Insurers already limiting exposure to wildfires in Europe as models lag growing risk, says Chaucer

Increasing wildfire risk in Europe, which is filling headlines during the current heatwave, is difficult to price because models for it lack sophistication, according to Chaucer, with some insurers capping their exposure even before the recent outbreak of record temperatures on the continent.

“The potential for material losses to property is considerable,” Chaucer said. “Wildfires have only become a major priority as a peril relatively recently. However, given the increase in frequency and severity, losses are beginning to mount. We have already seen some (re)insurers begin to limit their exposure as a result,” said Ellen Gyandzhuntseva, head of exposure management at Chaucer.

The specialty (re)insurer said damage from wildfires in Europe increased by 75% in 2020, with 800,000 hectares burnt. Bosnia and Herzegovina recorded a 246% jump in the amount of land burnt, followed by Croatia with an increase of 130%. Italy recorded a 36% jump in land damaged by wildfires, and Greece was up by 34%.

“Climate change and shifting demographic patterns are making wildfires more dangerous. Until modelling becomes more sophisticated and the risk is better understood, wildfire risk in Europe will be difficult to adequately price,” said Gyandzhuntseva.

The current heatwave in southern Europe has seen record temperatures spark wildfires in Spain, Portugal, Italy, Greece and France, while yesterday saw fire outbreaks even in the UK. Chaucer said wildfires in Europe have been increasing in severity and frequency, driven by climate change and urbanisation, but have attracted less attention than in North America.

“Higher temperatures have increased the risk of fires starting on the continent, whilst drought-like conditions from dry soil are also making it easier for wildfires to spread rapidly,” Chaucer said. It added that the risk has been made worse by the loss of traditional farming practices in Mediterranean countries, which has contributed to a buildup of vegetation, while forest management practices have not kept pace with evolving trends to effectively suppress wildfires.

Data from 2020 recorded almost 800,000 hectares of land damaged from wildfires across 35 European countries, up from 450,250 in 2019.

Wildfire models are less advanced for southern Europe compared to those for the US and Canada, Chaucer said, forcing insurers to rely on internal methods to assess the risk rather than probabilistic hazard models. Wildfire patterns are also difficult to predict, Chaucer said, given the range of variables.

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