Report: Extreme heat events created $7.7 billion in hidden costs in California

How much do heatwaves cost?

The hidden costs of extreme heat — from lost productivity to healthcare for heat-related illnesses — totaled more than $7.7 billion over the last decade, a new report from the California Department of Insurance found.

The report was released amid a persistent heat wave across Northern California, where temperatures soared into the 100s in the East Bay and cities across the Bay Area faced excessive heat warnings.

“Extreme heat is a silent, escalating disaster that threatens our health, economy, and way of life in California,” state Insurance Commissioner Ricardo Lara said in a statement. “We must prioritize resilience-building efforts and innovative insurance solutions to safeguard our state against the growing impacts and financial risks of extreme heat.”

The insurance department’s report, “Impacts of Extreme Heat to California’s People, Infrastructure, and Economy,” examines the financial impacts of extreme heat across the health, energy, economy, and infrastructure sectors for seven extreme heat events over the past decade. It concluded that there are gaps in traditional insurance coverage for losses due to extreme heat events and recommended the creation of new insurance solutions.

This is “the beginning of having the data that we need to make decisions,” said Kathy Baughman McLeod, a member of the California Climate Insurance Working Group and CEO at Climate Resilience for All, a global NGO dedicated to protecting the livelihoods and health of vulnerable communities and women from extreme heat.

“The urgency of extreme heat is only accelerating,” Baughman McLeod said.

In addition to boosting infrastructure and health systems, the report released July 3 recommends efforts to reduce heat-related illness and explore new forms of insurance that would cover infrastructure damage, emergency services and business interruptions during extreme heat events. It also recommends using local government insights for strategic planning and efforts to mitigate the challenges.

The majority of the hidden costs fall under health and safety, including the costs of deaths, emergency visits and other healthcare. In a 14-day heat event in 2022 that affected the majority of California’s coast, with the hottest temperatures in the southern part of the state, excessive heat directly contributed to almost 200 deaths, 140 adverse birth outcomes, 2,000 hospitalizations and 4,200 emergency department visits, according to the report.

“We have this thing that’s killing more people than any other climate hazard, and it’s invisible and silent,” Baughman McLeod said. “We’ve got to double, triple, quadruple down on the data sets and tools we need to be able to respond.”

These health effects disproportionately affect people from already-overburdened populations, the report found. For instance, Black, Native American and White Hispanic populations saw higher rates of mortality due to heat events, with some disadvantaged communities seeing mortality rates as much as 14% to 30% higher than non-disadvantaged. The impacts of extreme heat also disproportionately affect the elderly and those who are pregnant — exacerbating existing inequities.

“This report underscores the critical need for equitable adaptation measures that prioritize the health and safety of our most vulnerable neighbors,” Sona Mohnot, director of climate resilience at The Greenlining Institute, said in a news release. “Together, we can develop sustainable solutions that protect everyone.”

Losses in agriculture, manufacturing and “weather-exposed” industries were considered in the study, while costs in the energy sector examined power outages and lost productivity, according to the report.

The impacts of a single heat event ranged from $230 million for a 9-day heat event in 2013 that impacted the eastern part of the state to $3 billion for the 2022 heat event. The report also predicts that the costs revealed through the study are lower than the true costs, as they only account for seven heat events.

Only a “relatively small” portion of these costs are covered by insurance, the report found, with the largest portion of costs coming from premature deaths due to exposure to extreme heat. The most robust insurance coverage is health insurance for workplace injuries and nonfatal health effects, according to the report.

It is important to become better prepared for heat events, Baughman McLeod said, adding that officials should take the data from this report to discuss responses to heat events with affinity groups and industry leaders. She pointed to hurricane preparations in Florida, where she formerly lived, which includes an annual preparedness conference by the governor and safety drills for children.

“We need the same thing for heat because it’s so much more deadly,” Baughman McLeod said. “It’s hurting vulnerable communities more than other parts of the community, and people just still don’t really understand that. They’re still saying it’s just hot.”

“The biggest thing we need,” Baughman McLeod added, “is to build a culture of prevention and preparation.”