© Patrick Orton / Getty Images

Wildfires

Clear indicators that climate change is changing the risks

Wildfires and significant human influence

Each year, wildfires cause billions in losses – particularly in the USA. What’s more, higher temperatures and prolonged spells of dry weather are also changing the risk situation in other regions.
24
US$ bn
In 2018, wildfires resulted in greater losses than ever before, with insurers paying out a total of US$ 18bn

A complex interplay of man-made and natural factors has made wildfires a hazard that is difficult to quantify and - in many places - an increasingly common sight. Even if hazard zones can be clearly identified, fires can occur in unexpected locations and cause major damage.

Wildfires primarily occur after prolonged dry spells where the air temperature is high. Dry vegetation can then be easily ignited, starting a wildfire that quickly spreads out of control if the wind is strong. The majority of fires near populated areas are caused by human activity, while a smaller portion start naturally as a result of lightning, for example. Alongside accidental fires, a significant number are also started deliberately. 

The hazard is especially high in climate zones where there is enough rainfall to allow vegetation to flourish some of the time but where there are also long periods of warm weather with little precipitation. Under these conditions, plants gradually dry out and become highly flammable. This type of climate is found in south-east Australia or in California, for example. 

California events fuel global wildfire losses
Overall losses 1980-2018

The loss potential of wildfires is growing

The worst-affected regions include the southwest United States and southeast Australia. Aside from the environmental aspects, urban sprawl is also playing a critical role in the changing loss potential. An increasing number of houses are being built in the transitional zones between the outskirts of cities and nearby forested areas.

In California, climate change is clearly a significant factor in the increasing risk of wildfires and related losses. The largest wildfires recorded in California since 1930 have predominantly occurred since the beginning of the new millennium. The same period has also seen the most years with exceptionally high temperatures and unusually dry conditions. However, the Mediterranean region and parts of Australia are also seeing the conditions for forest fires occurring more frequently. 

Key challenge: Modelling the loss potential of wildfires is a complex task

For the risk hotspots California and Australia, models can be used to estimate potential insured losses from wildfires. However, as a result of several man-made and natural factors, modelling this risk is complex and influenced by subjective assessments — right up to evaluating the options for how to combat the fires.

To improve its assessment of the risk, Munich Re is constantly developing and updating its hazard zoning and its loss simulation models; for instance using NATHAN, which is an example of software as a service that we offer our clients. We also support research into the measures that can be taken to prevent losses. For example, we work together with the Insurance Institute for Business and Home Safety (IBHS) in the United States.

Contact our experts
Mark Bove
Mark Bove
Senior Research Scientist at Munich Reinsurance America, Inc.
Markus Steuer
Markus Steuer
Consultant and wildfire expert, Corporate Underwriting
Ernst Rauch
Head of Climate & Public Sector Business Development
We use cookies on our websites to improve your experience as an internet user, and to optimise our online services. They comprise cookies that are required for technical purposes, and without which the website functionality could not be guaranteed. We also employ cookies to carry out statistical evaluations of the reach of our websites. These evaluations are anonymised. You can find further information on the cookies we use, and ways to object to the use of cookies for statistical evaluations, in our cookie guidelines.