That raises “a political question on how governments should intervene” as risks and potential losses rise, Muir-Wood said.

PARIS (Thomson Reuters Foundation) – When forest fires swept into the Canadian city of Fort McMurray four years ago, a hurried evacuation of more than 80,000 people and the loss of thousands of homes and other buildings made the $10-billion disaster the costliest in Canada’s history.

But when stunned residents set out to rebuild the northern Alberta city, insurers tried to make sure the huge losses – $6 billion of which were uninsured – would not happen again.

Most allowed clients whose homes were destroyed to take a cash settlement and rebuild in a safer place instead of replacing fire-vulnerable homes near forests around the city.

More than a quarter of families took up that offer, said Tara Laidman, associate vice president at The Co-operators, a Canadian insurance firm providing policies in the city.

Other families, using replacement-cost policies, rebuilt with fire-resistant roofs, fewer wooden decks and other changes designed to cut fire risk, insurers said.

“Fort McMurray is now a much more resilient community, built back better,” said Laidman at an Organization for Economic Co-operation and Development (OECD) meeting in Paris this month that discussed how to tame wildfire threats.

As climate change brings hotter and drier conditions, and countries from Australia to Canada and Portugal to the United States struggle with worsening fires, all are looking for ways to curb surging risks and losses.

Insurance is expected to play an important role, both by compensating losses and by driving changes in building codes, warning systems and government policy which could cut risk.

But questions remain about the limits of insurance in tackling fast-rising threats – not only how people at highest risk and with lower incomes can afford it, but whether insurance models can cope with much more frequent and destructive fires.

“If your house is rebuilt twice in a century, on average, that’s going to be intolerable for the functioning of insurance,” warned Robert Muir-Wood, chief research officer of Risk Management Solutions, a firm that models catastrophe risk.

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