Portugal is one of Europe’s most fire-prone countries, facing a growing wildfire risk driven by climate change, prolonged droughts, and increasingly frequent extreme heat events. Forests cover approximately 35% of its land area and contribute around 2.5% to its GDP (1). Yet, only an estimated 10% of wildfire losses between 1990 and 2019 were covered by insurance (2).
The 2017 fire season made the consequences of this protection gap impossible to ignore. In a single year, approximately 500,000 hectares of forest were burned, causing more than 100 deaths and significant economic losses (3). Forest owners received limited compensation for timber value loss, and destruction to ecosystems and carbon stocks persist even today.
Rising wildfire risk does not automatically make forests uninsurable
What it does mean is that insurers need a better understanding of how prevention measures reduce risk. By combining advanced wildfire modelling with adaptation strategies such as fuel management, insurers could quantify the benefits of prevention and reflect them in insurance design and pricing.
Insurance pricing can reward investments in wildfire adaptation
Under the EU Horizon funded Piloting Innovative Insurance Solutions for Adaptation (PIISA) (4) project, AXA Climate led a wildfire pilot in the Caramulo and Ribeira de Mega region of Central Portugal, an area with a documented history of severe fire events and a well-developed public adaptation framework. This pilot was led in partnership with the Portuguese Rural Fire Management Agency (AGIF), created specifically to deploy a fire management system to reduce fire risks through Portugal’s National Adaptation plan (NAP).
The key innovation was to move beyond treating wildfire risk as a fixed condition. Instead, the model evaluates how risk changes when adaptation measures are put in place. Specifically, it simulates different wildfire scenarios depending on whether Portugal’s network of fuel breaks is implemented and maintained over time.
Fuel breaks are strips of managed vegetation that reduce the amount of combustible material available to a fire. Primary fuel breaks, around 120 metres wide, are designed to slow or stop the spread of large fires across landscapes, while secondary fuel breaks, typically 50 to 120 metres wide, help protect settlements, infrastructure and other exposed assets. Incorporating these measures directly into the hazard model makes it possible to estimate not only how much risk can be reduced, but also how that reduction can be reflected in insurance premiums.
To estimate how fires might spread under different conditions, the project used a stochastic fire spread model known as the Minimum Travel Time (MTT) model. The model was calibrated using more than two decades of satellite observations of burned areas (5) and then tested against major historical fires, including the 2017 and 2018 Caramulo events. Validation results showed that the model was able to reproduce historical fire patterns with a spatial overlap of 85-92%, providing confidence that it could be used to evaluate the impact of different adaptation strategies.
Prevention can significantly reduce wildfire risk and insurance costs
The modelling results are striking and highly relevant for forest management and policy development. For the approximately 12,000 hectares of forest exposure included in the study area, the analysis indicates potential premium reductions under different adaptation scenarios, highlighting the value of prevention measures.
For building exposure (approximately 3.76 million m² of built area), implementing both primary and secondary fuel breaks reduced the annual value of affected buildings by approximately 80% compared with the baseline scenario.
The driver breakdown matters for policy design: primary fuel breaks account for ~60% of total premium reduction for forests, while secondary fuel breaks drive ~66% of reduction for buildings and settlements. Combining primary and secondary fuel breaks was the most effective way to reduce wildfire impacts, including damage to homes, forests, and the economy, showing a premium reduction of up to 78%.
A critical sensitivity finding maintenance matters enormously. Scenarios with partial fuel removal (representing unmaintained or degraded fire breaks) reduced annual burn probability by only 3-9% relative to baseline, compared with 29–54% for fully maintained breaks. Insurance premium discounts linked to adaptation must therefore be conditional on verified maintenance, not just installation.
Reduction in annual burn probability by 40% by integrating local and regional adaptation measures in Caramulo and Ribeira de Mega region of Central Portugal (AXA Climate)
It is also crucial to keep in mind that these findings are not without limitations, and the premium reductions calculated do not include the operational costs of implementation and maintenance of fire breaks, and therefore the net gains reported should be interpreted with caution.
For insurers, these results demonstrate that adaptation is measurable and can be reflected in risk pricing, creating a pathway toward more risk-sensitive and financially sustainable wildfire insurance products.
Stakeholder collaboration is essential to scaling adaptation-based insurance
The entire pilot was built to be co-designed and iterative, taking stakeholder input and feedback into account at every step of the process. Over three years, the pilot team conducted structured engagement with the Portuguese Agency for Integrated Rural Fire Management (AGIF), the Central Regional Coordination and Development Commission (CCDRC), forest producer associations, municipal authorities, the Portuguese insurance sector, and the other PIISA partners, notably The Finnish Meteorological Institution (FMI).
Key findings from the ground:
– Forest associations confirmed €6/ha as an acceptable reference willingness-to-pay, conditional on coverage scope
– Stakeholders consistently advocated for insurance pricing at the cooperative or Forest Intervention Zone (ZIF) scale (where prevention measures are actually implemented) rather than at administrative boundaries that don’t reflect fire management realities
– Remote sensing monitoring of fuel break maintenance was identified as a near-term feasible pathway for verifying adaptation performance and enabling dynamic premium adjustment
The pilot was also presented at various events to gather stakeholder input, including the OECD Roundtable on Wildfire Risk and Insurance (May 2025), the UNEP FI Nature Positive Insurance working group (November 2025), and the Naturance Festival (February 2026), in addition to various webinars and events organised by PIISA.
The Portuguese pilot provides a blueprint for scaling wildfire insurance across Europe
Central Portugal served as the pilot, but the modelling architecture is designed for replication. Mediterranean regions facing structural wildfire risk (France, Spain, Greece, Italy) share many of the same conditions: high fire frequency, developing adaptation policy frameworks, and significant insurance protection gaps.
What replication requires:
1/ Recalibration of fire spread models to local fuel types and fire weather patterns
2/ Public-sector alignment with a national or regional wildfire management agency
3/ Existence of clearly defined fuel management strategies that can be monitored
4/ Insurers and forest associations willing to co-design coverage structures adapted to local management realities
The pilot demonstrates that adaptation can be quantified, monitored, and translated into insurance design. The remaining challenge is therefore connecting wildfire management policies, forest managers, and insurers within a shared framework that rewards prevention. This could help wildfire insurance evolve from a post-disaster compensation mechanism to an adaptation tool and move from pilot to scale.
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This article was written by the Nature team at AXA Climate (Rhea Kochar, Luiz Galizia, Ariane Kaploun), in the context of the PIISA project (Piloting Innovative Insurance Solutions for Adaptation), a Horizon Europe initiative (Grant Agreement n°101112841). AXA Climate specialises in climate risk modelling and parametric insurance design for wildfires, floods, and other nature-related risks. We work with forest owners, public authorities, reinsurers, and development finance institutions to bridge the climate adaptation gap through financially sustainable insurance solutions. If you are working on wildfire risk in a fire-prone region and want to explore whether this framework applies to your context, reach out to our team.
Disclaimer: All estimates are based on an optimistic scenario in which all fuel breaks are implemented and maintained. They are derived from a research project and do not represent binding insurance terms, pricing, or underwriting decisions.
