Heat is a growing driver of risk and kills more people than floods, hurricanes, earthquakes and wildfires combined.

Yet the insurance industry is struggling to come to develop effective models and coverage for heat’s devastating impact, experts have conceded.

Heat is a “silent killer” that causes the deaths of nearly half a million people a year, Peter Sousounis, founder and principal consultant of Cat and Climate Consulting, said.

“Heat does not get the press that the larger, more catastrophic events generate The rate of warming is accelerating at an unprecedented rate, creating significant risks for vulnerable populations,” said Dr Sousounis, speaking at last week’s Bermuda Risk Summit.

“The ten highest annual maximum global average daily temperatures of the last 50 years have all occurred since 2015, so heat exposure is rapidly becoming the costliest climate risk, and currently projected to cost over $2 trillion annually in productivity losses by 2035.”

He added that global temperatures were rising at 0.26 degrees Celsius per year with the increases bringing progressively greater severity and frequency of heat waves.

For each degree Celsius the temperature rises, Dr Sousounis said the amount of water vapour in the atmosphere increases by 7 per cent, which in turn increases rainfall by a similar amount.

Panellist David Stamatis, senior vice-president, business development, Descartes Underwriting, said the fundamental challenge of modelling heat for insurance purposes was estimating the losses in areas such as productivity, supply-chain disruption, direct and infrastructure, associated with a specific temperature.

“It’s really hard to nail down how much of that economic damage you can actually attribute to that heat,” Mr Stamatis said.

“From a parametric perspective, we can build out structures that will say, if the temperature exceeds x threshold for more than three days, we can pay you y. The challenge is in saying if the heat exceeds this number for this amount of time, how much that is actually going to cost you.”

Mr Stamatis highlighted a severe heat event that took place in the Pacific Northwest of North America in 2021, when a heat dome formed over the urban centres of Seattle, Portland and Vancouver.

“That event alone killed 1,100 people and caused about $38 billion in estimated economic damage,” Mr Stamatis said. Infrastructure damage included power lines that failed in the extreme heat as electricity grids came under strain.

Dr Sousounis said areas in cooler climes were especially vulnerable to heatwaves, because they not equipped to deal with high temperatures.

“As bad as heatwaves are when they occur in Phoenix or Dallas, they have the infrastructure,” the said. “They have air conditioning. But in places like Seattle, Minneapolis, Chicago, even in Boston, not too many people have air conditioners. And so it’s going to be a real problem.”

Mr Stamatis said insurance products using parametric structures, triggered by measured temperatures, were being developed and used by energy companies in places including Texas to hedge against the increased cost of electricity production.

Similar products could be useful for heat-prone cities and in agriculture to cover against the impact of heat on crops and livestock, he added.

Stephen Moss, head of investor analytics at Aeolus Capital Management, said catastrophe model developers were working to incorporate the latest science and knowledge into their models.

However, he added that incorporating climate change into the underwriting or portfolio management process, “has taken a slight back seat” recently.

“Investors, whether they are putting their money into insurance companies, or directly into ILS funds, need to be thinking about this,” Mr Moss said.

Real estate investors, in particular, had practical reasons to consider heat, Mr Moss added, given its impact on rising sea levels and the increasing need for air conditioning.

Moderator Jeff Manson, senior vice-president, underwriting and head of global public sector partnership at RenaissanceRe, said catastrophe models needed to take account not only of vulnerability, but also to growing exposures.

“Sixty years ago, two billion people lived in the rural landscape and one billion lived in the urban landscape,” Mr Manson said.

“Fast forward to today and 4.5 billion people live in an urban landscape and about 3.5 billion live in a rural landscape. So that dynamic has flip-flopped.

“Urban centres are much more vulnerable to heat events than rural areas because they create heat islands, and you can’t escape them — it creates a microclimate.

“The exposure consideration is very important, and it gets lost on many people, the way that impacts how models operate.

“Modelling is never done. It’s constantly evolving.”