Extreme heat is a major concern for insurers and businesses around the world. Not only does it pose a significant threat to human life, but it also has far-reaching impacts on the economy, infrastructure, agriculture, and healthcare systems. A recent report from global reinsurer Swiss Re highlights the growing dangers of high temperatures and the potential financial losses that insurers may face as a result.
According to the report, extreme heat can lead to disruptions in transport and energy systems, cause electrical outages and wildfires, and increase the risk of illness and death. These consequences can have expensive ramifications for insurers who underwrite financial losses related to property, business, and human health and life.
JĆ©rĆ“me Haegeli, Swiss Re’s group chief economist, emphasized the importance of shedding light on the true cost of extreme heat to various sectors of society. He noted that extreme heat was once considered the “invisible peril” due to its less obvious impacts compared to other natural disasters. However, with a clear trend towards longer and hotter heatwaves, it is crucial to recognize the significant toll it can take on human life, the economy, infrastructure, agriculture, and healthcare.
The risks associated with extreme heat were outlined in Swiss Re’s annual SONAR report, which identifies emerging hazards for businesses and insurers. While the report covers a range of disruptive topics, climate-related threats often take center stage. This year, extreme heat was identified as the number one threat, surpassing other issues like technological advancements and structural challenges.
High temperatures are known to be the biggest weather-related killer globally, causing more deaths than hurricanes, wildfires, or floods. The impacts of extreme heat extend to agriculture, infrastructure, transportation, water systems, energy systems, and other aspects of society. As a result, it poses a growing threat to multiple sectors within the insurance industry.
Property and specialty insurance are particularly vulnerable to the impacts of extreme heat, with global insured losses from wildfires reaching $74 billion between 2014 and 2023. Additionally, high temperatures can damage infrastructure in regions historically accustomed to milder climates. Infrastructure in cooler locations may not have been built to withstand the effects of rapidly rising temperatures, further increasing the risk of financial losses for insurers.
Life and health insurance are also at risk due to extreme heat. The report highlights the likelihood of rising claims in both life and medical insurance, as well as workers’ compensation, as accidents are more likely to occur under heat stress conditions. Employers who fail to provide adequate water, rest, and safety measures for outdoor workers may face liability claims as a result.
The report emphasizes that individuals most vulnerable to heat-related risks, such as outdoor workers and residents in lower-income communities, often have less life and health insurance coverage. Furthermore, the report warns of the role of climate change in exacerbating civil unrest, terrorism, and armed conflict, indicating that rising temperatures pose a growing threat to international security.
In addition to extreme heat, the report highlights other emerging risks, such as the growing threat of toxic fungi, AI-related deep fakes and disinformation, drone technology, plastics, and ultraprocessed food. It also points to the increasing risk of litigation against companies that could be held responsible for the damages caused by extreme heat, including engineers working on failed infrastructure and fossil fuel companies contributing to global warming.
Overall, extreme heat presents a significant challenge to insurers and businesses, with the potential for substantial financial losses and impacts on various sectors of society. As temperatures continue to rise, the insurance industry must be prepared to address the risks posed by extreme heat events and adapt to a changing climate landscape.
