Aon: Extreme heat can no longer be insurance industry “blind spot”
Understanding extreme heat is becoming increasingly important for societal resilience but remains a “blind spot” for the insurance industry, broker Aon has warned.
“In the wake of record-breaking high global temperatures in 2023, the rising frequency of extreme heat due to climate change creates an urgency for the risk industry to analyse climate trends for better risk mitigation,” the broker said in its Q3 catastrophe recap.
Temperatures reached record-breaking highs between June-September 2023, according to the US National Oceanic and Atmospheric Association.
Deadly heatwaves swept across South America, Southeast Asia and Canada, with many densely populated regions in Europe and the US also seeing prolonged record-breaking heat.
Extreme heat conditions can have potentially fatal impacts on health, including heat stroke, cardiovascular disease and respiratory failure. This is exacerbated in urban environments in particular as infrastructure retains and re-emits heat.
Direct risks to infrastructure include roadways and train tracks buckling and failing in extreme cases, leading to transportation delays and supply chain disruption.
Other business impacts from extreme heat are particularly felt in sectors such as construction and agriculture, with labour productivity significantly reduced.
“This rising frequency of extreme heat creates an urgency for the risk industry, as well as businesses within the broader economy, to understand the diverse impacts these events can have,” Aon noted.
“Unlike acute perils, the full impacts from chronic perils like extreme heat are often cumulative and can be difficult to measure. This creates new opportunities for risk managers to leverage non-traditional risk transfer tools – like parametric insurance – to unlock flexible sources of capital.”
Extreme heat also exacerbates wildfire risk, with August’s Maui wildfires highlighting potential for significant industry losses in regions not typically associated with the peril.
“The event highlights the danger wildfires present to unexpected areas. Given that climate change can potentially further exacerbate drought and wildfire conditions worldwide, preparations for similar events in the future will be vital,” Aon said.
Aon’s Q3 cat report described the Maui wildfires as “among the deadliest and costliest in US history”, with insured losses of $3bn marking the costliest US wildfire outside California.
“Perhaps even more noteworthy is that this event occurred outside of California, a state known for several, recent billion-dollar wildfire events,” said Aon.
The event occurred owing to the combination of several factors, including preceding drought conditions, local topography and an atmospheric environment influenced by Hurricane Dora, despite the system not having affected Hawaii directly.