7 lessons learned from the California wildfires for European insurers

Many countries in Europe can learn from the wildfires in California – the convergence of factors leading to the historic insurance losses is not unique to the US West coast.

Recent wildfire examples in Europe include extended fires in Portugal in 2017, with insured losses for damages in October 2017 alone at USD 0.3 billion. In 2022, fires also broke out in London during an extreme heatwave, part of the second-worst wildfire season in Europe since tracking started in 2000. And in the summer of 2024, Greece experienced large forest fires that reached the outskirts of Athens, threatening the capital.

While the risk of large wildfire losses in Europe is still considered moderate, the insurance industry must improve its understanding of this peril. In this article, we explore some of the key lessons European insurers can learn from California.

In January 2025, two major wildfires burned over 30,000 acres in Los Angeles County, destroying more than 16,000 structures – many of them high-value properties.

While January wildfires are relatively rare, a prolonged warm and dry Santa Ana wind, coupled with a lack of rainfall, created an environment conducive to rapid fire spread. The strong winds made aerial firefighting unfeasible at times, while firefighting resources were also stretched due to multiple fires burning simultaneously.

The LA wildfire damages rank among the largest ever recorded, both in terms of the number of structures destroyed and the total insured and economic losses. Swiss Re estimated the preliminary total insured market loss to be approximately USD 40 billion.

By May, 2025 had already become the costliest year for global wildfire insured losses by a significant margin (2017 second costliest, with total wildfire losses of USD 19.5 billion, at 2025 prices), according to Swiss Re data.

It is very possible that similar weather conditions conducive to extreme wildfires could materialise in countries across Europe as well.

According to the European Environment Agency, Europe is the fastest warming continent in the world, with extreme heat, drought, and wildfires expected to worsen even under optimistic global warming scenarios.

Climate change is increasing the occurrence of extreme rainfall and humidity that accelerate vegetation growth. Droughts are also becoming more frequent in Europe, extending the wildfire season and exacerbating water shortages, which hinder firefighting efforts. Climate change is also leading to more erratic weather such as lightning strikes and stronger winds that can ignite and spread wildfires more readily.

Swiss Re data shows that wildfires globally cost approximately USD 106 billion in economic losses and USD 74 billion in insured losses between 2014 and 2023. And while those in the US (particularly California) account for most of these losses, events in Canada, Australia and Europe have also contributed significantly.

Data from the European Forest Fire Information System (EFFIS) shows that the number of fires and burnt area across Europe has been increasing since data collection began in 2006.

2023 was one of the worst for wildfires in the European Union specifically, with the megafire near the Greek city of Alexandroupolis being the largest single wildfire recorded in the EU since EFFIS started tracking them in 2000.

The increase in wildfires in Europe is a concern. Historical events suggest that France, Greece, Italy, Portugal and Spain all show potential for economic losses exceeding EUR 2.5 billion, according to the European Insurance and Occupational Pensions Authority (EIOPA). The question is whether Europe can combat wildfires and prevent even larger losses from materialising.

Lessons must be learned from wildfires in California. Here are some worth considering.

In both the US and Europe, houses continue to be built in the wildland-urban interface (WUI), where buildings and wildland vegetation intermingle. In Los Angeles County, the number of housing units in the WUI grew by 23% from 1990-2020, compared to 11% growth outside the WUI.

Structures in the WUI are highly exposed to wildfire risk. According to the European Commission, 96% of wildfires in the EU are caused by human actions. Therefore, an increase in WUI not only increases the number of units at risk – it also increases the risk of starting a wildfire. Consequential fragmented landscapes may also disrupt natural firebreaks and challenge firefighting efforts. Countries across Europe should therefore work to restrict development in the WUI.

The combination of “extremely high” hazard ratings and high insurance penetration that are prevalent in California are rare in Europe. In Portugal, more than 60% of industrial zones are close to woodlands prone to fire risks. However, “high” to “very high” wildfire hazard zones have low property values, concentration, and insurance penetration, which limits severity of insured loss.

In California, inflation, the escalating costs of claims, regulatory requirements, and increasing risk made pricing of wildfire insurance very challenging. Similarly, balancing the affordability and availability of insurance in Europe could also be difficult.

Europe, the Middle East and Africa (EMEA) have a greatly varying protection gap due to a diverse insurance market, which includes private market solutions and compulsory insurance pools. In 2024, the protection gap from natural catastrophes across the region was 70% compared to 43% in the United States. Combining insurance penetration and wildfire risk provides an estimate of the overall vulnerability of a country. In Europe, Greece and Portugal are the most affected, followed by Croatia, Cyprus and Austria.

As the peril continues to develop, setting prices that reflect the full cost associated with wildfire risk is key to keep insurability intact. For high-risk populations, subsidies could be an option to support affordability.

Wildfire is a complicated peril for the insurance industry to model. Human actions influence the occurrence and damage potential of wildfires to a much greater extent than other perils. Several factors can affect the wildfire behaviour – the presence of ignition sources, amount and type of vegetation (fuel), strength and direction of winds, amount of precipitation preceding the fires, fire spread due to embers, individual property characteristics, availability and effectiveness of firefighting resources, and the presence or absence of community resilience measures.

Traditional risk evaluation methods – such as predictive or probabilistic models – have been largely insufficient in assessing evolving wildfire threats, failing to account for the complex interactions between drivers of wildfire risk, changes in fire behaviour, and interannual variability.

NatCat models also don’t explicitly consider loss contributors such as ordinance and law costs, litigation costs, social inflation, infrastructure damage, and soil remediation costs. While these factors may be implicitly accounted for in costing and pricing, they are typically more relevant for wildfires than other perils because of the severity and concentration of damages.

Insurers require more robust, forward-looking risk models underpinned by granular data such as the precise location of properties, rigorous analytics and advanced computing power to more accurately anticipate risks, mitigate losses and protect lives.

Here, Swiss Re has been developing several wildfire risk assessment tools:

• CatNet® – Swiss Re’s proprietary location intelligence tool
  Clients are provided with high resolution mapping risk data. Our global wildfire layer accounts for average historical wildfire occurrence and frequency, climate change, and location considerations such as topography. CatNet® hazard maps display potential hotspots for loss events in Europe. These have been shown to be accurate, frequently aligning with actual wildfire occurrences.
• Bellwether’s wildfire probability predictions
  Swiss Re is partnering with Bellwether to predict the probability of wildfires occurring at specific locations in the next year and next five years. Using machine learning, Bellwether collects and synthesises over 600 layers of geospatial data on any given property, including climate and weather variables, road and electric utility networks, vegetation, and other factors. With these insights, accessible via CatNet®, underwriters can assess location-specific wildfire probabilities. Currently, this service is only available in the US and Canada, and it will soon be released for Australia. There is also potential to extend it to Europe in the future.

The industry needs to further improve risk modelling for secondary perils and wildfire specifically. While uncertainties remain, wildfire modelling is rapidly evolving with new science, data and learnings, which will facilitate more refined insights over time.

Accumulation risk is the exposure that arises when an insurer covers many properties in a region prone to wildfires. If a catastrophic event strikes, the potential for significant losses increases dramatically.

Swiss Re is collaborating with insurers helping them to evaluate their complete portfolios to identify pockets of accumulation, so they can make informed decisions relating to capacity and risk diversification. Coverage terms, inclusions and exclusions need to be very clear, while strict accumulation controls must be implemented to prevent excessive exposure.

California reaffirmed that the total financial impact and insured losses associated with wildfires can be hard to determine. This complexity arises from several factors, which could also be relevant in Europe.

Displacement costs: Insurance policies often cover displaced residents' living expenses, but the total compensation and coverage duration can be inconsistent.

Secondary damage: Structures outside fire perimeters may be damaged by smoke and ash, with burned areas at risk of landslides from future heavy rain, adding financial uncertainty.

Speed of payout: Wildfire payouts are usually faster compared to other natural catastrophe perils. Reinsurers can expedite cash calls to insurers for quick liquidity.

Subrogation: Insurers can pursue third parties responsible for losses. Unlike in Europe, California’s inverse condemnation doctrine holds utilities liable for damages caused by their equipment without the need to prove negligence. Although subrogation is subject to higher legal hurdles in Europe, it is still possible. It can reduce the loss burden on property insurers, potentially shifting it to the liability insurer of the party responsible for the fire. However, subrogation outcomes are uncertain and can take years to resolve.

For more insight from the Claims perspective, watch this video:

Globally, governments are developing wildfires protection policies. Historically, in the US – but also across Europe, such as in France – strong fire suppression activities have been favoured over prevention.

Reactive measures prioritise better fire management practices including boosting firefighting capacity. However, multiple simultaneous fire outbreaks, as evidenced in LA, can overwhelm firefighting resources.

Consequently, it is imperative to also address the root causes of wildfires. The policy approach is evolving – in Portugal, the catastrophic fire season of 2017 prompted a transition. The state now mandates clearing of vegetation around buildings and supports forest owners with preventive measures like thinning and pruning. However, enforcement of legislation in many EMEA countries is weak. Limited resources and inadequate funding often hinder the implementation and effectiveness of preventive measures.

While mitigation is supported by public funding and education initiatives, aligning all stakeholders can be a challenge. Many property owners in the WUI may continue to ignore advice about clearing vegetation around properties, for example.

Proper management of utilities, such as burying power lines, can further reduce wildfire risks. Sustainable forest management practices like prescribed burns and mechanical thinning may also protect natural ecosystems.

Society at large needs to focus on building back better by setting building and zoning standards that are more resilient to future disasters.

These efforts may be more costly upfront, but will lower long-term costs. The goal is to improve resilience in hazardous locations and reduce the likelihood of repeated damage. Here, pricing signals provided by insurance can be an important indicator of risk that should be considered when choosing areas for future development.

Further urban planning decisions need to integrate lessons in what to avoid: houses built too close together, narrow roads that allow fires to spread more easily and impede access, and homes on steep slopes that fires can easily climb.