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In the Indian city of Ahmedabad, a 55-year-old grandmother has an insurance policy that places money into her bank account whenever she’s forced to miss work because of the heat.
Hansa Ahir makes on average the equivalent of $2.40 a day cleaning and selling soda bottles, jars and cans that she’s found in piles of trash. This year has been especially hot in her hometown, leaving Ms. Ahir with an angry rash on her arms, ill from the heat and unable to work on some days.
In May, when the city’s temperature reached 104 degrees for three consecutive days, her policy paid her 400 rupees. In June, when daily highs spiked to 115 degrees, she received an additional 750 rupees.
The money has allowed her to pay for medicine, food and rent.
Will Americans someday be able to do likewise? Will insurers make policies available that pay the policyholder when the heat makes it unbearable to work outdoors?
The insurance industry is definitely giving heat more thought nowadays, so as improbable as it sounds, there’s a possibility we could see such policies in the future.
High temperatures aren’t like hurricanes or floods, of course, because their impact isn’t visible in the same way. But the economic losses can be dramatic. Just consider:
- Prolonged drought conditions in the Southwest in 2023 led to $14 billion in economic losses and $6.5 billion in insured losses.
- Since 2011, the Bureau of Labor Statistics has reported 436 deaths due to workplace heat exposure and 2,700 cases of heat-related illnesses, leading to lost days at work.
- OSHA has intensified its enforcement of inspections where workers are exposed to heat hazards, especially in high-risk industries like construction and agriculture.
So, what might the insurance industry come up with that would help?
Well, parametric insurance may offer a solution.
Parametric coverage offers quick payouts based on predefined events. For example, a construction business could have a parametric policy that would require the insurer to pay $5 million in the event of a 6.0 or higher magnitude earthquake in a defined location.
The problem with parametric coverage is that these policies are meant to fill protection gaps to supplement traditional policies, so they may not cover items such as business interruption losses. Also, the premiums are higher.
Nonetheless, parametric coverage is getting more attention from policymakers and insurance interests and so, ultimately, may become more commonplace.
In other words, we shall see.
More immediately, we may see indemnity policies with new endorsements that, say, would begin to cover delays and cost increases caused by heat. Or policies that are sold to property owners that would cover the damage done by heat to their rooftops.
These ideas received some attention last month at a meeting of a group focused on integrating the latest academic research into insurance industry thinking.
After the meeting, Jordan Clark, a senior policy associate at Duke University, shared the following with Insurance Thought Leadership:
"This past summer, there were drawbridges in the New York City area where authorities had to bring out a powerful sander because parts had expanded so much (because of the heat) that the bridges couldn’t close.
“Amtrak had to suspend service at times because the rails just got too hot. Heat increases wear and tear on bridges and other infrastructure at the county and municipal level. Heat can cause big problems for the electric grid."
In other words, the conversation about heat is long past exclamations of how just hot it’s gotten.
Better yet, Duke is doing more than presenting on the topic. It has a pilot project in place with a power utility that pays the utility whenever it has to shut off power and, subsequently, compensate its customers for doing so.
The premium would be higher, but that’s pretty much what Hansa Ahir’s insurance company is doing for her.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.
This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.