Enhancing wildfire risk management: the potential role of insurance policies in mitigating impacts

The frequency of extreme wildfires has increased significantly, often exceeding the response capacity of civil protection systems. This trend is particularly worrying in the wildland-urban interface, where fires cause dramatic economic, social, and cultural losses, sometimes resulting in injuries and fatalities. One of the primary reasons for such devastating impacts is the widespread non-compliance with vegetation management regulations around buildings, which allows fires to spread easily to them. Also, large-scale wildfires concentrate impacts in specific regions, leading to their profound disruptions in both rural areas and particularly the wildland urban interface. The destruction of critical infrastructures and residential properties poses immense challenges for local authorities, who must address the needs of displaced citizens while managing complex and often inexistent or inefficient compensation mechanisms.

The current public processes for loss compensation, when established, are marked by significant inefficiencies and inequalities. Many citizens lack the knowledge or capacity to access available aid funds, while others exploit the system by claiming compensation beyond their actual losses. This imbalance often disadvantages those most in need, particularly individuals with lower education levels or limited access to information, thus increasing the impact on vulnerable persons and communities.

The insurance sector offers a potential solution to address these challenges. By tying insurance payments to wildfire risk – understood as the probability of damage multiplied by the potential loss value – citizens would have a financial incentive to adopt risk mitigation practices, such as vegetation management and fire-resistant construction methods and materials. Additionally, insured properties would shift the financial burden of recovery from governments to insurance companies, which are better prepared to manage compensation processes efficiently and equitably. This approach could reduce socio-economic disparities by ensuring fair compensation, regardless of an individual’s ability to navigate bureaucratic procedures. However, such policies must avoid disproportionately burdening rural communities or high-risk areas, as this could lead to depopulation and further vulnerability.

Considering these challenges, this study, with the cooperation of the Portuguese Insurers Association (APS), investigated the position of the insurance sector regarding wildfire risk in Portugal. A survey covering 93% of the dwelling insurance market explored the conditions under which insurers accept wildfire risk, the tools used to assess it, the factors influencing risk rejection, and the potential for adopting more inclusive wildfire risk coverage policies. The results indicated that most insurers tend to accept wildfire risk for strategically significant clients, excluding the general population. However, insurers expressed openness to revising their policies if supported by enhanced scientific tools and standardized risk mitigation frameworks with quantifiable results.

Policy and legal interventions are critical to ensure that financial burdens are distributed equitably, considering socio-economic factors and property usage. Adjustments could include favouring primary residences in rural areas over secondary homes in high-risk zones. While integrating insurance into wildfire risk management is promising, it requires coordinated efforts, including scientific advancements, robust risk mitigation strategies, and progressive policy development. Addressing these challenges will require a multifaceted approach to build more resilient communities and mitigate the growing impacts of wildfires.