Actuarial insights on heat related mortality and morbidity

August 20, 2024

Estimated Reading Time: 4 minutes

Heat-related mortality and morbidity are growing concerns for actuaries as climate change leads to more frequent and intense heatwaves globally. Actuarial analysis of this issue is critical for insurance companies, healthcare systems, and policymakers to understand and mitigate the associated risks.

From an actuarial perspective, heat-related health impacts present unique challenges due to their non-linear nature. Mortality rates tend to spike sharply above certain temperature thresholds, which vary by region based on local climate adaptation. This non-linearity complicates traditional actuarial models and requires more sophisticated approaches to accurately assess risk.

Heat waves and elevated temperatures are becoming increasingly frequent and severe due to climate change, posing significant public health risks. Understanding the actuarial implications of heat-related mortality and morbidity is crucial for insurance companies, public health officials, and policymakers. Actuarial science provides valuable insights into assessing risks, predicting trends, and developing strategies to mitigate the impact of extreme heat on populations.

Too hot to handle?

Demographic considerations play a crucial role in actuarial assessments of heat-related health risks. The elderly, young children, and individuals with pre-existing health conditions are particularly vulnerable to extreme heat. Actuaries must account for population aging trends and changing demographics when projecting future heat-related health impacts.

Human populations are not the only ones effected. Animals, agriculture, forests, and seas are also impacted. Extreme heat forms a nexus with drought and floods as well. Extreme heat increases water evaporation so that droughts start prevailing. Once seasonal rain comes in like during Monsoon, the soil absorption of water has been reduced due to preceding heatwaves and this increases chances of floods as well1.

Socioeconomic factors also significantly influence heat vulnerability. Lower-income communities often have less access to air conditioning, green spaces, and healthcare, increasing their risk of heat-related illnesses. Actuaries are developing more nuanced models that incorporate these socioeconomic variables to provide more accurate risk assessments and inform equitable policy solutions.

The economic impacts of heat-related mortality and morbidity extend beyond direct healthcare costs. Productivity losses due to heat stress in the workplace are a growing concern for insurers and employers. Actuaries are working to quantify these indirect costs and develop insurance products that address both health and economic risks associated with extreme heat. Adaptation measures, such as improved urban planning, building design, and early warning systems, can significantly mitigate heat-related health risks. Actuaries are increasingly factoring in the effectiveness of these adaptation strategies when assessing long-term risk profiles. This analysis helps guide investment decisions and policy recommendations to enhance community resilience to heat stress.

Quantifying Heat-Related Mortality and Morbidity

Actuarial models use various data sources, including historical weather patterns, demographic information, and health records, to assess the impact of heat on mortality and morbidity rates. Key metrics include:

  • Excess Mortality Rates: Actuaries calculate the increase in mortality rates during heat waves compared to baseline periods. This involves analyzing death records to identify patterns and correlations with temperature spikes.

  • Hospitalization and Emergency Room Visits: By examining healthcare utilization data, actuaries can estimate the increase in hospital admissions and emergency room visits during periods of extreme heat. This helps in understanding the burden on healthcare systems and the associated costs.

  • Chronic Condition Exacerbation: Actuaries assess how heat waves exacerbate chronic conditions, leading to higher morbidity rates. This involves analyzing claims data and medical records to identify trends and risk factors

Mitigation Strategies and Adaptation Measures

Actuarial insights are instrumental in designing and implementing effective mitigation strategies to reduce the impact of heat-related mortality and morbidity. Some key measures include:

  • Public Awareness Campaigns: Actuaries can help design targeted public awareness campaigns to educate at-risk populations about the dangers of heat waves and provide guidance on protective measures.

  • Heat-Resilient Infrastructure: Insights from actuarial models can inform urban planning and infrastructure development to create heat-resilient communities. This includes investing in green spaces, improving building insulation, and enhancing public transportation systems to reduce exposure to extreme heat.

  • Healthcare System Preparedness: Actuaries work with healthcare providers to ensure that systems are adequately prepared to handle the surge in demand during heat waves. This involves optimizing resource allocation, increasing staffing levels, and improving emergency response protocols.

  • Insurance Products and Pricing: Insurers can develop specialized products, such as heat wave insurance, to provide financial protection against heat-related health risks. Actuarial insights enable insurers to price these products accurately, ensuring affordability and sustainability.

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The Role of Actuaries in Climate Adaptation

As the frequency and intensity of heat waves continue to rise, actuaries are playing an increasingly vital role in climate adaptation efforts. By providing data-driven insights and risk assessments, they help stakeholders make informed decisions to protect public health and build resilient communities.

In collaboration with climate scientists, public health officials, and policymakers, actuaries are at the forefront of developing comprehensive strategies to mitigate the impact of heat-related mortality and morbidity. Their expertise in risk assessment and predictive modeling ensures that interventions are targeted, effective, and sustainable.

Actuaries also need to quantify impact of extreme heat in a way that shows the impact upon their existing products, especially for index insurance products 2. Actuaries need to play their part in product development for index insurance products which can cover vulnerable communities to protection depending upon heat indices. This can increase climate change risk resilience of the communities that are both at the forefront of impact from climate change and those that are most vulnerable to it due to lack of resources. Index insurance needs to consider not just extreme heat but also weather extremities that form a nexus and correlation with extreme heat. Some examples of index insurance products for not just heat but for excess rainfall, flooding, coral reefs, haze are:

  • IBISA (Inclusive Blockchain Insurance using Space Assets) Insurtech startup has recently partnered with Godrej Group Maximilk Pvt Ltd, a subsidiary of one of India’s largest agricultural conglomerates. Together, they aim to revolutionize the dairy sector with an innovative, new heat index product. This is the third partnership for IBISA with this product after it gained significant industry traction in its first two months. Using advanced algorithms and state-of-the-art sensors, IBISA can accurately measure and monitor heat stress in cattle. If cows experience heat stress this can reduce milk production by up to 30%3.

  • El Niño forecast insurance Peru: El Niño is a recurrent threat in Northern Peru that can bring catastrophic rainfall and flooding. Pacific Sea Surface Temperatures (SST) are determined as they are highly predictive and correlated with catastrophic El Niño events. Hence, based on this forecast, SSTs can signal a severe El Niño months in advance of its impact on land, enabling an insurance payment to be made several months before the onset of catastrophic weather. The advance payment can then be used for risk mitigation and adaptation strategies to reduce losses and disruptions from the impending disaster. The original product was designed to transfer the portfolio risks of rural lenders and thereby improve access to credit for smallholder farmers. However, since catastrophic flooding results in widespread damages and losses, Extreme El Niño Insurance Product (EENIP) could benefit other affected sectors that are not directly linked to agriculture4.

  • Swiss Re coral reef index insurance against hurricane: Swiss Re teamed up with The Nature Conservancy and regional governments in Mexico to help protect the Mesoamerican coral reef off the coast of Mexico's Yucatan Peninsula. Research had shown that there was a connection between a healthy coral reef and the region's ability to sustain itself economically. In other words, if the reef were to die as a result of pollution and storm damage, it would no longer be able to prevent beach erosion, which, in turn, would threaten the region's key source of income, tourism. An insurance solution was derived that would ensure rapid disbursement of funds to enable trained community members to deal with reef damage following a severe storm. It was the world's first ever nature-based solution to protect Mexico’s coral reef5.

  • Haze insurance for bad smog winter days in Singapore made by Swiss Re with the Singapore government6.

Conclusion

Actuaries are grappling with the challenge of attributing specific health outcomes to heat exposure versus other factors. Improved data collection and advanced statistical techniques, including machine learning algorithms, are being employed to better isolate the impact of heat on mortality and morbidity rates. Broader interrelated risks need to be evaluated as well as ways on how to improve climate change risk resilience of vulnerable communities and the natural ecosystem upon which they rely for just about everything.

This refined attribution is crucial for accurate risk pricing and for informing climate-related litigation and policy decisions. Heat-related mortality and morbidity present a growing challenge in the context of climate change. Actuarial insights are crucial for understanding and addressing these risks, providing the foundation for effective mitigation and adaptation strategies. By leveraging data and predictive models, actuaries contribute to the development of resilient communities and healthcare systems, ensuring that populations are better prepared to withstand the impacts of extreme heat. As the climate continues to change, the role of actuaries in safeguarding public health will only become more critical.

2. Index insurance products are financial instruments that provide coverage based on a predefined index, such as rainfall levels, temperature, or crop yields, rather than actual losses incurred by the insured. When the index reaches a certain threshold, a payout is triggered automatically, offering a quicker and simpler claims process. These products are often used in agriculture and disaster risk management, particularly in regions where assessing individual losses is challenging or costly. They help protect against widespread risks like droughts or floods, offering a form of financial resilience to farmers and other vulnerable populations.