Moody's Puts Last Summer's European Heat Losses at €43 Billion Against €500 Million of Insured Payouts

Moody's estimates that last summer's European heat waves cost €43 billion in lost economic output while generating about €500 million in insured payouts. The ratio is the story. Almost all of the loss sits on company balance sheets rather than on insurers.

The reason is structural. Standard commercial policies pay for physical damage. Heat does not damage buildings, it stops customers from arriving and workers from working. Only 28 percent of small and medium-sized European businesses carry business interruption insurance at all, and only 17 percent hold policies that pay out for interruption without physical damage. A survey of roughly 600 hospitality businesses in Padua and its province found more than 80 percent reported turnover declines of about 20 percent during the recent heat.

Public services are absorbing a parallel cost. In a survey by the Doctors' Association UK, medical staff described this year's heat in British hospitals as horrific, unbearable and unsafe, reporting patients too sweaty to receive intravenous drips, medication at risk of degrading and colleagues collapsing at work. In Belgium, firefighters are working to contain a blaze in the High Fens park that has grown to 3,000 hectares in two days and is moving toward the German border.

Insurers are responding with parametric contracts that pay automatically once temperature passes a defined level, removing the argument over whether damage occurred. KBV Research forecasts the European parametric market will reach $7.93 billion by 2031, growing at 9.5 percent a year.