When insurers think about climate risk, the focus is often on the familiar perils: floods, cyclones, storms and bushfires. Extreme heat has traditionally sat in the background, viewed as a contributing factor rather than a major risk in its own right. Yet the evidence suggests heat deserves far more attention.
Australia is entering one of the fastest-strengthening El Niño events on record, raising the prospect of hotter conditions, elevated bushfire risk and prolonged pressure on already stressed communities. Internationally, Europe's recent heatwaves and wildfire seasons have highlighted not only the physical damage associated with rising temperatures but also the broader economic and social consequences that follow.
Unlike many natural hazards, extreme heat does not operate through a single pathway. It places additional stress on energy systems, increases the likelihood of power outages, damages transport infrastructure, affects water availability and raises bushfire risk. It can disrupt business operations, increase workers' compensation claims, affect agricultural productivity and place growing pressure on health systems.
In life and health insurance, heat-related illness and mortality already represent a significant and underappreciated exposure. Some estimates suggest extreme heat contributes to hundreds of thousands of deaths globally each year, making it one of the deadliest natural hazards worldwide.
In insurance terms, few climate risks cut across as many lines of business simultaneously. Recent research published in The Lancet Planetary Health projects that each additional degree of global warming could expose approximately one billion more people to heat conditions that exceed human tolerance thresholds. These impacts are expected to fall disproportionately on older populations, communities with lower adaptive capacity and those already facing social, financial or health-related vulnerabilities.
The industry's understanding of vulnerability has changed significantly in recent years. It is now recognised that vulnerability is not a fixed characteristic. Rather, it reflects circumstances that affect a person's ability to engage with insurance, make decisions or recover from loss. Health challenges, life events, financial resilience, displacement and trauma are all recognised as potential drivers.
Viewed through that lens, extreme heat has the potential to become a powerful vulnerability multiplier. Older Australians are more susceptible to heat-related illness. Households already experiencing financial pressure may face higher energy costs, greater difficulty maintaining their homes and increasing insurance affordability challenges. Communities repeatedly exposed to drought, fire or heat extremes may find their financial and emotional resilience gradually eroded over time.
The issue is not simply that heat creates losses. It is that heat can reduce people's capacity to cope with those losses. The recent APRA climate vulnerability assessment found climate-driven affordability pressures could significantly widen Australia's home insurance protection gap over coming decades, with around one in four households potentially facing unaffordable home insurance by 2050. The findings also suggest these impacts are likely to be concentrated in communities already facing higher levels of climate exposure and economic disadvantage. In other words, the communities most vulnerable to climate risks may also be the communities with the least capacity to absorb them.
This has practical implications for how insurers engage with customers before, during and after an event. Extreme heat may affect a customer's ability to participate in claims and recovery processes. Illness, displacement, interrupted communications, financial stress or caring responsibilities can make it harder to provide information, meet deadlines or navigate unfamiliar requirements during a period that may be among the most difficult they have ever experienced.
Applied thoughtfully, customer support may involve recognising when someone needs additional assistance and adapting processes accordingly. Small adjustments can make a meaningful difference. This could include extra time to respond, simplified explanations, flexible evidence requirements where appropriate, proactive updates, a consistent point of contact or the involvement of an authorised support person.
The implications extend well beyond the losses themselves. Extreme heat is a risk that can affect physical assets, health, employment, infrastructure, affordability and a customer’s ability to navigate insurance, often at the same time. This suggests several practical questions for insurers:
Do our catastrophe and surge plans treat extreme heat as a multi-line event rather than solely a precursor to bushfire?
Can customers still contact us and progress a claim during an extended electricity or telecommunications outage?
Are heat-related indicators included in vulnerability training, claims triage and escalation processes?
The industry’s climate challenge then is to prepare its products, processes and people for the ways that risk may change those who experience it. Extreme heat will test more than catastrophe models and pricing frameworks. It will test how effectively insurers recognise changing customer circumstances, adapt their response and maintain trust when people need support most.
Katrina Shanks is CEO of the Australian and New Zealand Institute of Insurance and Finance (ANZIIF)
