LONDON/PARIS, Aug 4 — Domestic insurers are expected to absorb most of the losses from Europe's worst wildfire season in recent history, but the blazes are also raising a bigger question: who will pay as climate-driven disasters become more frequent and destructive?
Authorities have evacuated about 220,000 people in France as unprecedented wildfires burn across the country. Fires have also swept through Spain and Greece, fuelling concerns about rising insurance costs and widening gaps in protection against climate-related risks.
Credit ratings agency Morningstar DBRS has estimated that France's total losses could reach €10 billion (RM47.18 billion) to €15 billion (RM70.78 billion), with insured losses running into several billion euros.
While manageable for the industry, analysts say the fires could offer a glimpse of the challenges ahead if blazes increasingly threaten densely populated areas.
"This might be a real threat to the industry if you have a wildfire out of control, reaching a medium-sized city like Bordeaux. That is a completely different scale of losses," said Morningstar DBRS' managing director Marcos Alvarez.
While far below the roughly US$40 billion (RM163.8 billion) in insured losses generated by California's Palisades Fire in 2025, the French fires could still become the country's costliest wildfire event on record.
Alongside damage to homes and businesses, insurers expect claims linked to mass evacuations that prevented residents from accessing their properties, as well as knock-on effects such as business interruption, supply-chain disruption, and utility outages.
For now, private insurers are expected to shoulder most of the recovery bill. Unlike floods and droughts, wildfires are not covered by France's state-backed natural disaster compensation scheme.
Fitch Ratings said in a research note last week that the impact on insurers' 2026 earnings should remain limited, provided fires do not spread to major residential, commercial or industrial areas.
Last week, The Insurer reported that France's insurers had agreed emergency measures allowing policyholders evacuated because of wildfires near Bordeaux to stay in hotels for up to three weeks at their insurer's expense.
Those measures helped pharmacist Nicolas Mulac, from Marcheprime near Bordeaux, who fled his house with his partner on July 24 as a fire approached.
Although his house escaped damage, Mulac filed a claim to recover accommodation and food costs and described the process as "very straightforward".
Climate insurance protection gap
The fires have renewed attention on Europe's "protection gap" – the difference between total losses from disasters and the amount covered by insurance.
Zurich-based insurance broker Marsh's global placement leader Tyson Vickery said that Spain's 2025 wildfires caused close to €5 billion (RM23.59 billion) in damage but "well under" €1 billion (RM4.72 billion) of that was insured.
The European Central Bank and the European Union's (EU) insurance regulator have warned that only a quarter of losses from climate-related catastrophes between 1980 and 2024 were insured. Wildfire insurance is also less developed in Europe than in the United States.
"Spain has experienced significant wildfires before, and the insurance industry has considerable experience in responding to these events.
"What is changing is the increasing frequency and severity of climate-related risks," said insurance broker Gallagher Spain's chief executive officer Ana Matarranz.
Analysts and climate experts told Reuters that a lack of historical European wildfire data, which insurers rely on to model and price risk, could complicate underwriting decisions.
Nonetheless, insurance broker Miller's head of France Rodolphe Mann told The Insurer that household premiums are likely to rise in higher-risk areas when policies come up for renewal in January.
He noted that property insurance is widely held in France because homeowners with mortgages are typically required by lenders to carry cover, while tenants are generally obliged to buy home insurance.
Munich Re data indicates that Europe accounted for five per cent of the €173 billion (RM816.3 billion) of global wildfire losses from 2016 to 2025.
According to a July report by AXA's climate unit, by 2050, areas around French cities could see nearly 70 per cent more high-risk wildfire days a year on average.
Industry body AMICE's secretary general Sarah Goddard said growing catastrophe risks strengthened the case for narrowing Europe's protection gap, but efforts to do so at EU level remained at an "exploratory" stage.
"While it is too early to estimate the ultimate cost of these events, Europe is increasingly experiencing conditions that have traditionally been associated with major wildfire-prone regions such as California and parts of Australia," said London-based law firm Clyde & Co's partner Wynne Lawrence.
