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Climate-related risks are threatening Europe’s forests. Innovative insurance models—particularly parametric insurance—can help support and accelerate adaptation measures. Drawing on two pilot projects under the PIISA initiative in Portugal and Germany, the article illustrates how insurance can quantify the benefits of forest management and provide faster, more targeted financial protection against increasing wildfire and storm damage.

While EU is increasingly exposed to climate risks forest sector is still under-insured

Across Europe, forests are facing increasing and unprecedented climate-related risks. Wildfires, windstorms, droughts, and insect outbreaks have intensified in both frequency and severity over the past few decades. For instance, the estimated burned area across Europe in 2022 was around 800,000 ha, which is more than double the average burned area between 2006-2021 (Gallo, Eden, et al., 2023). Windstorms account for 50% of the forest loss in Europe between 1950 and 2019 (DFDE, 2020). Climate change is also accelerating the decline of tree species, with over 42% of all European native tree species threatened with extinction (IUCN, 2019).

Forest damage means tremendous economic losses, emphasized by low climate insurance penetration rates in Europe. PIISA publication D1.1 Role and potential of insurance in accelerating climate adaptation in Europe, highlighed the disparities of EU countries towards wildfire in terms of insurance penetration, with central and eatern countires plus Portugal significantly under covered compared to western and northern coutries. In addition, lack of mandatory state intervention in Portugal and Greece increase the gap in these two countries particularly affected. For example, in Portugal, financial costs caused by weather and climate related hazards from 1980- 2019 amounted to 7 591 million euros with only 9% of this amount insured (Leal, Hudson, et al., 2022), showcasing the need to reduce the protection gap for insurance.

While climate risks are increasing, proactive adaptation in forest management is essential. This includes promoting sustainable practices, such as fostering species-diverse, resilient forests rather than relying on monocultures. Developing innovative insurance schemes that support adaptation strategies can play a crucial role in accelerating adaptation plans. These schemes not only help lower costs for policyholders by reducing risks, but also contribute to long-term sustainability by transferring the residual risk – the portion of risk that remains even after all feasible adaptation measures have been taken – to insurance companies.

Innovative insurance solutions incorporating adaptation measures – two pilots undertaken under PIISA project

Forest risk in the context of climate change is typically conceptualized, such as in IPCC Assessment Reports, as a function of three key components:

• Hazard – the physical climate-related events that threaten forests (e.g., wildfire, storm, droughts)
• Exposure – the presence of forest ecosystem in geographies that could be affected by the climate hazard
• Vulnerability – the susceptibility of the forest ecosystem to be harmed by the effect of the hazard taken its exposure into account.

The modeling of the three parameters forms the basis for climate risk assessments in policy and adaptation planning, informed by historical events and climate projection done by science institutions.

With its scientific team, the PIISA project is developing innovative parametric forest insurance models, through an approach to forest risk management that accounts for the risk reduction benefits of forest management. Unlike traditional indemnity insurance, which requires a loss assessment process, parametric insurance pays out when a predefined threshold—such as number of hectares burned —is exceeded. This model provides faster financial support, and its automation prevents litigious processes. However, existing parametric insurance related to forest protection are often missing the modeling of the adaptation strategies to reduce vulnerability to increased future risks.

A. Modeling wildfire adaptation in Portugal

The Portugal pilot demonstrates how forest management can measurably reduce wildfire risks hence insurance costs. By simulating wildfire behavior under different forest management and adaptation scenarios, this pilot quantifies the impact of adaptation measures – such as fuel reduction and fire breaks- on potential fire spread and economic costs. Working with local partner the Agency for the Integrated Management of Rural Fires (AGIF), wildfire spread models simulating potential wildfires are being calibrated in two regions in central Portugal (cf. Figure 1). Adaptation measures will subsequently be incorporated into the wildfire models, with model outputs eventually being used to estimate reductions in premium costs resulting from reduced economic losses and associated forest management.

Figure 1. Comparison between observed and simulated extreme fire events in 2020 (Left) and 2017 (Right) respectively

This pilot represents the first initiative in Europe to quantify wildfire risk adaptation using wildfire modeling. It is a continuation of the pioneering wildfire resilience insurance project launched in California, USA, on April 2nd, 2025. By testing adaptation measures on the ground, the pilots provide robust evidence of their effectiveness and generate critical data to inform the design of future innovative insurance products These mechanisms may also enhance the financial resilience of vulnerable communities exposed to forest wildfires, by reducing the wildfire impacts and triggering a fast contingency plan. The insights from this Portugal study led with a public actor will contribute to inspiring policy frameworks and shaping investments in nature-based and community-driven adaptation strategies.

B. Modelling tree wind vulnerability in Germany

The second pilot aims at lowering the insurance gap for forest climate risks based on existing forest insurance schemes. Collaborating with a private forest owner with parcels in Bavaria (Germany), Czech Republic, and Austria, the pilot explores both parametric and indemnity insurance models to design products that address key threats relevant to the area, while tackling the main challenges (e.g. long duration of loss assessment processes, identical premiums regardless of forest characteristics and management practices etc.). Germany has often been hit by severe winter storms, causing total losses of about 42bn euros (using the EU official exchange rate of June 24th 2020, 1 € = 1,128 USD) and 300 fatalities since 1981 ¹ . Thus, windthrow risk was selected as the primary focus of the modelling. Vulnerability maps for the pilot area have been established, integrating planted forest characteristics reflecting management choices (cf. Figure 2, where species diversity is higher in the less vulnerable areas in purple). Wind indices are currently being developed and trained locally in different regions to explore the scalability of these insurance solutions for broader application in different EU countries.

Figure 2. Modeling storm vulnerability (left) vs. ground truth data of storm damages (in red, right).

Looking ahead: Scaling Insurance to Support Climate-Resilient Forests

Forests are a non-questionable asset for all the ecosystem services they provide around the globe, from carbon sequestration to provisioning a sustainable raw material and fighting land erosion. There is an urgent need to mitigate the impacts of climate change and promote forest management practices that will enhance tree resilience and positively contribute to reducing our global climate challenges at EU level. However, responsibility cannot rest only with forest owners and managers, who need the right decision-making tools and financial support to facilitate this transition. Insurance with parametric design can become a risk transfer tool that will incentivize the implementation of local adaptation measures and reduce forests vulnerability– but this requires R&D and a pilot approach before reaching scalability, that PIISA is contributing to generate by bringing together insurers and forestry stakeholders.

Sources:

Munich RE NatCatSERVICE. Available online: https://natcatservice.munichre.com/ (accessed on 28 May 2019).

1. Database on Forest Disturbances in Europe. (DFDE). (2020). European Forest Institute. Retrieved from https://dfde.efi.int/db/dfde_app.php

2. Gallo, C., Eden, J., Dieppois, B., Drobyshev, I., Fulé, P., San-Miguel-Ayanz, J., & Blackett, M. (2023). A model weighting scheme for fire weather projections simulated by CMIP6 climate model ensembles. In EGU General Assembly Conference Abstracts (pp. EGU-15341).

3. International Union for Conservation of Nature and Natural Resources (IUCN). (2019). European red list of trees. In European Red list assessment review workshop: trees and shrubs. Authored by Rivers, M., Beech, E., Bazos, I., Bogunić, F., Buira, A., Caković, D., ... & Allen, D.

4. Leal, M., Hudson, P., Mobini, S., Sörensen, J., Madeira, P. M., Tesselaar, M., & Zêzere, J. L. (2022). Natural hazard insurance outcomes at national, regional and local scales: A comparison between Sweden and Portugal. Journal of Environmental Management, 322, 116079.

5. Piloting Innovative Insurance Solutions for Adaptation (PIISA). (2024). Role and potential of insurance in accelerating climate adaptation in Europe. Retrieved from D1.1_Insurance in climate adaptation_31.5.2024.pdf