While headlines suggest wildfire risks are becoming uninsurable or prohibitively expensive, parametric solutions offer an alternative approach to securing protection against the devastating impacts.
Combining data analytics with innovative program structures that explicitly recognize proactive forest management measures in their pricing, can result in more affordable insurance for well-managed risks. In some cases, we've seen premiums reduced by nearly 40 percent.
Wildfires are driven by a combination of weather, ignition sources and fuel. While you can’t control the weather or completely prevent human-caused ignitions, you can limit the impact by managing vegetation and transferring the economic impacts of the wildfires. In this brief insight, we summarize how.
Economically, wildfires cause billions of dollars in damage, affecting residential and commercial properties, businesses, infrastructure and natural resources.
Environmentally, severe wildfires can lead to increased erosion, degraded water quality, loss of biodiversity and reduced carbon sequestration, exacerbating climate change.
Ecological forestry practices can mitigate these environmental impacts by improving forest health and reducing the risk of severe wildfires. They also reduce the economic impacts by lowering the cost of fire suppression, damage to property and post-fire recovery.
These practices include strategic thinning and prescribed burns to reduce fuel load, introducing fire breaks to slow the spread of fires and creating defensible space around infrastructure. The latter can reduce the risk of fire spreading to the property and lower the costs associated with fire suppression.
Parametric insurance provides an alternative mechanism for transferring the financial impacts of wildfire risks. Unlike traditional insurance, which responds based upon post fire loss adjustment that measures the actual damage to the forests, parametric insurance provides a payout based upon independent data which measures the extent of the fire, derived either from satellite imagery or as determined by fire fighters. Payments are made quickly once the data is available, crucial for addressing the immediate effects of a wildfire and supporting ongoing recovery.
As well as the speed of payout, another key advantage of parametric insurance is the flexibility in how you use payouts. You could use payouts to address impacts on local communities, loss of tourism revenue, third-party liabilities, fire mitigation costs or post-loss recovery costs, for example. Importantly, the insured party doesn't need to own the forest to be able to take out parametric insurance.
Reducing wildfire risk can have a meaningful impact on the cost of risk transfer. The key here is to objectively quantify the impact of forestry management practices, for example, by comparing a specific fire under the original forestry management practices with the modeled spread under the current forestry management practices. This comparison helps to show the reduction in fire risk following any forest management practices.
In 2025, Willis, a WTW business, worked with the Nature Conservancy (TNC) to structure a first-of-its-kind parametric insurance policy that considers objectively quantified forestry management in its risk evaluation.
The $2.5 million wildfire resilience insurance coverage was developed for Tahoe Donner Association, a private homeowners association in Truckee, California, in collaboration with the Center for Law, Energy and the Environment (CLEE) at the University of California, Berkeley.
The policy, covering 1,345 acres of Tahoe Donner’s forested and recreation land, had a 39% lower premium and an 89% lower deductible than would have been the case without objectively quantified nature-based forest management.
Get in touch with our specialists if you would like to discuss how you can use parametric insurance to protect your people, properties and profits from wildfire risks.
