The Wildfire Protection Gap: Who Pays When Wildfires Strike?

There are several recent examples of the 'protection gap' from wildfires that have taken place around the world. The ‘protection gap’ refers to the difference between total economic losses from wildfires and the portion of those losses that are covered by insurance payouts.

This means that uninsured or underinsured losses are borne by governments, businesses, and individuals, often greatly exceeding headline insured payouts.

Portugal's 2017 Wildfires

The June and October 2017 fires in Portugal resulted in total damages of approximately €875 million (≈£752 million), but only about €270 million (≈£232 million) was covered by insurance. The Portuguese government estimated the total cost of these wildfires, factoring in all impacts, at nearly €1.5 billion (≈£1.29 billion).

An analysis itemized these losses across various sectors, and with only ~€270 million insured, roughly 80% of the losses were uninsured and had to be covered by government relief funds or absorbed by individuals and businesses.

United States Annual Wildfires

A 2023 U.S Congress Joint Economic Committee report suggests that wildfires cost the U.S. between $394 to $893 billion each year (≈£315 to £714 billion) in economic costs and damages with insurance payouts making up just 15% - a protection gap of 85%.

2018 Saddleworth Moor Fire

Burning around 970 hectares of peat moorland, the Saddleworth Moor fire incurred about £1 million in firefighting expenses alone. Direct property damage was limited (a few outbuildings and many miles of farm fencing requiring ~£75,000 in repairs.

A conservative estimate put the total costs, including environmental costs, at around £9 million. However, the indirect costs were far higher: health impacts from smoke exposure across Greater Manchester were valued around £21 million in lost productivity and medical costs. As relatively little damage was done to buildings, the protection gap in this case was vast.

2023 Maui Wildfire in Hawaii

Total losses from this wildfire were estimated to be between $13 billion (≈£10.4 billion),  and $16 billion (≈£12.8 billion), with the insured losses of $3 billion (≈£2.4 billion) to $4 billion (≈£3.2 billion). Once again, a significant protection gap of around 80%. 

2016 Fort McMurray Wildfire in Canada

This event caused an estimated C$9.9 billion (≈£5.3 billion) in overall damages, making it the costliest disaster in Canadian history. However, only about C$3.58 billion (≈£1.9 billion) of these damages were insured. This indicates that roughly two-thirds of the losses, including public infrastructure damage, lost income, and uninsured properties, fell outside of insurance coverage.

The total economic cost was brought to C$9.9 billion due to uninsured losses such as a month-long oil production shutdown, government relief, and infrastructure repair.

Australia (2019–2020 Black Summer Bushfires)

The Insurance Council of Australia reported over 38,000 insurance claims worth A$2.4 billion (≈£1.2 billion) from these fires, with final insured losses for the peak period around A$1.866 billion (≈£0.9 billion). However, studies show the true cost was far higher when including uninsured impacts.

The Royal Commission report noted extensive uninsured property damage in remote areas, billions in environmental rehabilitation, and losses to tourism. Academic analyses estimated the total economic impact at A$20 billion (≈£9.7 billion) or more, accounting for factors like health costs from smoke (over A$2 billion - ≈£1 billion), biodiversity loss, and industry disruptions.

A study quantified farm-sector losses (~A$5 billion - ≈£2.4 billion) and greenhouse gas emission costs (A$3–7 billion - ≈£1.5-3.4 billion), which are generally not insured, mirroring the pattern where insured losses only capture direct, immediate damages, while the full economic toll can be several times higher due to indirect, uninsured, and long-term losses.

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