Summer Series – Does It Get Hot in the World of Insurance?

The heatwave data released by National Oceanic and Atmospheric Administration (NOAA) in 2021 reveals how the number of heatwaves in the US increased from “two” per year in the 1960s to “six” per year in the 2010s. 

In recent years, record-breaking heatwaves have been reported in the country. Regrettably, many of them have been overlooked because of the COVID-19 crisis. But they need to be addressed going forward.

Heatwaves are the “silent killers.” They are usually associated with abnormally high temperatures that can be lethal to humans and animals. They are believed to be a consequence of global warming. Even population growth can be a contributor as more natural land that absorbs and retains heat is being replaced by urban constructions.

All in all, the increasing temperatures can be damaging in the long term. As such, everyone must explore new approaches to combat the upcoming extreme heat risk. 

How Can We Address Heat Risk with Insurance?

Heatwaves affect more than just physical health, for they can be detrimental to mental health, work productivity, educational performance, transportation, infrastructure, birth rates, and more. This heat risk has urged the need for an effective mitigation and response solution.

Heatwave insurance has emerged as a potential solution to provide the necessary capital and coordination to effectively combat the repercussions of increasing temperatures. It not only provides financial resilience but helps communities recover quickly from disasters by providing a flow of capital.

Several parameters have been introduced in heatwave insurance to ensure maximum coverage. For example, parametric insurance provides a pay-out based on the damages of a pre-determined natural event. This helps the concerned authority plan ahead and provide quick rescue in the case of extreme events without waiting for insurance claim adjusters to assess and approve the claims.

How Can Heatwave Insurance Help Adapt to Climate Change?

When it comes to heatwave insurance, there is no standard product available in the market. It varies based on the risk quotient of a region. The key to reducing economic uncertainties with heatwave insurance during climate change is to keep a close eye on the patterns and identify costs that might exceed the usual budget.

There are also a few unspoken advantages of heatwave insurance for heat-menaced cities. For example, it will drive authorities to invest more in infrastructural establishments like installing reflective roofs, planting more trees for shade, building covered sidewalks, etc. – as a precautionary measure and reduce the insurance premium.

What Are the Associated Challenges?

Given the current situation, heatwave insurance may well become necessary. However, different takes on it are vital to be addressed. For example, who will take the risk ownership when heatwave damage occurs? It is a heated debate (pardon the pun). Many believe that rich and developed countries are responsible for increased heatwave risk as they produce planet-heating emissions the most. 

So, their contribution should be more. Heatwave insurance is difficult to maintain because as heatwaves become prevalent, the financial pressure will increase on the insurance companies. 

Even today, many cities have not recognized their vulnerability to the heatwave and its implications. Governments are still hesitant to invest money in heatwave insurance as they are unsure if this is a big enough risk. 

But now is the time to create effective action plans and not just pertaining to heatwave insurance. Cutting down the climate-detrimental emissions should also be an equal priority. We believe that all these challenges, albeit daunting, will become more manageable when authoritative bodies, insurers, and other stakeholders collaborate to create an easy-to-manage and effective insurance product.

Wrapping It Up

In the years to come, summers are going to get lethal. It is high time that we realize the seriousness of heat risk and take appropriate actions. 

The impact of the heatwave can be detrimental to health and the overall economy as it can zap productivity, trigger industrial disruptions, and more — affecting the societal function as a whole. 

We at Gonzalez Insurance understand the implications of the risks associated with climate change. We believe in going the extra mile to provide value to our customers. 

So, if you are looking for insurance options to cover you against the implications of heatwaves, connect with us. We will be more than happy to assist you understand the options out there and make the right choice.