The insurance industry faces a growing threat from extreme heat that increases the risk of electrical outages, wildfires and damage to infrastructure, potentially driving up property and specialty claims, according to Swiss Re. 

Extreme heat used to be considered an “invisible peril” because its impacts are less obvious than other natural disasters, group chief economist Jerome Haegeli says.

“With a clear trend to longer, hotter heatwaves, it is important we shine a light on the true cost to human life, our economy, infrastructure, agriculture and healthcare system,” he said.

Extreme heat is classed as a high-impact, short-term risk in Swiss Re’s annual Sonar report, which identifies new or changed threats that are difficult to quantify and could have a major impact on society and industry.

Recent data shows about 480,000 deaths a year can be attributed to extreme heat, making it more deadly than floods, hurricanes and earthquakes combined. Compared with the 1960s, US heatwaves are three times more prevalent, almost a degree hotter, and last a day longer.

Heatwaves coinciding with strong winds can increase the likelihood of wildfires, which caused global insurance losses of $US78.5 billion ($120.5 billion) from 2015-2024, according to the Swiss Re Institute. 

The telecommunications industry faces a significant risk of cooling systems failing in data centres or damage to terrestrial cables, and liability threats have started to emerge as corporates and institutions face legal action for failing to mitigate heat-related harm.

Extreme heat can also exacerbate other emerging risks, including from toxic fungi, which thrive in warmer temperatures and can invade the human body.

Overuse of fungicides and resistant pathogens increase crop loss risks, while property insurers may receive more mould-related claims due to flooding and damp conditions.

The report also highlights “structural risks” such as growing distrust in institutions, mortality trends, increasing litigation costs and the rise of generative AI.

“Amid an increasingly interconnected risk environment, insurers are having to continuously adjust the scope of their risk horizon,” Swiss Re group CRO Patrick Raaflaub said.

The report is available here.