Wildfire Risk: Where It’s Growing & How Parametric Insurance Can Help

The Rising Global Wildfire Threat: A Growing Challenge for Insurers and Brokers

Rampant and devastating, wildfires are a global threat, impacting regions across the world. In 2024 alone, wildfires resulted in $6 billion in global economic losses and $3 billion in insured losses. In just the first quarter of 2025, the California wildfires accounted for 71% of total insured losses—amounting to approximately $38 billion.

As concerns over climate change and extreme temperatures rise, clients are facing higher premiums, reduced capacity, or wildfire exclusions. It’s crucial for brokers and risk managers to understand wildfire risk to secure affordable, comprehensive coverage tailored to their clients’ specific risk profiles as traditional insurance markets tighten.

This article will:

explore the causes of wildfires
examine the factors that trigger these catastrophic events
discuss the impact of climate change
highlight fire-prone regions
explore how parametric insurance can offer effective solutions to mitigate wildfire risk.

Wildfire Causes Explained: Understanding Ignition Sources and Risk Factors

To understand how a wildfire starts and spreads, it helps to first understand the fundamentals of how fire sustains itself. Often referred to as the “fire triangle”, three components contribute to a fire:

Oxygen: Most fires need at least a 16% oxygen concentration to sustain combustion. The air around us typically contains about 21%, making it enough to support a fire.
Heat: Heat is essential for both ignition and sustaining a fire. It can come from various sources, including lightning strikes, machinery, or even the sun heating up dry vegetation.
Fuel: This includes any combustible material, such as dry brush, trees, grass, debris, buildings and other infrastructure.

All three elements must be present for a fire to be sustained.

Natural and Human Causes of Wildfires

Wildfires, also known as wildland fires, can ignite from a range of natural and human-induced triggers. While some start due to rare natural conditions, the vast majority are unfortunately the result of human negligence or activity. For example, in the United States, nearly 85% of wildfires are human-caused. Understanding the various ignition sources—and how different environmental factors can influence their impact—is helpful in grasping the full scope of wildfire behavior and risk.

Natural Causes

Though less frequent, natural causes of wildfires still contribute significantly to the overall number of fire incidents—particularly in remote, uninhabited regions. These causes are heavily influenced by local climate, vegetation type, and geography.

Among the natural causes of wildfires, lightning strikes stand out as the most frequent and impactful trigger. When lightning hits dry vegetation, trees, or even power infrastructure, it can spark fires that spread rapidly—especially under dry and windy conditions. This is particularly dangerous during extended droughts or in fire-prone landscapes where fuel is abundant.

Human-Caused Wildfires

A significant proportion of wildfires can be traced back to human causes. These fires often spread faster, burn hotter, and destroy more vegetation than naturally occurring ones. Some common culprits include:

Unattended Campfires
Burning Debris
Equipment and Infrastructure Failures
Discarded Cigarettes

What Makes Wildfires Worse? Key Risk Factors

External factors like seasonality and wind play crucial roles in determining the speed, intensity, and destructiveness of any wildfire event.

Seasonality

Wildfires are far more likely—and more intense—during certain times of year. Seasonal weather patterns play a pivotal role in shaping wildfire risk. Factors like temperature, humidity, and precipitation vary throughout the year and directly affect how easily wildfires can ignite, how fast they spread, and how intense they become.

Temperature is a primary seasonal driver of wildfire activity. During the warmer months, prolonged exposure to high temperatures causes vegetation to dry out, reducing its moisture content and making it more combustible. This creates ideal conditions for ignition, especially when heatwaves occur or when above-average temperatures persist for extended periods. The hotter it gets, the more rapidly fuels like grasses, shrubs, and forest litter can ignite and carry flames across large areas.
Humidity also fluctuates seasonally and plays a key role in fire behavior. Low humidity levels, which are common during summer and drought conditions, lead to dry air that pulls moisture from plants and soils. As vegetation loses moisture, it becomes brittle and highly flammable. Thus, during dry seasons, persistently low humidity contributes to extreme fire behavior. Conversely, higher humidity levels—more typical in cooler seasons—can help dampen vegetation and slow the rate at which fires spread.
Precipitation, or the lack of it, shapes the fire potential of entire ecosystems. During rainy seasons, vegetation flourishes, increasing the amount of fuel available. But when precipitation decreases, particularly after a wet growing season, this same vegetation can become a wildfire hazard as it dries out. Extended periods without rain, or seasonal droughts, significantly heighten fire risk by turning landscapes into tinderboxes. The interplay between wet growth periods and dry fire seasons is a common pattern in fire-prone regions like California and southeastern Australia.

Together, these seasonal conditions set the stage for wildfire outbreaks. When high temperatures, low humidity, and limited rainfall coincide, even a small ignition source—natural or human-caused—can quickly escalate into a large, fast-moving wildfire.

Wind

Wind can drastically increase the spread and intensity of a wildfire. It carries embers over long distances, igniting spot fires far from the original blaze. High winds also supply fresh oxygen to the fire, accelerating combustion. In human-caused fires, especially those involving unattended embers or faulty equipment, wind is often the difference between a small flare-up and a massive, fast-moving inferno.

Climate Change and Hydroclimate Whiplash: Amplifying Wildfire Risks Globally

With global warming producing higher temperatures and longer drought periods, the number of days per year with high to extreme wildfire risk is projected to increase. Hot air from droughts or heat waves removes moisture from soil and vegetation, reducing the ignition barrier of the environment and helping fires spread more easily.

Climate change is also affecting seasonal rain and snow patterns. Snow is melting earlier than previous decades, giving plants and soil a longer spring season to dry out. Between 1970 and 2012, 70% of areas burned occurred in places that had experienced a reduced winter snowpack and an early snow melt.

Hydroclimatic volatility–the quick, large and/or frequent change between very dry and very wet conditions–plays a notable role in climate change. Hydroclimatic variability is expected to intensify significantly, with subseasonal and interannual “whiplash” events projected to increase by approximately 130% and 50% over land, respectively, under a global temperature rise of 3°C above pre-industrial levels.

This volatility is also expected to become more widespread, emerging in additional regions due to climate change. The most substantial increases are forecasted for the high latitudes of the Northern Hemisphere, the tropical Pacific and Atlantic Oceans, and a broad region stretching from northern Africa through the Arabian Peninsula into parts of South Asia.

These changes are largely driven by well-established thermodynamic effects of a warming atmosphere, which increases its capacity to hold water vapor, thereby amplifying both extreme precipitation and evapotranspiration. While changes in atmospheric circulation could further influence these patterns, they vary by region and carry more uncertainty.

Top Regions at Risk: Where Wildfire Exposure Is Growing Fastest

United States

Wildfires have become one of the most serious and escalating hazards in the United States, with each year bringing more frequent and severe events. Western states—particularly California—have faced most of this destruction. While wildfire season traditionally peaks between May and October, climate volatility is making fire activity both less predictable and more widespread. Local weather patterns, prolonged droughts, and shifting seasonal trends have contributed to longer, more dangerous fire seasons across the country.

The Eaton and Palisades Fires rank among the most destructive wildfires in California’s history, destroying an estimated 15,000 homes and businesses. Unusually, the 2025 Los Angeles fires ignited in January, fueled by a series of wet winters, a record-dry fall, and powerful Santa Ana winds. According to Daniel Swain of the California Institute for Water Resources at the University of California, this pattern reflects hydroclimate whiplash, which climate models increasingly link to greenhouse gas-driven warming.

Australia

Bushfires in Australia can occur throughout the year, with seasonal risk varying by region. In most of southern Australia, peak fire danger occurs during summer and autumn, while in New South Wales and southern Queensland, the highest risk typically falls in spring and early summer. In contrast, the Northern Territory experiences most of its fire activity during winter and spring.

Climatic drivers like El Niño and the Indian Ocean Dipole (IOD) play a significant role in influencing bushfire conditions. El Niño increases the likelihood of hot, dry weather, and when combined with a positive IOD—which brings cooler-than-normal sea surface temperatures—these systems reinforce dry conditions across the region. Together, they heighten the risk of drought and bushfires through prolonged periods of abnormal heat and dryness.

United Kingdom

Warmer, wetter winters and longer growing seasons are increasing the amount of vegetation that fuels wildfires in the UK. As these plants grow, hotter, drier summers dry them out, making landscapes more vulnerable to fires. Additionally, increased outdoor recreation may raise the risk of fire ignition. While wildfires aren’t as common in the UK as in other parts of the world, they do occur across the country. In the past five years, the frequency of fires has risen, particularly in England and Wales. One example is the 2018 fire near Manchester, which occurred during an intense fire season.

Kevin Dedieu, co-founder and chief scientific officer at Descartes, explains that while wildfires can occur throughout the UK, certain regions experience more frequent fires. As he told Insurance Business

“While wildfires can occur across various areas, the majority of fires in the past 25 years have been concentrated in the Northern Highlands of Scotland. However, fires also occur in southern areas, such as Hampshire and the Isle of Wight, which record an average of 39 wildfires per year.”

Latin America

Brazil, Colombia, Mexico, and Ecuador are among the Latin American countries facing heightened wildfire risk. In Mexico, wildfire intensity surged in April and early May 2024, exceeding seasonal averages. Colombia declared a national disaster early in the year as wildfires swept across multiple regions, fueled by hot, dry conditions linked to El Niño. Brazil experienced two major wildfire events in 2024, each causing an estimated $180 million in damages. In Ecuador, the province of Azuay endured hundreds of wildfires, affecting over 14,000 hectares of vegetation throughout the year.

The Insurance Gap: How Traditional Coverage Is Shrinking

The insurance industry has paid out billions in claims from recent wildfire events, leading to a natural tightening of the market. Brokers report shrinking capacity, with many policies now featuring wildfire risk exclusions. This shift comes under the pressure of compounded losses and rising costs in the reinsurance market for wildfire coverage.

As a result, policyholders seeking coverage in the traditional insurance market face higher premiums, increased deductibles, or severe sub-limits for wildfire-related losses. In this environment, alternative coverage solutions that offer fresh risk capital are becoming increasingly popular.

Parametric Wildfire Insurance: Fast, Transparent Solutions for Brokers and Clients

Parametric insurance is tailored to a client’s specific exposure, leveraging historical wildfire data, long-term climate data, weather patterns and satellite imagery. A high level of transparency is achieved by utilizing satellite imagery to detect burnt areas and determine how severe the wildfire event has affected the client. This structure hereby ensures clients know exactly what payout to expect in the event of a wildfire, with no exclusion of small fire events.

Unlike traditional claims processes that can take several months, parametric insurance offers a fast payout, typically within days or weeks. Additionally, parametric insurance is highly flexible, covering not only physical damage but also financial losses resulting from an event. You can read more about our parametric solution for wildfire here.

For example, in the case of a carbon credit developer, the parametric cover would compensate for the replacement value of the trees but also indemnify potentially the future revenue of the generated carbon credits sold from planting these trees.

Real-World Examples: How Parametric Insurance Protects Against Wildfire Losses

Protecting Carbon Credit Assets for TIMOs Operating in Australia

A Timber Investment Management Organization (TIMO) in New South Wales, Australia, faced challenges securing adequate coverage in the traditional insurance market. Their forest plantation generates a substantial volume of carbon credits, making protection of this asset a key priority.

After experiencing initial losses in previous years—and with fire risk escalating across the region—they were concerned about the potential loss of carbon credits. Traditional commercial insurance left this exposure largely uncovered, posing a significant financial risk.

Descartes’ parametric Burnt Area solution would accurately address this concern. Tailored to their specific exposure, the policy would be defined with a pre-agreed value per hectare. By leveraging satellite imagery to accurately detect burned areas and assess severity, the TIMO would benefit from transparent, trigger-based coverage that fully protects their carbon credit assets.

Read the full case study here.

Securing Coverage After the 2025 Palisades Wildfire

After the 2025 Palisades Wildfire, a condo association in California needed wildfire coverage after realizing that their traditional coverage did not provide adequate capacity and began searching for an affordable alternative. They required a solution that could meet both their financial limitations and lender requirements, as their lender mandated that wildfire insurance coverage must be in effect.

Descartes’ parametric Fire-in-a-Circle solution offers an effective answer. It provides coverage for the condo association’s large area with no excluded zones or deductible. The policy meets their budgetary needs, offering a reliable alternative to traditional insurance at a time when wildfire risk and insurance gaps continue to grow.