Is it just me, or is the weather crazy this year?

Summer 2023 in the northern hemisphere was the hottest in human history¹. In fact, as illustrated below, this was by some distance. The June-August season was 0.66°C (1.19°F) above average summers and around 0.30°C (0.54°F) hotter than any prior season.

However, talk of fractions of a degree are quite easy to write off as inconsequential. Risks to life, health and property derive not from slight increases in average temperature, but from extreme events downstream of these. While extreme events have always occurred, the number and intensity of these have without doubt increased. 2023 has seen more than its fair share of climate-related disasters.

In North America, periods of hot and dry weather led to significant wildfires, including the destruction in August of the Hawaiian town of Lahaina in the state’s worst natural disaster, and the deadliest fire in modern US history². In California, scientists believe climate change was a significant factor contributing to the huge increase in land area affected by wildfires during summer months. Many other parts of the United States and (especially) Canada were also affected by fires this summer. In Canada, the area burned³ was over 170,000km³, which is around half the size of Germany. 

Record-breaking heatwaves in Southern Europe and Turkey saw temperatures over 45°C for extended periods, including in Greece and Italy where extensive fires, especially on Sicily, caused significant damage⁴. In South America, despite July being mid-winter, some parts of Argentina and Chile set extraordinary all-time temperature records, more than 20°C above normal for the time of year⁵.

Severe droughts also occurred in many parts of the world, including several parts of Europe⁶ with the resulting negative impact on crop yields and water supply.

To make things worse, on top of sweltering temperatures, several regions including Beijing in China⁷, Fukuoka and Oita in Japan⁸ and parts of South Korea⁹ also experienced torrential rainfall, with flooding and landslides. Australia has also seen flooding in recent seasons, including in New South Wales in late 2022 which became the nation’s most expensive natural disaster¹⁰. More recently, thousands died in flooding in Libya in September. There were heatwaves in southern Italy as well as extreme hailstorms in the north of the country which produced the largest hailstone ever found in Europe. As can be seen below, it was 19cm long.

What is causing all of this?

These events are not coincidental. Recently, global sea surface temperatures have escalated at an unparalleled pace to hit record highs¹¹. This is thought to be due to a combination of drivers, including long-term human-induced global warming and the so-called El Niño phenomenon. El Niño is a recurring event which is part of cyclical variations in winds and sea temperatures. It affects ocean currents causing the release of extra heat from warmer waters into the atmosphere to drive air temperatures up, with wide ranging consequences, including more extreme weather conditions. A slight rise in average temperatures has a significant impact because it causes the entire range of daily temperatures to shift towards warmer levels, increasing the likelihood and intensity of days with more extreme heat.

This is shown below, but note that it may be more likely the distribution of typical daily temperatures widens, rather than uniformly shifting toward the right (i.e. towards hot days). One consequence of this would be that we might see more hot days without necessarily seeing so many fewer cold days as we might expect, with implications for mortality assessed below.

Water vapour has played a vital role in sustaining a habitable temperature on earth for eons. In fact, without it, the planet’s surface temperature would plummet to around 33°C (59°F) colder than it is now! Warm air holds about 7% more water vapour, per 1°C increase in temperature¹². Hence warmer air richer in water vapour prevents more heat from escaping, absorbing it instead creating a so-called ‘positive feedback loop’¹³.

However, at higher temperatures, increased concentrations of water vapour in the air exacerbate the greenhouse effect. In fact, water vapour is the most abundant greenhouse gas on earth, responsible for approximately 50% of the greenhouse effect, through which the sun’s heat is trapped in earth’s atmosphere. It is likely this process was further exacerbated by a large sub-sea volcanic eruption in Tonga in 2021 which released an unusual quantity of water vapour into the atmosphere.

Water vapour is also a critical component of the planet’s water cycle, facilitating the movement of water in various forms throughout the atmosphere, land, and oceans. Warmer temperatures speed up the water cycle which aggravates weather conditions. Wet regions become wetter and dry regions become drier, the mechanisms for which are shown in the graphic below¹⁴. As air contains more water vapour, it also holds more latent heat that fuels intense windstorms and thunderstorms.
 

The acceleration of evaporation of water from land also results in soil drying out. Instead of infiltrating the soil, subsequent intense rainfall on parched ground increases the rate of water runoff into rivers and streams, increasing flood risk.

There is one additional factor which may contribute to the sudden increase in sea and air temperatures, which can best be described as ironic. Global shipping is a material contributor to air pollution. Measures to reduce sulphur emissions from ships include strict new measures mandating use of low-sulphur fuels. However, it turns out sulphur emissions in the atmosphere were helping to reflect some heat away from the planet. Since the change has been successful, there is now a lot less sulphur in the air, with the undesirable side-effect that more heat from the sun now reaches the surface of the planet. In effect, this pollution was masking some of the effects of climate change, especially in the busy shipping lanes shown on the following page. The sudden change is the equivalent to around two additional years of emissions and its effect is concentrated on the North Atlantic and North Pacific Oceans¹⁵.

What does this mean for Life and Health insurers?

Mortality and morbidity impacts

Despite the increased number of climate-related natural disasters, their impact on overall mortality is currently minimal, especially in high-income countries. Therefore, even the noted increase in such events may have a muted impact on future mortality. Naturally the impacts will vary by territory depending on factors including local climate, health infrastructure and underlying health of the population.

Despite growing prominence of wildfires, and the recent sad death toll in Hawaii of 97, the direct impact of fires on population mortality rates is typically modest. The resulting pollutants can also have secondary impacts on morbidity, for example by worsening respiratory conditions. However, these are harder to calculate. One study estimated that across a large area of central California with a total population in excess of 10 million, exposure to unhealthy particles known as PM2·5 during the California wildfires of October 2017 resulted in an additional 308 respiratory, cardiovascular, and asthma-related hospital admissions¹⁶.

Heatwaves

Heatwaves are probably the most consequential events for human health as they can affect large, populated areas for extended periods. Still, we should recall that in temperate climates there are typically more deaths associated with cold weather than hot weather, and that if periods of intense cold reduce as part of climate change there may be substantial offsets to any increase in summer deaths. Hence, on balance, they are unlikely to be a strong driver of additional impacts on population health or, consequently, on life and health insurance books in such markets over the medium term. However, some reasonable future predictions suggest this impact may not initially happen as neatly as this logic suggests. Instead of all temperatures shifting uniformly upwards as the climate warms, the range of daily temperatures may widen. This would mean more hot days, but initially little reduction in cold ones, reducing any mortality offset we might otherwise expect due to a reduction in the number and intensity of periods of cold. The annual pattern of deaths, currently materially more concentrated in winter months, may slowly change. The medium-term prospects are less clear, with uncertainty around the trajectory of average temperatures as well as our collective ability to make necessary changes to global infrastructure including in relation to power generation, transportation, agriculture and water management.

Heatwaves damage health by causing illnesses like heatstroke. In hot weather, blood vessels dilate so that more blood can flow towards our skin and cool us down. However, dilating blood vessels force our heart to work harder. This means that those at highest risk in hot weather are those with existing cardiovascular problems. We might also see respiratory conditions increase in number and severity. Poorer air quality is likely to accompany climate change and higher concentrations of pollutants can exacerbate conditions like asthma and chronic obstructive pulmonary disease (COPD).

Infectious diseases

Incremental changes in the dynamics affecting circulation of infectious diseases are also likely. This includes vector-borne diseases such as dengue and malaria. For example, a recent paper (not yet peer-reviewed) found that climate change has driven expansion of dengue fever risk in Vietnam (17). Some cases of locally-acquired dengue fever were also identified in Italy and France this year. This is highly atypical (18). While these diseases are mainly influenced by increasingly warm temperatures, others also relate to weather becoming increasingly wet, including West Nile virus.

All of the above impacts are likely to be slow and, in higher-income locations, relatively small overall. In all cases, vulnerable groups, such as children and the elderly, are expected to be more adversely affected due to their heightened susceptibility to the health impacts of climate change.

Economic impacts

Long-term sustainability is increasingly recognised as an important feature of investment assets. Some of this is altruistic, but there are also significant risks associated with entities materially exposed to less sustainable practices such as heavy usage of carbon. These entities may face higher costs of doing business and associated significant shifts in asset values.

Achieving progress towards sustainability will undoubtedly entail short- to medium-term economic costs concentrated in, but by no means limited to, the companies most exposed to these transition risks. The chart on the following page shows the IMF’s anticipated range of impacts on entire economies of the transition to clean energy on GDP (blue) and inflation (red).

In addition to encouraging the above changes, the impacts of climate change can also exacerbate economic pressures.

For example, increased costs of food due to climate related periods of scarcity would encourage inflationary pressures. The indirect impacts of periods of recession or austerity on health and healthcare may yet prove to be more material in terms of mortality and morbidity outcomes in the long term than the physical risks discussed above.

Conclusion

Climate change already affects many aspects of our lives. Seemingly small rises in temperature can, and already do, cause a proliferation of headline-grabbing natural disasters on every continent, with direct implications for human health. As devastating as these events are, some of the largest impacts for life and health insurers likely lie elsewhere. The gradual increase in number and intensity of heatwaves; changing patterns of pollution, and of infectious diseases; and longer-term knock-on impacts from economic disruption all represent more insidious, but potentially materially more impactful, ways in which the issue can impact the health of insurers, and the lives they insure.

References

1. Summer 2023: the hottest on record | Copernicus; Note ‘boreal’ in the accompanying chart refers broadly to the northern hemisphere
2. Lahaina blaze now the deadliest in modern U.S. history: Recap (nbcnews.com)
3. California wildfires are five times bigger now due to climate change: Study (straitstimes.com)
4. ‘This is just the beginning’: Extreme heat around the world as fires rage in southern Europe (cnn.com)
5. South America is topping 100 degrees, even though it’s winter - The Washington Post
6. Variable drought conditions keep affecting large parts of Europe, new report shows (europa.eu)
7. China: 31,000 forced to flee homes in Beijing as Typhoon Doksuri brings heavy rains (theguardian.com)
8. One dead as Japan warns of ‘heaviest rain ever’ in southwest (channelnewsasia.com)
9. South Korea floods: Dozens die in flooded tunnel and landslides (bbc.com)
10. Australian floods and triple La Niña | Royal Meteorological Society (rmets.org)
11. Ocean heat is off the charts (theconversation.com)
12. AR6 Report: Chapter 8 - Water Cycle Changes (ipcc.ch)
13. Steamy Relationships: How Atmospheric Water Vapor Amplifies Earth’s Greenhouse Effect – Climate Change: Vital Signs of the Planet (nasa.gov)
14. Climate Impacts on Water Resources | Climate Change Impacts | US EPA
15. Climate Impact of Decreasing Atmospheric Sulphate Aerosols and the Risk of a Termination Shock (columbia.edu)
16. Estimating the Acute Health Impacts of Fire-Originated PM2.5 Exposure During the 2017 California Wildfires (onlinelibrary.wiley.com)
17. Interactions between climate change, urban infrastructure and mobility are driving dengue emergence in Vietnam (medrxiv.org)
18. Dengue worldwide overview (europa.eu)

^{Pacific Life Re Limited (No. 825110) is registered in England and Wales and has its registered office at Tower Bridge House, St Katharine’s Way, London, E1W 1BA. Pacific Life Re Limited is authorised and regulated by the Financial Conduct Authority and Prudential Regulatory Authority in the United Kingdom (Reference Number 202620). The material contained in this booklet is for information purposes only. Pacific Life Re gives no assurance as to the completeness or accuracy of such material and accepts no responsibility for loss occasioned to any person acting or refraining from acting on the basis of such material.}

^{©2024 Pacific Life Re Limited. All rights reserved.}