Forest property insurance: an application to Portuguese woodlands

Abstract

Fire is the biggest forest hazard, especially in Mediterranean climate countries, leading to desertification and collapse (Naveh, 2007). Wildfire is among the most dramatic threats to forests (Goldammer, 2004). In many countries, it is not easy to find companies that want to insure forests stands. This can be explained by the following reasons. Firstly, in many countries, forest insurance is not mandatory; so many farmers do not make it. Secondly, insurance companies need to have models based on desegregated and reliable data to estimate the probability of fire occurrences. Finally, it is very difficult for the insurer to estimate the real value of the stands because their values vary with the species, the stand age and market prices. The main objective of this paper is to present simple models that help to estimate ‘fair’ insurance risk premiums, contributing, in this way, to make forest business more appealing and sustainable.