Once ignited, a wildfire’s flames devour everything in their path. High winds typically fan the fire’s intensity, pushing it from remote woods and grasslands into populated areas. 
From California to Greece, wildfires are emerging as a persistent threat. Climate change is making them more frequent or more intense in many regions, while urban expansion into fire-prone areas multiplies potential losses.

For banks, this isn’t only about environmental awareness. It’s about the fundamentals of lending: collateral quality, borrower capacity, and insurability.

Increasingly, wildfire exposure is resulting in collateral degradation, elevated default rates, and rising volatility across asset-backed exposures. Many of the regions now at risk were invisible to legacy models, creating blind spots that undermine risk pricing and portfolio resilience.

In California, mortgage delinquency rates rose by four percentage points after wildfire damage, while nearly 40% of affected households received insurance payouts at least $200,000 below their actual recovery costs (Source: Federal Reserve Bank of Philadelphia)

In Canada, neighbourhoods hit by the 2016 Fort McMurray wildfire saw a clear spike in mortgage arrears, despite insurance and relief measures (Source: Bank of Canada)

In Australia, one major bank has identified 4.6% of its home loans as being in high-risk zones for extreme weather, including bushfires (Source: Commonwealth Bank of Australia)

And in Southern Europe, wildfires are intensifying, but most banks have yet to price in the physical risk. ECB analysis suggests that loans in fire-prone Mediterranean regions often carry no additional interest premium for climate hazards at all (Source: ECB)

The most forward-thinking banks are embedding wildfire risk into credit frameworks with the same rigour as borrower quality or macroeconomic exposure. They’re using property-level analytics to identify risk concentrations, recalibrating loan pricing and capital buffers, updating underwriting to reflect resilience and insurability, and rebalancing portfolios away from the highest-risk areas.

Crucially, they are also investing in climate risk platforms that offer the granularity and transparency regulators increasingly expect – with insights delivered in real time.

As Dominik Kienmoser, wildfire expert at Munich Re, puts it: 

Traditional catastrophe models weren’t built for the new wildfire era. They generalise, they lag, and they miss the micro-risks that matter when your portfolio spans thousands of physical assets.

Munich Re’s Location Risk Intelligence Wildfire HD provides building-level hazard data at 30-metre resolution, integrating factors such as slope, vegetation, wind corridors, and defensible space. Calibrated with real-world loss data, it enables banks to evaluate risks across portfolios, detect exposure hotspots, and run climate stress tests with confidence.

Whether you’re refining loan pricing, adjusting collateral buffers or aligning with disclosure frameworks, this is the data foundation that turns “maybe” into “measurable” – and positions you ahead of regulatory and market expectations.