According to the report ‘Insurance Risks from Volcanic Eruptions in Europe’ by the Willis Research Network, large explosive volcanic eruptions are rare events, but when they do occur they have the potential to cause devastation to property and activities over a wide area, and thus to cause huge economic and human losses.
As the insurance industry waits for the claims to roll in, speculation on the impact and losses this latest natural catastrophe will have on Europe’s insurance sectors, is running rife, with the expectation that the P&C sector will take the biggest hit from lava and ash damage to buildings and vehicles.
Other sectors thought to be hit hard are travel insurers as flights are canceled, and NatCat as the frequency of extreme weather and natural catastrophe events increase.
The report continues: “There are also no other natural catastrophes (with the exception of meteorite impact and tsunamis) that devastate such wide areas with such intensity. In principle, volcanic eruption is an insurable risk. Apart from a few exceptions, however, the rarity of loss occurrences means that the technically necessary rate is marginal. There are around 1500 active volcanoes in the world (Simkin and Siebert, 1994), although most are remote and pose little to no threat to human populations.”
Lloyd’s of London says that volcanic ash clouds can cause severe travel disruption, as demonstrated by the 2010 Eyjafjallajökull eruption, which contaminated UK and European airspace and led to the cancellation of over 100,000 flights, costing the aviation industry ‘an estimated €2.5 billion’ and that sviation insurance plays a critical role in protecting the sector, including airline operators, service providers, and airports, by offering coverage for losses such as income loss following catastrophic events like volcanic eruptions.
Insurance Coverage: A Crucial Support in Volcanic Disasters
As Sicily begins to recover, the role of insurance in providing financial support during such crises is underlined. Volcanic eruptions can cause extensive damage to property, disrupt lives, and lead to significant financial losses. Here’s how various types of insurance might respond:
- Property Insurance: Properties within the ‘blast zone’ are at high risk. Property insurance typically covers physical damage from volcanic eruptions, including ash, lava flow, and related fires. However, it generally excludes damage from secondary events like earthquakes or landslides unless specifically added to the policy.
- Business Interruption Insurance: Businesses affected by the eruption could face significant financial losses. However, coverage usually begins only after a 72-hour waiting period and may require specific endorsements for volcanic activity. Insurers are increasingly focusing on developing better coverage solutions for such risks, including parametric solutions that offer faster payouts based on predefined triggers.
- Travel and Aviation Insurance: The disruption caused by volcanic ash clouds can have severe financial implications for both the aviation industry and travelers. Aviation insurance provides coverage for losses due to flight cancellations, while travel insurance can compensate individuals for delays and interruptions. The 2010 Eyjafjallajökull eruption, which led to the cancellation of over 100,000 flights, serves as a stark reminder of the potential impact.
- Agriculture and Casualty Insurance: Volcanic ash can devastate agriculture, leading to crop failures and livestock mortality. Insurance can help mitigate these losses, providing coverage for damaged crops and livestock. Casualty insurance can also address long-term health impacts due to ash exposure, particularly for workers in affected areas.
Impact on Air Travel and Local Communities as Demand for NatCat Soars
Catania Airport’s runway became unusable due to the thick layer of volcanic ash, leading to the indefinite suspension of both arrivals and departures. The disruption comes at the height of Italy’s holiday season, affecting thousands of travelers. Nearby Palermo Airport also faced limitations, with only a few flights allowed to land per hour. This eruption marks the third major disruption at Catania Airport in just two months, highlighting the ongoing challenges posed by Mount Etna’s activity.
Local communities around Catania are dealing with the aftermath as streets and homes are blanketed in ash. Authorities are urging residents to clear ash from rooftops and vehicles as soon as it is safe to do so, given the potential for structural damage.
Speaking about the impact on customers, Chris Lafond, CEO of Insurity, “The increasing frequency and intensity of severe weather events and natural catastrophes, including volcanic eruptions, is driving consumers to shop around for the best premiums and policies to ensure they’re protected.
“According to Insurity’s 2024 Severe Weather P&C Consumer Pulse survey, 71% of consumers are concerned about how severe weather will impact their insurance coverage over the next five years, with 27% already purchasing additional coverage and 36% willing to switch providers for more comprehensive options. It’s no longer a question of “if” – the insurance industry must reevaluate its offerings to ensure the needs of consumers are being met.
“This means continuing to invest in advanced technologies that support risk assessment and customer engagement, as well as refining policies that will be crucial in supporting consumers during these increasingly unpredictable times.”
Building Resilience Against Volcanic Risks
In its report, Volcanic Eruption: The role of Insurance, Lloyd’s states that parametric solutions are often the most efficient when it comes to claims settlement as they are triggered at the point of the disaster.
“Our industry is committed to furthering our understanding of volcano risk so that we can better support our customers. Research has been conducted to understand the impact volcanic ash fall has on various kinds of building stock and in recent years global and country-specific volcano catastrophe models have been developed and are used to understand potential exposure to an eruption. With this enhanced insight, parametric solutions are being launched that auto-authorise claims in explosive eruptions, enabling impacted countries to get back on their feet faster.”
Reporting by Joanna England
