2026-08-18 · Source: Insurance Journal (API)
Summary in 3 Points • Europe's fifth heatwave of the year is affecting hospitality businesses, reducing outdoor sales • Traditional business interruption insurance often does not cover losses from extreme heat • Parametric insurance is being explored to cover economic losses from rising temperatures --- Europe is experiencing its fifth heatwave of the year, significantly impacting hospitality businesses as customers avoid outdoor activities. Traditional business interruption insurance often fails to cover losses from extreme heat, creating a protection gap for companies. Moody's estimates that last summer's heatwaves in Europe resulted in €43 billion in lost economic output, with only €500 million in insured payouts. Insurers are exploring parametric insurance products that automatically pay out when temperatures exceed certain thresholds, offering a potential solution to cover economic losses from extreme heat. The European market for parametric insurance is projected to grow significantly, with applications already seen in agriculture and potential expansion into other sectors.
The increasing frequency and severity of heatwaves in Europe could lead London Market insurers to reassess their coverage offerings, particularly in business interruption policies. The growing protection gap may drive demand for innovative insurance products like parametric insurance, which could be an opportunity for insurers to address non-traditional risks. Underwriters may need to consider the indirect impacts of extreme heat, such as operational disruptions, when pricing policies. Additionally, insurers might explore partnerships with technology firms to develop solutions that help businesses adapt to climate-related challenges, potentially reducing claims and enhancing resilience.