Can Europe’s insurers keep up with rising climate losses?

Spanish and French wildfires show European protection gap widening

European insurers face mounting pressure from climate-related losses. The latest wildfires in Spain and France highlight this trend. However, the industry appears able to absorb these events without systemic disruption. Swiss Re reports the fires will likely increase demand for private insurance. Meanwhile, ratings agencies confirm that large, diversified insurers remain resilient thanks to strong capital buffers and reinsurance capacity.

The more pressing concern lies elsewhere. Only around a quarter of climate-related catastrophe losses across the EU carry insurance cover. In some member states, that figure drops below 5%. The European Insurance and Occupational Pensions Authority (EIOPA) warns that European citizens and businesses remain critically underinsured against floods, wildfires, and windstorms.

These summer wildfires represent more than isolated disasters. They form part of a structural shift in which secondary perils such as wildfire, flood, and severe storms now drive a growing share of insured losses. Consequently, insurers are rethinking pricing models, underwriting criteria, and climate adaptation strategies across southern Europe.

Wildfire losses accelerating faster than other weather perils

Swiss Re has identified wildfire as the fastest-growing major weather peril globally. The company’s data shows global wildfire insured losses have grown by approximately 12% annually in real terms since 1970. This rate exceeds growth in losses from other climate-related events. Therefore, insurers are paying closer attention to accumulation risk and geographic exposure.

The current fires in southern Europe are notable for another reason. Wildfire losses in this region generally fall outside national insurance pools. Homeowners and businesses must secure private cover. This contrasts with northern European countries where public schemes provide broader protection. As a result, the same wildfire event can produce vastly different financial impacts depending on location.

Morningstar DBRS has assessed the immediate market impact. The agency characterizes the fires as an earnings event rather than a credit crisis for large European insurers. Reinsurance capital stood at a record $790 billion at the end of the first quarter of 2026. This provides substantial capacity to absorb current losses. Nevertheless, repeated wildfire events could gradually erode catastrophe budgets and increase reinstatement costs.

EIOPA estimates that wildfire-exposed insured property replacement costs in Europe total approximately EUR 17.7 trillion. This figure demonstrates the scale of potential market exposure. Even though current claims remain manageable, the underlying risk pool is substantial. Insurers must therefore recalibrate their understanding of wildfire as a mainstream underwriting challenge rather than a peripheral concern.

Protection gap leaves most climate losses uninsured

The European Central Bank reports that only about 25% of climate-related catastrophe losses in the EU carry insurance. This protection gap is expected to widen as climate risks intensify. EIOPA has described the situation as frankly alarming. The authority’s 2025 Eurobarometer survey found that only 17% of respondents held property coverage for natural catastrophes.

Several factors contribute to this gap. Premiums have risen as insurers incorporate higher risk into pricing models. Some property owners find cover unaffordable or believe risks remain too remote to justify the expense. In addition, public awareness of climate risks often lags behind scientific evidence. Many businesses and homeowners underestimate their exposure until a loss occurs.

Geographic variation compounds the problem. Countries with mandatory insurance schemes or strong public pools achieve higher coverage rates. Southern European nations typically rely more heavily on voluntary private markets. This means protection levels vary significantly across the continent. The result is uneven financial resilience when disasters strike.

From a business perspective, this gap creates uncertainty. Companies without adequate cover face direct financial losses from property damage. They may also encounter supply chain disruptions if suppliers or customers suffer uninsured losses. For insurers, the gap represents both a market opportunity and a strategic challenge. Growing demand for cover must be balanced against the need to price risk accurately in a changing climate.

Insurance demand rising in southern Europe

Swiss Re expects the recent wildfires to lift insurance demand across affected regions. Homeowners and businesses are reassessing their exposure. The absence of national pool coverage means private insurance becomes the primary option. This trend is already visible in markets where previous wildfire seasons prompted spikes in policy inquiries and renewals.

Insurers are responding by refining their wildfire risk models. Traditional underwriting relied on historical loss data. Climate change is making past patterns less reliable as a guide to future risk. Consequently, insurers are incorporating climate projections, vegetation mapping, and building material assessments into pricing decisions. This allows for more granular risk differentiation between properties.

Reinsurance markets are also adjusting. Reinsurers provide capacity that allows primary insurers to write policies in high-risk areas. However, reinsurance pricing reflects accumulation risk and loss trends. If wildfire losses continue to accelerate, reinsurance costs may rise. This would flow through to premium increases for policyholders. It could also lead some insurers to restrict cover in particularly exposed locations.

The industry faces a tension between meeting demand and managing exposure. Insurers want to expand coverage and serve customers in growing markets. At the same time, they must maintain underwriting discipline to avoid accumulating unsustainable risks. Finding this balance will shape market dynamics over the coming years.

Key developments for UK businesses and insurers

• Wildfire insured losses have grown at approximately 12% annually in real terms since 1970, making wildfire the fastest-growing major weather peril globally.
• Only around 25% of climate-related catastrophe losses in the EU are insured, with some countries reporting coverage rates below 5%.
• Reinsurance capital reached a record $790 billion at the end of Q1 2026, providing significant capacity to absorb current wildfire losses without systemic disruption.
• EIOPA estimates wildfire-exposed insured property replacement costs in Europe at approximately EUR 17.7 trillion, highlighting the scale of potential market exposure.
• Just 17% of respondents in EIOPA’s 2025 Eurobarometer survey reported holding property coverage for natural catastrophes, indicating widespread underinsurance.
• Southern European wildfire losses generally fall outside national insurance pools, meaning protection depends on private insurance purchase rather than public schemes.

What this means for UK firms with European operations

UK businesses with property, operations, or supply chains in southern Europe should review their insurance arrangements. Many commercial policies exclude or limit wildfire cover. It is worth checking whether your current policy provides adequate protection. If you operate in Spain, France, Portugal, or other wildfire-prone regions, consider whether your cover matches your exposure.

Supply chain risks warrant attention as well. If your suppliers or customers suffer uninsured losses, this can disrupt your own operations. Understanding where your key partners are located and whether they carry adequate insurance can help you assess potential vulnerabilities. In some cases, contractual requirements for supplier insurance may be appropriate.

For businesses tendering for public sector contracts, climate resilience is becoming a more prominent evaluation criterion. Carbon reporting and climate risk disclosure requirements are increasing. Demonstrating that you have assessed and insured your climate risks can strengthen your position in competitive bids. This is particularly relevant for firms operating across multiple European markets.

Insurance costs are likely to continue rising in wildfire-exposed areas. Budget planning should account for potential premium increases at renewal. In some locations, insurers may tighten terms or reduce limits. Early engagement with your broker or insurer can help you understand what changes to expect. It also gives you time to explore alternative risk transfer options if traditional insurance becomes prohibitively expensive.

Adaptation measures can reduce both risk and insurance costs. Fire-resistant building materials, vegetation management, and emergency response planning all help mitigate wildfire exposure. Insurers increasingly reward these measures with improved terms. Therefore, investments in resilience can deliver both safety and financial benefits. They also support broader ESG compliance and reporting obligations.

Policy responses taking shape across Europe

The European Central Bank has proposed two options to strengthen resilience against natural catastrophes. The first is an EU public-private reinsurance scheme. This would pool risk across member states and provide capacity beyond what private markets can offer. The second is an EU fund for public disaster financing. This would provide rapid response funding when catastrophes exceed insured capacity.

Both proposals aim to close the protection gap and reduce fiscal strain on national governments. Currently, governments often provide ad hoc disaster relief when uninsured losses occur. This creates uncertainty for both citizens and public finances. A more systematic approach could improve predictability and ensure resources are available when needed.

EIOPA has emphasized that insurance alone cannot solve the problem. Adaptation and resilience measures must accompany insurance provision. This includes land-use planning, building codes, infrastructure investment, and public awareness campaigns. Without these measures, rising risks will eventually outpace the insurance industry’s capacity to provide cover at affordable prices.

National governments are adopting varied approaches. Some are exploring mandatory insurance schemes for natural catastrophes. Others are investing in public pools or subsidy programs to maintain affordability. The lack of a coordinated EU-wide approach means businesses operating across multiple countries must navigate different insurance regimes. This adds complexity to risk management and procurement decisions.

How insurers are changing their approach to wildfire risk

Insurers are moving away from treating wildfire as a low-frequency, high-severity event. Instead, they are recognizing it as a growing, recurrent risk requiring systematic management. This shift affects pricing, underwriting, and portfolio management. It also influences how insurers engage with customers on risk reduction.

Pricing models now incorporate more sophisticated data. Satellite imagery, climate projections, and vegetation monitoring feed into risk assessments. Insurers can differentiate between properties based on location, building materials, and surrounding landscape. This allows for more accurate pricing. However, it also means some properties become uninsurable or prohibitively expensive to cover.

Reinsurance purchasing strategies are evolving. Insurers are buying more protection against accumulation risk. This protects their balance sheets if multiple losses occur in a single season. However, reinsurance costs have risen in recent years. This increase reflects both higher claims and greater uncertainty about future loss trends. Insurers must balance the cost of reinsurance against the benefit of capital protection.

Customer engagement is also changing. Insurers are providing more guidance on risk mitigation. This includes recommendations on vegetation clearance, building maintenance, and emergency preparedness. Some insurers offer premium discounts or improved terms for properties that meet specific resilience standards. This creates an incentive for property owners to invest in adaptation measures.

The industry is also exploring parametric insurance products. These pay out when a defined trigger occurs, such as wildfire reaching a certain proximity to insured property. Parametric products can provide faster claims settlement and reduce administrative costs. They may become more common as climate risks increase and traditional indemnity insurance becomes harder to price.

Authoritative sources and further information

The European Insurance and Occupational Pensions Authority publishes regular reports on climate risk and the protection gap. Their website provides data on insurance penetration rates across EU member states. You can access their publications at www.eiopa.europa.eu.

The European Central Bank has issued policy papers on climate-related financial risks. These include recommendations for improving resilience against natural catastrophes. Their financial stability reviews are available at www.ecb.europa.eu.

Swiss Re publishes an annual sigma report on natural catastrophes and man-made disasters. This provides global data on insured losses and trends in climate-related risks. You can find these reports at www.swissre.com.

For UK businesses seeking support with climate risk assessment and insurance strategy, SBS compliance services can help you understand your exposure and meet reporting requirements. We work with businesses to navigate changing insurance markets and integrate climate resilience into operational planning.