The European Insurance and Occupational Pensions Authority has released a study detailing how climate change affects life and health insurers alongside occupational pension providers, highlighting extreme heat as the primary climate-related liability risk for these sectors.
Growing Health Hazards and Population Impacts
Heatwaves represent the deadliest climate-related hazard in Europe. Since 2000, extreme heat events across the continent have resulted in roughly 300,000 deaths, accounting for approximately 97 percent of all fatalities linked to extreme weather and climate events.
Projections indicate that heatwaves will continue to increase in duration, intensity, and frequency. In extreme climate scenarios, annual heat-related deaths could reach levels comparable to the COVID-19 pandemic. In addition to direct thermal stress, more frequent wildfires and the potential spread of vector-borne illnesses such as malaria and dengue fever pose extra risks to population health.
These environmental shifts directly affect the core mortality, morbidity, and longevity metrics used by life, health, and pension entities to construct business models and evaluate liability exposure.
Assessment Methodology and Impacted Lines of Business
To assist market participants in quantifying these risks, the authority developed an illustrative risk-scoring framework. This system relies on metrics covering hazard, exposure, and vulnerability, aligning with established methodologies used to gauge non-life underwriting exposure to physical climate risks.
The framework highlights that the lines of business most vulnerable to rising temperatures include medical expense, income protection, and workers' compensation insurance in the non-life segment. Within the life sector, non-participating life insurance and similar-to-life health insurance show the highest exposure.
While health and mortality exposures can negatively affect an insurer's own funds, adjustments to longevity expectations may offer a partial offsetting effect. Overall impacts remain heavily dependent on individual portfolio compositions and specific product characteristics.
Future Outlook and Supervisory Guidance
Financial losses tied to extreme heat currently remain limited because of widespread public healthcare systems, risk diversification across portfolios, and balancing factors between life and longevity lines. However, the supervisory authority warns that the materiality of these risks will rise in future decades.
Insurers and pension funds are encouraged to adopt a holistic approach to climate risk assessments by incorporating both direct health impacts and broader indirect macroeconomic factors.
Petra Hielkema, Chair of the authority, noted that while physical property damages from floods and storms draw immediate attention, climate change also exerts quieter, less visible effects on human health that will increasingly show up in underwriting statistics and risk profiles.
Frequently Asked Questions
Why is extreme heat identified as a primary liability risk for life and health insurers?
Extreme heat increases mortality and sickness rates, which directly influences the underlying mortality, morbidity, and longevity assumptions used by life and health insurers to price contracts and manage long-term liabilities.
Which insurance lines are projected to experience the highest impact from heatwaves?
The most impacted non-life lines are medical expense, income protection, and workers' compensation insurance, while similar-to-life health insurance and non-participating life insurance are the most exposed life lines.
