Wildfires and bushfires

Climate change increasing wildfire risk

Each year, wildfires cause billions of dollars in losses, particularly in the USA. But in many other regions, climate change is also influencing the risk, with rising temperatures and more frequent droughts.

US$ 132bn

Global wildfire losses 2015-2024, with insurers paying out a total of US$ 79bn

An interplay of human-made and natural factors has made wildfires and bushfires a hazard that is difficult to quantify and one that poses an increasing threat in many places. Hazard zones can actually be accurately determined, but fires can also occur in unexpected places and cause heavy losses anywhere.

Wildfires primarily occur after prolonged dry spells when the air temperature is high. Dry vegetation can then be easily ignited, starting a wildfire that can quickly spread out of control if the wind is strong.

The hazard is especially high in climate zones where there is enough rainfall to allow vegetation to flourish for some of the year, 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 southeast Australia and California, for example.

The majority of fires near populated areas are ultimately caused by human activity, while only a small number start naturally, as a result of lightning for example. Alongside accidental fires, a significant number are also started deliberately.

The loss potential of wildfires is growing

The worst-affected regions include the west 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 with high losses. The largest wildfires recorded in California since the 1930s 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 more frequently experiencing the conditions needed for wildfires to occur.

In Europe, heatwaves and droughts have also increasingly fuelled wildfires in recent years. However, wildfires in Europe tend to be nowhere near as destructive as those in the USA.

The challenge: modelling the wildfire risk is complex

For the risk hotspots of California and Australia, models can be used to estimate potential insured losses from wildfires. However, as a result of the large number of human-made and natural factors, modelling this risk is complex.

Munich Re is continually developing and updating hazard zones and loss simulation models to improve risk assessment. We also support research into the measures that can be taken to avoid losses: for example, in collaboration with the Insurance Institute for Business and Home Safety (IBHS) in the United States.

Solutions for wildfire risks

The development of high-resolution wildfire loss simulation models enables Munich Re to offer region-specific coverage concepts. Our decades of experience with losses resulting from wildfires and other types of fire also allow us to better assess and absorb the risk of forest fire.