Europe’s increasingly severe heatwaves are creating a major insurance protection gap, leaving businesses to absorb billions of euros in losses that conventional insurance policies often do not cover.
According to Moody’s estimates, Europe’s heatwaves in 2025 caused about €43 billion ($50 billion) in economic losses, but only around €500 million was covered by insurance.
The disparity highlights the difficulty of insuring losses caused by extreme heat, which frequently result from reduced consumer activity, lower worker productivity and operational disruption rather than direct physical damage.
The hospitality industry is already feeling the impact. In Padua, Italy, businesses have reported turnover declines of roughly 20% as extreme temperatures alter consumer behaviour. Outdoor dining areas, traditionally central to the city’s evening economy, are being left increasingly empty as people avoid the heat.
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Manufacturing and other industries face similar pressures. Extreme temperatures can reduce labour productivity, strain machinery and cooling systems, disrupt transport and increase energy demand.
These indirect costs can be substantial while falling outside the scope of conventional business-interruption policies.
The problem is compounded because heatwaves frequently occur alongside drought, wildfires and water shortages, creating interconnected risks that are difficult for insurers to price and diversify.
Europe’s rapid warming is increasing the frequency and intensity of such events, raising questions about whether existing insurance models remain adequate.
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Insurers are therefore exploring parametric insurance, which pays policyholders when predetermined conditions—such as temperatures exceeding a specified threshold—are met, rather than requiring proof of conventional physical damage.
Such products are already used in agriculture and could increasingly be adapted for businesses exposed to extreme heat.
The insurance industry is also urging businesses to invest in adaptation, including improved cooling systems, redesigned workplaces and other measures that reduce exposure to extreme temperatures.
The challenge extends beyond individual companies. Allianz research notes that only around 10% of economic losses from climatological events in Europe between 1980 and 2022 were insured, compared with more than a third for storms, hail and wind.
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Heat is particularly difficult to insure because many of its largest consequences—including lost productivity, mortality and pressure on public services—do not involve conventional property damage.
As Europe’s climate risks intensify, the growing gap between economic losses and insurance payouts could leave businesses, governments and households carrying an increasing share of the financial burden.
