Increasing temperatures could put pressure on assets

Waves of extreme heat are travelling across Europe this summer, leading to soaring insurance costs and impacts on the investment portfolios of insurers. It also increases the prospect of government-backed efforts to adapt to the changing climate through creating investments into heat-resilient infrastructure.

Record heat is not new, but it is becoming more common and extreme. Provisional Met Office data up until (and including) 15 July shows that the UK’s average mean temperature so far this summer sits 1.14°C above the long-term meteorological average for summer.

Due to this, insurance companies are having to manage the risks of damage to built infrastructure, especially in their investment portfolios. Many UK insurers have large real estate holdings as well as financial interest in housing, which is ground zero for the UK’s new battle with extreme heat.

There is also the risk to reputations amongst laggards, or from new regulations around managing heat that could pose a tail risk or expose an unhedged risk in insurers' investment portfolios.

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