For more than a century, cafes in the Italian city of Padua have welcomed customers for an early evening aperitivo, with people gathering outdoors before dinner.
But as Europe faces its fifth heatwave of the year, the traditional 6 p.m. to 7 p.m. period has almost disappeared. Customers are increasingly choosing air-conditioned indoor spaces, leaving outdoor seating empty and cutting sales for hospitality businesses.
The disruption highlights a growing problem for companies across Europe: extreme heat can cause major financial losses while remaining largely outside traditional business interruption insurance.
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Moody’s estimates that last summer’s European heatwaves caused €43 billion ($50 billion) in lost economic output but generated only around €500 million in insured payouts.
In Padua, aperitivo is increasingly starting later as customers avoid the heat.
“Which means that the outdoor seating areas, the terraces, the spaces outside … are left unused and empty,” said Federica Luni, president of hospitality association APPE Padova.
A survey of around 600 hospitality businesses in Padua and the surrounding province found that more than 80% reported turnover declines of around 20% during the recent heatwave.
“A 20% decline wipes out your margin,” Luni said.
Extreme Heat Creates Growing Business Losses
Heatwaves are increasingly affecting Europe’s economy by reducing worker productivity, curbing consumer spending and increasing operating costs.
For insurers, however, these losses are difficult to cover because extreme heat often causes indirect operational disruption rather than direct physical damage.
“Heat in itself is not a traditionally insured risk,” said Swenja Surminski, managing director for climate and sustainability at Marsh.
“Extreme heat rarely causes catastrophic physical damage the way a flood or a storm does, but the financial operational disruption that it triggers can be just as severe.”
A 2023 survey of 9,000 small and medium-sized businesses for Europe’s insurance regulator found that 28% had business interruption cover as part of their property insurance, while only 17% had non-damage business interruption protection.
Heatwaves Increase Europe’s Protection Gap
The insurance gap is becoming more significant as extreme heat disrupts businesses across multiple sectors.
Trains can face delays, agricultural yields can decline and factories can face higher cooling costs. Workers can also struggle to maintain productivity during prolonged periods of extreme temperatures.
Several companies highlighted the effects of hot weather or warned of potential impacts in their second-quarter earnings reports, including Swedish shop-fitting company ITAB Group, Italian cement producer Buzzi and French payments company Worldline.
The problem is particularly significant in Europe, which is the world’s fastest-warming continent.
Data compiled by environmental disclosure platform CDP showed that 35% of companies it tracks identified heatwaves as a risk driver, particularly across manufacturing, services, infrastructure and food-related industries.
Heat Creates Complex Insurance Risks
Extreme heat can also compound other risks, including drought, wildfires and water shortages. This makes heat-related losses more difficult to model and insure than conventional natural disasters.
Businesses may receive insurance compensation for some physical losses, such as those caused by power outages, but that does not necessarily compensate for lost customers and revenue.
“The real loss is the revenue you don’t make and the business activity that never takes place because of the outage,” Luni said.
Parametric Insurance Offers a Possible Solution
Insurers are increasingly exploring parametric insurance products that automatically pay out when temperatures cross predefined thresholds.
Unlike traditional insurance, parametric policies do not require companies to demonstrate and assess every individual loss before receiving compensation.
The European parametric insurance market is expected to reach $7.93 billion by 2031, according to KBV Research, with annual growth of 9.5% between 2025 and 2032.
Such products are already being used in agriculture, where extreme heat can reduce crop yields and livestock productivity. Industry experts see potential applications in sectors including transport and workforce protection.
“Parametric insurance can really play a role,” said Aidan Kerr, head of UK and Ireland public sector solutions at Swiss Re.
Businesses Face Pressure to Adapt
Insurance alone, however, is unlikely to close the growing protection gap.
Companies may increasingly need to adapt their operations to withstand prolonged periods of extreme heat by investing in cooling systems, redesigning workplaces and stress-testing supply chains.
“Take action to avoid the losses rather than address them once they’ve occurred,” Surminski said.
Analysis: Europe’s Heatwaves Reveal a Growing Insurance Problem
Europe’s increasingly intense heatwaves are exposing a gap between the economic damage caused by extreme weather and the losses traditional insurance is designed to cover. The key issue is that heat does not always destroy physical property. Instead, it disrupts normal business activity by reducing customer spending, lowering worker productivity, delaying transport, damaging agricultural output and increasing cooling costs. These losses can be substantial even when there is no obvious physical damage to insure.
The experience of businesses in Padua illustrates this problem. More than 80% of surveyed hospitality businesses reported turnover declines of around 20% during the recent heatwave. For small businesses operating on limited margins, such a decline can quickly turn extreme weather into a direct financial threat. The €43 billion in estimated economic losses from last summer’s European heatwaves compared with only around €500 million in insured payouts further demonstrates the scale of the protection gap.
The problem is also becoming more complicated because heat increasingly interacts with other disruptions. Drought, wildfires and water shortages can occur alongside extreme temperatures, multiplying their effects on businesses and infrastructure. This makes heat harder for insurers to model than more clearly defined events such as floods or storms.
This creates pressure for the insurance industry to develop new forms of protection. Parametric insurance, which pays when temperatures exceed predetermined thresholds, offers one possible way of covering losses that are difficult to assess through conventional insurance. But insurance cannot fully solve the problem. As the Reuters piece makes clear, businesses will increasingly have to adapt their operations through better cooling, workplace redesign and stronger supply-chain planning.
The broader lesson is that extreme heat is becoming an economic and business continuity risk, not simply a weather problem. As heatwaves become more disruptive, the question for European businesses will increasingly be whether they can adapt quickly enough to protect revenues and productivity when traditional insurance does not cover the losses.
With information from Reuters.
