D3.9 Concept of Climate Change Risk Sensitized Forest Insurances

Forests in the European Union are facing significant climate-related threats such as wildfires, windthrow, drought, and pest infestations, yet remain largely underinsured. In Germany, with only 1-5% of the national forest area covered by insurance, the financial risks for forest owners are substantial, threatening both the sustainability and resilience of these critical natural assets. The Piloting Innovative Insurance Solutions for Adaptation (PIISA) project, funded under Horizon Europe, aims to address these challenges by developing innovative, climate-sensitive insurance products to de-risk investments in forestry and encourage adaptive management practices. The PIISA project is a three-year initiative involving 12 partners from five EU countries, including research institutions, meteorological agencies, and insurance experts. It focuses on co-developing climate-resilient insurance portfolios and data-sharing solutions for climate risk and losses. The project is organized into several pilot projects. The pilot in Bavaria, Germany, is the focus of this project report, and it aims to develop and test new insurance models targeting private forest owners. As an initial step, this report is prepared for the partners of the PIISA and Horizon Europe projects to raise awareness about the project's scope, promote collaboration among the consortium members, and minimize the risk of duplicating efforts within and across related projects. It is also intended to engage other insurance companies, encouraging them to feedback into and adapt the project's models for use in different regions and contexts. The first phase of the pilot (Loop 1), running from December 2023 to February 2025, is centered on creating a climate-sensitive forest insurance product by AXA Climate in collaboration with AXA Germany. The project is testing various existing and innovative insurance structures, including parametric and indemnity insurance models, to determine the most effective mechanisms for de-risking forestry investments. The phase has so far studied windthrow and wildfire risk models, leveraging satellite data and historical loss records to design and price insurance products tailored to local conditions. Early findings indicate that while both windthrow and wildfire pose significant risks to German forests, they are also more feasible for insurance solutions compared to other threats like bark beetle infestations and snow damage. The pilot has made significant progress in modelling these risks and developing tailored insurance products that can help mitigate the financial impact on forest owners, thereby supporting more resilient forestry practices in the face of climate change. The subsequent loops will expand the scope, test broader adoption, and explore the replicability of these insurance solutions in other regions, including the boreal forests in Finland. The co-creation process is a key aspect of PIISA, involving stakeholders in the design, development, and delivery of the insurance solutions. The pilot’s first loop focused on co-designing plans and activities with partners and stakeholders, followed by co-development of localized knowledge related to wildfire risks, adaptation measures and insurance products, which were iteratively refined based on stakeholder feedback. This report outlines the methodology employed, shares preliminary results from Loop 1, and presents the next steps in the project’s development. This pilot, as a part of the overall PIISA project, is paving the way for innovative insurance solutions that can play a crucial role in safeguarding Europe’s forests, promoting sustainable forest management, and enhancing climate resilience.