Written by Madalina Lavinia Preda

 "We managed to grab some photos and our dog, Tallulah," Martha said, her voice barely above a whisper. "But everything else... it's all gone". 

Martha Hunter and her husband Craig have been left with just the ashes of what used to be their family home, nestled in the now-blackened Los Angeles hills. Acrid smoke still hangs in the air—in a matter of days, wildfires have upended their lives. While they’re grateful to be alive, the distress is obvious. 

Several months earlier, on the other side of the Atlantic, the largest single wildfire in Greece’s history decimated over 96,000 hectares. For Dimitris Papadopoulos, generations of family history were destroyed as wildfires razed his olive groves to the ground.  “I don't know if we'll ever recover." Dimitris lamented when interviewed. He remains unsure if his livelihood can be salvaged.  

These stories are becoming increasingly and depressingly familiar. As climate change fuels increasingly frequent and severe wildfires, the United States and Europe find themselves grappling with a shared crisis that threatens not only lives and property but the foundations of our insurance industry as we know it.

Mutual Destruction

In California, the January 2025 wildfires have proven to be the most destructive in the region's history. With over 10,000 structures burned, 11 fatalities reported, and economic losses estimated between $135 billion to $150 billion, the Golden State is facing an insurance crisis of unprecedented proportions. Whilst the situation in Europe is different, it is equally concerning. In 2022, nearly 900,000 hectares of EU land were burned, making it the second-worst year for wildfires since monitoring began. The economic toll of climate-related extremes, including wildfires, has caused losses estimated at EUR 738 billion in the European Union between 1980 and 2023.

Divergence in Response

The response from insurance markets in the USA and Europe has not been the same. This is perhaps unsurprising—the context of both fires is different politically, societally, and from a regulatory point of view.  

An Exodus of American Insurers

In California, major insurers, including State Farm and Allstate, have begun to leave high-risk areas, leaving homeowners exposed. "When I finally found coverage through the FAIR Plan, I was shocked," recalled Sarah Martinez, a Pacific Palisades. "The premium is nearly triple what I was paying before for less comprehensive coverage." A retreat in insurers from the state has led to a surge in reliance on California's FAIR Plan, the state's ‘insurer of last resort’. Between 2020 and 2022, 2.8 million homeowner policies in California were not renewed, with over 500,000 in Los Angeles County alone. The FAIR Plan, designed as a safety net, is finding itself stretched to breaking point, with concerns mounting about its ability to cover claims if losses exceed its current reserves.

European Solidarity

Across the Atlantic in Europe (particularly in the Mediterranean) countries have their own different ways of managing wildfire risk.

France's CCR system provides state-backed reinsurance for natural disasters, ensuring market stability and reasonable premium levels, even during severe wildfires.

In Spain, insurers integrated preventive measures into their policies through the Consorcio de Compensación de Seguros (CCS), collaborating with regional forest management authorities to enhance risk assessment and mitigation strategies. Being consciously proactive has helped to maintain a more stable insurance market, even in the face of increasing wildfire risk.

 Bridging the Gap: Lessons from Both Sides of the Pond

As this crisis has deepened, policymakers and industry leaders on both sides of the Atlantic have begun to look to each other for solutions and what they might be able to learn from one another. Specifically, what knowledge can be shared and how they might collaborate. 

 Innovative Solutions from Europe

Several innovative strategies developed by European countries are catching the attention of their American counterparts:

1. Layered Risk Sharing: Multi-tiered risk pools that combined private insurance with state backing and regional cooperation 
2. Prevention-Based Pricing: Sophisticated risk modeling incorporating climate change projections, with premium reductions tied to specific prevention and asset resilience measures 
3. Market Stability Mechanisms: Long-term commitments for insurers and gradual premium adjustments to prevent market shocks 

Recommendations for the U.S. Market

Inspired by these European models, experts are beginning to propose reforms to the American insurance landscape:

1. Structural Reforms: Establishing a federal reinsurance backstop similar to France's CCR and implementing mandatory risk pooling across different states. 
2. Market Innovations: Creating hybrid insurance products that combine traditional coverage with parametric triggers and establishing regional risk pools. 
3. Policy Integration: Linking insurance availability to zoning and building codes and mandating climate adaptation measures in high-risk areas.

The Path Forward: A Transatlantic Partnership

As fires continue to rage in California, it is becoming increasingly clear that neither continent can face this challenge alone. This crisis presents an opportunity for unprecedented collaboration between the USA and Europe in addressing climate-related challenges.

Building on existing partnerships like the EU-US Trade and Technology Council and the Global Methane Initiative, policymakers are exploring new avenues for cooperation in wildfire risk management and insurance innovation. 

Dr. Amanda Rodriguez, a risk analyst at CoreLogic, neatly summed up a shared desire to manage these risks better through collaboration: "We're seeing a revolution in how we assess and price wildfire risks. By combining American technological innovation with European models of public-private partnership, we have a real chance to create a more resilient and sustainable insurance market on both sides of the Atlantic". 

As Martha and Craig Hunter begin the long process of rebuilding their life in Los Angeles, and Dimitris Papadopoulos plants new olive trees in Greece, some solace can be found in the knowledge that their struggles are catalyzing a global response to a shared threat.

Success requires unprecedented cooperation between key stakeholder groups—between state and federal regulators, insurers, and individual policyholders—and an adjustment of approach. There is a unique opportunity to actively build climate resilience in a sustainable, profitable, and proactive way. 

The alternative - an "uninsurable future" is simply not acceptable.