Europe's heatwaves expose insurance gap as business losses mount
LONDON/MILAN: For more than a century, cafes in the Italian city of Padua have welcomed customers for an early evening drink, or aperitivo, encouraging them to sit outside and socialise before dinner. As Europe bakes under its fifth heatwave of the year, the traditional 6-7 p.m. slot has all but disappeared as people seek air-conditioning indoors, cutting sales for many hospitality businesses.…
Europe is grappling with a growing heatwave-related insurance gap as business losses surge. Cafes in Padua, Italy, once bustling at 6-7 p.m., now watch empty terraces as customers shift indoors for air-conditioning. This shift leaves many hospitality businesses with a 20% drop in revenue, a figure that dwarfs the €500 million in insured payouts from last summer's European heatwaves.
Moody’s estimates that such heatwaves cost €43 billion in lost economic output. Heatwaves are increasingly disrupting productivity, curbing consumer spending, and raising operating costs across Europe. Traditional insurance often fails to cover these indirect operational disruptions, as they rarely involve physical damage. Insurers struggle to model and insure heat-related risks due to their complex, compound nature – they often interact with drought, wildfires, and water shortages.
While parametric insurance policies, which pay out automatically at predefined temperature thresholds, are gaining traction, they still represent a small fraction of the market. Companies must prioritize operational adaptations, such as investing in cooling technologies and redesigning workplaces, to mitigate the mounting financial risks of extreme heat.
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