LONDON, United Kingdom — Europe’s increasingly severe heatwaves are inflicting growing financial losses on businesses while exposing a major gap in traditional insurance coverage, as disrupted customer activity, lower worker productivity and rising operating costs leave companies carrying much of the risk.
- Europe’s heatwaves are causing significant losses for hospitality, manufacturing, transport and other sectors.
- More than 80% of hospitality businesses surveyed in Padua reported turnover declines of around 20% during the recent heatwave.
- Moody’s estimates last summer’s European heatwaves caused €43 billion in lost economic output but generated about €500 million in insured payouts.
- Insurers are increasingly exploring parametric policies that can pay businesses when temperatures cross predetermined thresholds.
Europe’s heatwaves hit businesses beyond physical damage
In Padua, Italy, the effects are visible in one of the city’s traditional evening routines. Cafes that once relied on customers gathering outdoors for aperitivo are seeing fewer people use terraces as extreme temperatures push consumers towards air-conditioned indoor spaces.
Federica Luni, president of hospitality association APPE Padova, said a survey of about 600 hospitality businesses in the city and surrounding province found that more than 80% experienced turnover declines of around 20% during the recent heatwave.
“A 20% decline wipes out your margin.”
Luni said the traditional early-evening period is increasingly starting later, leaving outdoor seating areas and terraces unused during a period that has traditionally been important for hospitality businesses.
Why heatwaves are difficult to insure
Extreme heat creates a different insurance challenge from floods or storms. While those events can cause clearly identifiable physical damage, heat can undermine business activity without necessarily damaging a company’s property.
Swenja Surminski, managing director for climate and sustainability at Marsh, said heat has not traditionally been treated as an insured risk. She said the operational disruption caused by extreme temperatures can nevertheless be severe.
A 2023 survey of 9,000 small and medium-sized businesses conducted for Europe’s insurance regulator found that 28% had business interruption coverage through their property insurance. Another 17% had non-damage business interruption protection for events such as strikes.
Heat creates a wider economic risk
The impact extends beyond restaurants and cafes. Extreme temperatures can delay trains, reduce agricultural output, increase factory cooling expenses and make it harder for workers to maintain productivity.
Companies including Swedish shop-fitting provider ITAB Group, Italian cement producer Buzzi and French payments company Worldline have identified the effects of hot weather or its potential future impact in their second-quarter earnings reporting.
The scale of the economic exposure is reflected in Moody’s estimate that last summer’s European heatwaves resulted in €43 billion in lost economic output, compared with roughly €500 million in insured payouts.
Heatwaves can compound other climate risks
Extreme heat rarely operates in isolation. It can intensify drought, wildfire and water shortages, creating interconnected disruptions that are more difficult for insurers to model than a single, clearly defined catastrophe.
Europe is particularly exposed because it is the world’s fastest-warming continent. Reuters Climate Monitor data showed average temperatures across Western Europe were nearly 10 degrees Celsius above the 1961-1990 average on August 11.
Data compiled by environmental disclosure platform CDP found that 35% of the companies it tracks identified heatwaves as a risk factor. Manufacturing, services, infrastructure and food-related businesses were among the sectors facing exposure.
Parametric insurance offers a possible solution
Insurers are exploring parametric products as one way to address losses that traditional policies may not cover. These policies can be structured to automatically pay when an agreed trigger, such as a specified temperature threshold, is reached.
That approach differs from conventional insurance, where a claim generally requires the assessment of actual losses. Aidan Kerr, head of UK and Ireland public sector solutions at Swiss Re, said parametric insurance could play a role in addressing the emerging risk.
Such products are already used in agriculture, where extreme heat can affect crop yields and livestock productivity. Industry specialists see potential applications in areas such as transport and workforce protection.
KBV Research estimates that Europe’s parametric insurance market could reach $7.93 billion by 2031, with compound annual growth of 9.5% between 2025 and 2032.
Businesses face pressure to adapt
Insurance alone may not close the protection gap. Surminski said businesses also need to adapt their operations to withstand more frequent periods of extreme heat.
Potential measures include improved cooling systems, workplace redesign and stress-testing supply chains against heat-related disruption. The objective is to reduce losses before they occur rather than relying solely on compensation afterward.
Frequently Asked Questions
Why do traditional business interruption policies often struggle to cover heatwave losses?
Heatwaves can reduce sales, productivity and business activity without causing direct physical damage to property. This makes the resulting financial losses harder to fit within conventional business interruption insurance structures.
How does parametric insurance work for extreme heat?
Parametric insurance can be designed to provide a payout when a predefined condition, such as a specified temperature level, is reached. This can avoid the lengthy loss-assessment process associated with many traditional insurance claims.
