2026-08-16 · Source: Jakarta Post (API)
Summary in 3 Points • European heatwaves in 2022 caused 43 billion euros in lost economic output • Only 500 million euros of insured payouts were generated from these heatwaves • Parametric insurance is being explored to cover heatwave-related losses --- Moody's estimates that last summer's European heatwaves resulted in 43 billion euros in lost economic output, with only 500 million euros covered by insurance. The heatwaves have highlighted a significant protection gap, as traditional business interruption insurance often does not cover losses from extreme heat. This has been particularly evident in sectors like hospitality, where businesses have reported significant declines in turnover due to reduced outdoor activity. Insurers are now considering parametric insurance products, which automatically pay out when specific temperature thresholds are exceeded, as a potential solution to cover these types of losses.
The increasing frequency and severity of heatwaves in Europe could prompt the London insurance market to reconsider coverage options for climate-related risks. Traditional indemnity-based insurance may not be sufficient to cover the indirect operational disruptions caused by extreme heat. This could lead to a rise in demand for parametric insurance products, which offer quicker payouts without the need for lengthy loss adjustments. Underwriters may need to develop new models to assess the risks associated with heatwaves, particularly as they interact with other climate-related events like droughts and wildfires.