Extreme Heat Is Creating New Opportunities for Insurers

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Some firms are introducing policies to protect workers and compensate victims.

This story was originally published by Grist and is reproduced here as part of the Climate Desk collaboration.

People buy insurance to protect against unlikely but devastating events, big catastrophes that drive households and businesses to financial ruin and bankruptcy. That makes insurance most people’s first line of defense against climate disasters, which now destroy tens of billions of dollars of property in the United States every year. It makes good sense to pay a couple hundred dollars a month in premiums so you don’t go broke if a floodhurricane, or wildfire destroys your house. 

Heat has long been the exception to this rule among climate disasters. Because heat waves don’t tend to destroy homes and businesses, it’s not practical for most people to buy insurance against high temperatures, and thus there’s never been such a thing as widespread commercial “heat insurance.” Big farming operations may take out insurance to protect against a hot spring that kills crops, and retail companies may buy a policy to hedge against a decline in foot traffic on scorching days, but ordinary people historically don’t want or need financial protection against heat.

Over the past few years, as scorching heat waves have become more common with worsening climate change, that has begun to change. A new suite of unconventional heat insurance products has emerged in a range of countries around the world: Japanese insurers began to sell single-day heatstroke insurance; a charitable foundation launched a program to insure Indian workers against lost wages; and an experimental new policy emerged to protect British farmers against heat stress in cattle.

Some of these new products have drawn lots of media attention in the United States, but experts believe it’s unlikely that heat insurance will ever become a big commercial industry like fire and hurricane insurance are today. Instead, they say, heat insurance makes more sense as a financial tool to help protect people in developing countries against climate change—but only if it’s coupled with government policies that reduce the risks of heat for good.

The heat insurance trend broke into the mainstream last year when two major Japanese insurance companies rolled out novel heatstroke insurance products. Japan was enduring a sweltering summer, and the companies were aiming to capitalize on concern about heat exposure by offering short-term health insurance plans that exclusively covered heatstroke. The plans led to a flurry of media coverage in financial publications like Bloomberg, Fortune, and the Financial Times.

Even in a national insurance market known for innovation, the Sumitomo Life heatstroke program stands out as unusual. Using a mobile app, a customer pays the equivalent of about 70 cents for a one-day insurance policy that kicks in at 10 a.m. If the buyer suffers heatstroke over the course of the day and ends up in the hospital, the policy covers the costs of an intravenous drip and most other medical treatment. (Japan has a universal health care system funded by tax revenue and premiums, but patients still pay a copay for most health services and treatments.) A customer can also pay about $1.57 for a plan that lasts an entire month. The program offered by the other company, Sompo, works more or less the same way. 

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