Assessing Volcanic Hazards and Financial Exposure: A Closer Look at Insurance Industry Preparedness

James Hallam Dalziel , Mike Cassidy, Lara Mani

Within (re)insurance, volcanic hazards are often overlooked due to long return periods and low financial losses from historic events compared to geohazards such as earthquakes. However, with continued population growth increasing exposure, and sophisticated monitoring and modelling revealing the extent of volcanic hazards and secondary effects, these perils should be thoroughly considered. This review and synthesis paper explores population exposure to active Holocene volcanoes, compares economic and insured losses of significant eruptions, and explores how past event analogues could affect the modern world. The past 40 years have mostly seen eruptions of Volcanic Explosivity Index (VEI)-3–4; significant but not “super-catastrophes.” Should a VEI-5+ event affect a densely populated area or country with high insurance penetration, losses could be significant. Countries with the highest exposed populations to volcanoes differ from countries at greatest risk of insurable losses, with lower insurance penetration in more exposed countries identifying a protection gap. Eruptions in smaller nations show financial vulnerability, with eruptions leading to large losses proportional to GDP (30-37%). Economic losses of accumulated volcanic activity total $152.6 billion over 20 years (~$7.6 billion a year). Research shows that large, long return period, global climate-affecting eruptions could lead to multi-trillion-dollar losses, impacting (re)insurance markets similarly to hurricanes. Therefore, in addition to quantifying loss estimates for future eruption scenarios, we discuss research and industry initiatives to collate volcanic data and model hazards to aid disaster risk reduction, increase preparedness and resilience, facilitating global standardisation of data and risk communication to better prepare (re)insurers for eruptions.