surge in insurance claims. This dynamic highlights the precarious balance insurers face as wildfire risk intensifies across Europe.

A significant protection gap persists in Southern Europe, especially in Spain, where private insurers predominantly cover wildfire-related property damage due to limited public schemes. For instance, Spain’s 2025 wildfires caused nearly €5 billion in damages, yet less than €1 billion was insured, according to Tyson Vickery of Marsh. This shortfall is driving a marked increase in demand for private wildfire insurance products, as homeowners and businesses seek to mitigate exposure amid insufficient public coverage.

The wildfire insurance market in Europe remains underdeveloped compared to the U.S., hindered by limited historical wildfire data that complicates underwriting and risk modeling. Analysts note that this data scarcity makes it challenging to accurately price risk and manage accumulation, contributing to rising premiums in high-risk areas. Rodolphe Mann of Miller anticipates household premiums will increase in vulnerable regions when policies renew, reflecting insurers’ recalibrated risk exposure amid projections—such as AXA’s climate unit report forecasting nearly 70% more high-risk wildfire days annually around French cities by 2050.

European insurers are increasingly transferring wildfire catastrophe risks to capital markets, notably through the growing issuance of catastrophe bonds, which have surpassed $5 billion this year. This shift reflects a strategic move to manage escalating wildfire threats by leveraging financial resilience tools such as insurance-linked securities and securitisation markets, which not only spread risk across the financial system but also offer attractive returns when risks are accurately priced. Firms like Marsh, Verisk, and Moody’s are pivotal in this evolution, providing advanced wildfire risk models that enhance investor confidence by incorporating updated fire data and climate trends, although the European market remains less mature than the US, as noted by Aon's Will Bruce.

Despite the rising wildfire risks driving premium increases, European insurers currently report ample insurance capacity, reducing immediate reliance on catastrophe bonds or public backstops. As one industry expert emphasized, 'there's significant capacity to absorb' wildfire risks, shifting the focus toward optimizing existing capacity and addressing demand-side challenges rather than expanding financial instruments. This pragmatic stance underscores a balance between acknowledging increasing risk—where premiums must eventually reflect evolving hazards—and leveraging prevention efforts to mitigate cost pressures.

Catastrophe models have become indispensable for pricing wildfire risk and allocating capital, yet insurers and investors alike recognize the necessity of coupling these quantitative tools with expert judgment and active risk management to navigate uncertainties inherent in extreme climate events. This nuanced approach ensures that investment managers do not rely solely on model outputs but critically interpret data to manage exposure effectively, aligning with the broader trend of integrating climate adaptation and resilience into long-term investment strategies across infrastructure, real estate, and private equity sectors.

Southern Europe is grappling with a significant wildfire protection gap, where insured losses cover only a fraction of total damages, largely because many affected areas remain rural with lower property exposure. However, as Julian Enoizi, CEO of Europe at Guy Carpenter, warns, this relatively contained loss picture could deteriorate rapidly if fires encroach upon densely populated urban centers, such as Bordeaux, posing systemic risks that threaten the sustainability of the insurance industry. This vulnerability is compounded by the fact that wildfire-related property damage in countries like Spain is primarily covered by private insurers rather than government schemes, underscoring a heavy reliance on private wildfire insurance in the region.

The economic fallout from wildfires extends well beyond direct property damage, encompassing business interruption, supply chain disruptions, mass evacuations, smoke exposure, and utility outages, which collectively complicate claims and recovery efforts. Guy Carpenter highlights that these secondary impacts create a more complex claims environment, with businesses facing reduced access to premises and additional costs to maintain continuity. This broader economic toll transforms wildfire from merely an insurance challenge into a multifaceted resilience issue, straining government budgets through increased spending on healthcare, emergency infrastructure, transportation, and agriculture, as noted by European insurers and regulators.

Europe’s wildfire insurance market remains underdeveloped compared to the U.S., hindered by a lack of comprehensive historical wildfire data essential for accurate risk modeling and underwriting. This data scarcity, highlighted by analysts and climate experts, exacerbates the protection gap by complicating insurers’ ability to price and manage wildfire risk effectively. As wildfire frequency and severity escalate—AXA’s climate unit projects nearly 70% more high-risk wildfire days around French cities by 2050—the urgency to close this gap intensifies, with industry leaders like Sarah Goddard of AMICE emphasizing the growing catastrophe risks that demand enhanced climate resilience strategies.

The wildfire protection gap is further amplified by socio-economic factors such as increased wealth accumulation in high-risk areas, with houses becoming more expensive and concentrated in vulnerable zones, thereby elevating systemic risks for society. Moreover, governments and local jurisdictions often lack the readiness for systemic interventions necessary to prevent and mitigate wildfire impacts, as Zurich Insurance Group CEO Mario Greco observes, noting that many authorities neither visualize nor fully grasp the risk yet. This combination of rising exposure, insufficient preparedness, and escalating wildfire events signals a pressing need for coordinated action to narrow the protection gap and enhance resilience across Southern Europe.